10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2003
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to                     .

Commission file number: 000-25331

CRITICAL PATH, INC.

(Exact name of Registrant as specified in its charter)

California (State or other jurisdiction of incorporation or organization)	911788300 (I.R.S. Employer Identification Number)
350 The Embarcadero San Francisco, California (address of principal executive offices)	94105 (zip code)

Registrant’s telephone number, including area code: (415) 541-2500

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, Series C

Participating Preferred Stock Purchase Rights

(Title of Class)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes x     No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

      Indicate by check mark whether Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).     Yes x     No o

      The aggregate market value of voting and non-voting common stock held by non-affiliates of the Registrant was approximately $20,027,673 as of June 30, 2003, based on the closing price of the Common Stock as reported on the Nasdaq National Market for that date.

      There were 21,171,399 shares of the Registrant’s Common Stock issued and outstanding on March 1, 2004.

CRITICAL PATH, INC.

INDEX

		Page
	PART I
Item 1.	Business		1
Item 2.	Properties		18
Item 3.	Legal Proceedings		19
Item 4.	Submission of Matters to a Vote of Security Holders		21
	PART II
Item 5.	Market for Registrant’s Common Equity and Related Shareholder Matters		21
Item 6.	Selected Financial Data		25
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		70
Item 8.	Financial Statements and Supplemental Data		71
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		71
Item 9A.	Controls and Procedures		71
	PART III
Item 10.	Directors and Executive Officers of the Registrant		72
Item 11.	Executive Compensation		75
Item 12.	Security Ownership of Certain Beneficial Owners and Management		81
Item 13.	Certain Relationships and Related Party Transactions		85
Item 14.	Principal Accountant Fees and Services		89
	PART IV
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K		91
Exhibit 3(i).5
Exhibit 4.19
Exhibit 4.20
Exhibit 4.21
Exhibit 4.22
Exhibit 4.23
Exhibit 4.24
Exhibit 4.25
Exhibit 4.26
Exhibit 4.27
Exhibit 4.28
Exhibit 4.29
Exhibit 4.30
Exhibit 4.31
Exhibit 4.32
Exhibit 4.33
Exhibit 4.34
Exhibit 4.35
Exhibit 4.36
Exhibit 4.37
Exhibit 4.38
Exhibit 4.39
Exhibit 4.40
Exhibit 4.41
Exhibit 4.42
Exhibit 4.43
Exhibit 4.44
Exhibit 4.45
Exhibit 4.46
Exhibit 10.42
Exhibit 10.43
Exhibit 10.44
Exhibit 10.45
Exhibit 10.46
Exhibit 10.47
Exhibit 10.48
Exhibit 10.51
Exhibit 10.52
Exhibit 10.54
Exhibit 10.55
Exhibit 10.57
Exhibit 10.59
Exhibit 10.60
Exhibit 21.1
Exhibit 23.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I

Item 1. Business

      This Annual Report and the following disclosure contain forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, as amended and in effect from time to time. The words “anticipates,” “expects,” “intends,” “plans,” “believes,” “seek,” “proposed,” and “estimate” and similar expressions are intended to identify forward-looking statements. These are statements that relate to future periods and include statements regarding our ability to operate in the future, our ability to obtain funding, including our intention to conduct a rights offering and our ability to consummate the rights offering if undertaken, of the rights offering and the amount of proceeds raised thereby, the adequacy of funds to meet anticipated operating needs, the amount of charges that we will record that will increase our net loss attributable to common shares in connection with the proposed issuance of our Series E preferred stock and amendment of the terms of our Series D preferred stock, our future strategic, operational and financial plans, possible financing, strategic or business combination transactions, anticipated or projected revenues, expenses and operational growth, markets and potential customers for our products and services, plans related to sales strategies and global sales efforts, the anticipated benefits of our relationships with strategic partners, growth of our competition, our ability to compete, investments in product development, the adequacy of our current facilities and our ability to obtain additional space, our litigation strategy, use of future earnings, the feature, benefits and performance of our current and future products and services, plans to reduce operating costs through continued expense reduction, anticipated effects of restructuring and retirement of debt, and our belief as to our ability to successfully emerge from the restructuring and refocusing of our operations. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, difficulties of forecasting future results due to our limited operating history, failure to obtain additional financing on favorable terms or at all, failure to meet sales and revenue forecasts, evolving business strategy and the emerging nature of the market for our products and services, the settlement of litigation and the continuing SEC investigation against former executives and directors, turnover within and integration of senior management, board of directors members and other key personnel, difficulties in our strategic plans to exit certain products and services offerings, failure to expand our sales and marketing activities, potential difficulties associated with strategic relationships, investments and uncollected bills, general economic conditions in markets in which we do business, risks associated with our international operations, inability to predict future trading prices of our common stock which have fluctuated significantly in the past, foreign currency fluctuations, unplanned system interruptions and capacity constraints, software defects, risks associated with an inability to maintain continued compliance with Nasdaq National Market listing requirements and delisting actions by such market, and those discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Additional Factors That May Affect Future Operating Results” and elsewhere in this report. Readers are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements speak only as of the date hereof. We expressly disclaim any obligation to publicly release the results of any revisions to these forward-looking statements to reflect events or circumstances after the date of this filing.

      All references to “Critical Path,” “we,” “our,” or the “Company” mean Critical Path, Inc. and its subsidiaries, except where it is clear from the context that such terms mean only the parent company and excludes subsidiaries.

      This Annual Report on Form 10-K includes numerous trademarks and registered trademarks of Critical Path. Products or service names of other companies mentioned in this Annual Report on Form 10-K may be trademarks or registered trademarks of their respective owners.

Company Overview

      Critical Path delivers digital communications software and services that enable enterprises, government agencies, wireless carriers, and Internet and wireline service providers to rapidly deploy highly scalable

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solutions for messaging and identity management. Built upon an open, extensible software platform, these solutions help organizations expand the range of digital communications services they provide while helping to reduce overall costs. Our messaging solutions – which are available both as licensed software and as hosted services – provide integrated access to a broad range of communication and collaboration applications from wireless devices, web browsers, desktop clients, and voice systems. This integration can provide new revenue opportunities for carriers and service providers and help enable them to attract new subscribers, drive more usage, and retain subscribers longer. For enterprises and governments, our identity management solutions are designed to help reduce burdens on helpdesks, simplify the deployment of key security infrastructure, enable compliance with new regulatory mandates, and help reduce the cost and effort of deploying applications and services to distributed organizations, mobile users, deskless workers, suppliers, and customers.

      Critical Path generates revenues from four primary sources:

      Licenses for use of our software products. Our various messaging applications are typically licensed by telecommunications carriers, postal and government agencies, and some highly distributed enterprises for deployment in their data centers. Such licenses are usually sold as a perpetual license on a per-user basis, one for each person who might access the capabilities provided by the software. Our identity management software is typically licensed by large enterprises, government agencies, and telecommunications carriers and is deployed on site in their data centers. Our identity management software is usually sold as a perpetual license according to the number of data elements and different business systems being managed; our layered applications are usually licensed per user.

      Annual support and maintenance subscriptions for our licensed software. We offer a variety of support and maintenance plans that enable customers of our licensed software to receive expedited technical support and access to new releases of our software. Most customers initially subscribe to these services when purchasing our software and then renew their subscriptions on an annual basis.

      Hosted service subscriptions for access to our messaging and other digital communications applications. We offer access to email, personal information management, resource scheduling, and “newsgroups” over the Internet and wireless networks for enterprises, telecommunications operators, and, for certain services, consumers. The software powering these services runs in data centers that we jointly operate with the Hewlett-Packard Company. Unlike with licensed software, customers of these services do not need to install or maintain their own copies of the software. Instead, customers pay initial setup fees and regular monthly, quarterly or annual subscriptions for the services they would like to be able to access.

      Consulting, training, and professional services. We offer a range of different services designed to help our customers make more effective use of our products and services. Our licensed messaging and identity management software often require integration with customers’ existing infrastructure or customization to provide special features or capabilities. In addition, our consultants offer expertise and experience in designing and delivering new services that customers can use to supplement their own resources.

      We generate most of our revenues from telecommunications operators and from large enterprises. Wireless carriers, Internet service providers and fixed-line service providers purchase our products and services primarily when they are looking to offer new services to their subscribers. While they also purchase our products and services to lower their cost of operating existing services or infrastructure, their spending is often tied to the level of investment they are willing to make on new revenue-generating services. Large enterprises typically buy our products and services to cut their costs of operations (particularly for handling distributed workforces or consolidations of multiple organizations), improve the security of their infrastructure, facilitate compliance with new regulatory mandates, and to enable new applications to be deployed for their employees or users. As the Internet and wireless networks become ubiquitous, organizations are finding more opportunities – and need – to interact with their customers, employees and partners electronically, from anywhere at anytime. Such interaction requires robust management of information, identities and communication – issues that are addressed by our offerings.

      We were incorporated in California in 1997. Our principal executive offices are located at 350 The Embarcadero, San Francisco, California 94105-1204. Our telephone number is (415) 541-2500 and our website is located at www.criticalpath.net. The information contained in our website does not form any part of this Annual Report on Form 10-K. However, we make available, free of charge and as soon as practicable, through

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our website, our annual reports, quarterly reports, reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. Our board of directors has adopted a Code of Ethics and Business Conduct for Officers, Employees and Directors. A copy of our Code may be found at our website at www.criticalpath.net. We intend to disclose any amendments to the Code or any waiver from any provision of the Code on our website. Our Corporate Governance Guidelines and the charters for the Audit Committee, Compensation Committee and Nominating and Governance Committee are also available on our website at www.criticalpath.net. The Code of Ethics and Business Conduct, Corporate Governance Guidelines, and the charters may also be obtained by writing to the Corporate Secretary, Critical Path, Inc., 350 The Embarcadero, San Francisco, CA 94105.

Critical Path’s Business

Market Overview

      Digital communications, email, text messaging, collaborative calendaring, multimedia, and online document sharing and access to applications have become mission-critical tools in many of today’s business environments. In a growing number of enterprises, employees from corporate offices through retail branches and factory floors receive company communications and access key resources and information electronically. Distributed and virtual organizations are increasingly looking to online technologies to share information among employees, suppliers, partners, and customers in order to streamline operations and cut costs. Families are increasingly staying in touch with pictures and letters, sent not on paper but through email. Mobile phones and wireless personal data assistants are converging, opening potential opportunities for instant access to information and services whether someone is at home, in the office, or half-way around the world.

      Consumers and business users are beginning to see the benefits of being able to access their key information and applications from anywhere at anytime, whether it is by phone, wireless device, over the web, or from a desktop computer. However, taking advantage of the opportunities this presents can be challenging. New approaches are enabling organizations to keep services coordinated and manage who has access to these services and to all of the other applications, databases and systems required in today’s information-centric environments. We believe consumers, businesses, government agencies, and telecommunications companies are all looking for ways to do more with less, leverage expertise in and outside of the organization, and to use advanced communications and management tools to make things easier.

      For wireless carriers and service providers, these new opportunities can come at a time when existing services are rapidly becoming commodities and heavy spending on new infrastructure has yet to pay off. To reverse shrinking margins, many telecommunications companies are searching for ways to boost average revenue per user, attract and retain subscribers, and cut deployment costs. For many, this means moving beyond basic consumer connectivity to offer richer, more differentiated services that take advantage of existing networks. In addition, demand from small-to medium-sized businesses for immediately effective communications offerings is providing opportunities for carriers and service providers to diversify into new markets.

      We believe large enterprises are faced with similar needs to deliver a broader range of information services while driving down the cost of operating such services and ensuring that privacy and security are maintained. Many organizations are discovering that traditional groupware, which is oriented towards concentrated workgroups of desktop users who all need the same capabilities, lacks the scalability, flexibility, and ease of customization and integration with existing systems desired in today’s more mobile and distributed environment.

      Providing access to information that crosses internal as well as external organizational boundaries depends upon having accurate, reliable information about each user’s identity, preferences, and rights to access particular resources. However, such information is usually scattered throughout disparate data systems, making it difficult to keep up-to-date. We believe that consolidating and integrating this data not only makes it easier to deliver advanced messaging and information services, but also plays a key role in reducing costs of operations, freeing up helpdesk and IT resources for other projects, and putting in place more reliable data security, enforcement, and compliance procedures.

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Critical Path’s Solutions and Products

      Our modular, standards-based messaging software provides integrated, customizable services and rich applications that are accessible from a broad range of client devices. We design our software to integrate easily with current and future environments in order to simplify and accelerate deployment and to help protect investments. With high scalability and reliability that has succeeded in demanding carrier, government and enterprise environments around the globe, our messaging solutions can enable organizations to take greater advantage of existing hardware, leverage in-house and third-party communications applications, use less storage space, and consume fewer helpdesk and IT resources.

      Our messaging solutions take advantage of our scalable, extensible identity management technology to help reduce costs of operations by allowing class of service data, single sign-on passwords, personalized user preferences and other user information to be stored in centralized profiles for efficient use and administration. This allows service levels and branding to be customized to the needs of particular groups of users, new services to be added incrementally, and user information to be integrated with third-party applications, databases and reporting systems.

      Our identity management solutions are designed to extend these benefits of lower helpdesk costs, increased security and easier implementation of regulatory compliance to an organization’s applications, databases, directories and systems. Identity data – such as names, user ids, passwords, email addresses, phone numbers, group affiliations, roles and access rights – that are scattered throughout disparate data systems in an organization are consolidated according to highly customizable business rules into a consistent, accurate profile of each user. Then, using customer-specified policies, appropriate portions of this clean identity data are automatically distributed to all applications and systems that depend upon having accurate, up-to-date information about each user. This reduces the need for manual processes, reducing errors and delays that can add costs and make organizations less secure.

     Flexible Deployment Options – Licensed Software and Hosted Services

      In addition to providing licensed software for installation on customers’ premises, we also offer our messaging solutions as hosted services. This is intended to give our customers flexibility in deploying our solutions to best suit their needs. Our licensed software and professional consultants help customers integrate our products into their other applications and systems and offer a wide range of options for customization.

      Our hosted services, delivered and managed in conjunction with the Hewlett-Packard Company (HP), are designed to enable customers to outsource implementation and operation of advanced messaging services. This can allow information technology staff to focus on other efforts, reduce upfront expenses and accelerate deployments as well as provide heightened levels of service at a predictable monthly cost. Our hosted services can also be used as a backup for internal mail systems, enabling rapid restoration of mission-critical email connectivity in the event of a failure of a primary mail system.

     Messaging Solutions for Wireless Carriers and Service Providers

      Our messaging solutions – available both as licensed software and as hosted services – can enable carriers and service providers to market a wide breadth of integrated messaging services to consumers as well as business users. Our customizable messaging applications can be accessed from a variety of devices, providing differentiation that can help attract new subscribers, drive additional voice and data traffic, boost average revenue per user, and increase loyalty and retention. Extensive interfaces for integrating with third-party applications and systems help customers protect existing investments and allow for easier adaptation to future needs. In addition, by providing high levels of scalability, reliability and manageability, our messaging solutions help carriers and service providers cut both capital and operating costs.

      Our messaging applications and services include:

•  Email – Provides email services that are accessible via wireless devices, the web, and desktop email clients such as Microsoft® Outlook®. Proven in deployments by many major carriers and service providers around the world, including multiple operators with installations serving millions of

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	subscribers, we are recognized for scalability and reliability, advanced functionality and integrated anti-virus/anti-spam protection.
•	Mobile Messaging – Assists wireless carriers in creating new revenue opportunities and higher volumes of traffic through integrated email, text messaging and notification services, all accessible via wireless, web and voice-enabled devices as well as standards-based desktop clients. Allows premium services to be delivered over SMS and WAP Push, including rich content, weather, sports, games and high-volume interactive voting.
•	Personal Information Management – Allows both carriers and service providers to deliver an integrated suite of personal information services including email, calendar, address book, alerts and file sharing via wireless, voice, web and desktop clients. Centralizes and synchronizes personal data across applications and devices to help accelerate and simplify deployments, drive usage and consumption of data traffic, increase loyalty and reduce customer churn.
•	Multimedia Messaging (MMS) – Allows wireless carriers to extend their MMS infrastructure to stimulate higher consumption of data-intensive media, generate greater demand by exposing MMS media to potential new subscribers over the Internet, and improve quality of service. Provides key technology components required for multimedia messaging, including a highly scalable messaging server, centralized address book and sharable multimedia file storage.
•	Hosted Messaging – Allows carriers and service providers to offer consumer and business subscribers an extensive suite of messaging services, including email, calendaring, centralized address books, shared files, dynamic alerts and synchronization, with minimal capital expenses or deployment difficulties. Delivered in concert with HP, we combine our messaging technology with HP’s experience in world-class infrastructure services to deliver reliable and secure messaging services that offer full customization of branding and selection from a wide range of options. Predictable monthly costs, reliability and professional billing, provisioning and reporting provide hassle-free operations that scale smoothly as the number and needs of subscribers grow.

     Messaging Solutions for Enterprises and Governments

      Our messaging solutions for enterprises and governments can provide a flexible, modern foundation for delivering rich, collaborative messaging services to mobile and distributed workforces at lower cost of ownership than traditional groupware.

•  Hosted Messaging – Allows enterprises and governments to offer users an extensive suite of messaging services, including email, calendaring, centralized address books, shared files, dynamic alerts and synchronization, that co-exist and interoperate with existing messaging systems. This allows messaging to be extended quickly and easily to underserved users and to geographically distributed groups helping minimize capital expenses or deployment headaches. Delivered in concert with HP, we combine our messaging technology with HP’s experience in world-class infrastructure services to deliver reliable and secure messaging services that offer full customization of branding and selection from a wide range of options. Predictable monthly costs, 24x7 reliability and professional billing, provisioning and reporting are designed to minimize the hassles of operations and to scale smoothly as the number and needs of users grow.

•  Email Continuity – Our Hosted Messaging solution can also be used as a backup for internal email systems, providing rapid restoration and disaster recovery in the event of a primary systems failure.

Identity Management Solutions for Enterprises, Governments, Carriers and Service Providers

      Our identity management solutions assist enterprises, governments, carriers and service providers in reducing information technology (IT) helpdesk burdens and operational costs, provide a foundation for robust security infrastructure and simplify regulatory compliance. Our technology is designed to enable customers to have systematic control over authentication, authorization, access controls, profile management, provisioning, and de-provisioning. In addition, it helps ensure that users’ identities are kept consistent and accurate, that

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access to systems can be quickly granted – and just as quickly revoked – and that user profiles can be managed and leveraged across distributed, global infrastructures. With our solutions, customers can deploy new applications faster and grow or reduce their user populations without compromising service quality.

      Our identity management solutions include:

•  Data & Directory Integration – Assists organizations to cut costs and improve the accuracy of information by consolidating critical data that are typically scattered throughout various business data systems into centralized profiles of each user. In addition, it allows business rules for updating this data to be established and enforced so that accurate, current information can be synchronized and distributed to all appropriate applications and systems. This enables applications such as whitepages directories to be deployed easily and reliably and for operating system infrastructure such as Microsoft’s Active Directory to be integrated with services from other vendors.

•  Profile Management – Assists organizations to cut costs and decrease deployment time for new applications and services by centralizing the administration of user profiles containing identity information. Such accurate user data is crucial for security infrastructure such as single sign-on, public key infrastructure (PKI), web access control, and consistent personalization of applications.

•  User Provisioning – Assists organizations to cut costs of administering user accounts and to increase information security by consolidating user profiles and centralizing processes for provisioning and de-provisioning user accounts across applications and systems. Allows employees, contractors, partners and customers to be granted access to crucial information resources – or have access removed – quickly and accurately.

•  Password Management – Assists organizations to improve security and reduce helpdesk calls by automating and providing self-service interfaces for deploying passwords for each user across multiple applications and systems. Administrators can update passwords for all of a user’s applications, databases and operating systems from a central location. Users can take advantage of self-service interfaces to change passwords or reset forgotten passwords without requiring assistance from helpdesk or IT personnel. Automating such labor-intensive tasks reduces errors and frees up helpdesk staff for other activities, leading to a variety of potential benefits such as cost savings, increased user productivity and reduced security vulnerabilities.

Solutions Delivered Via an Integrated Software Platform

      Our solutions, licensed as well as hosted, are built upon an integrated technology base called the Critical Path Communications Platform. It is designed for high scalability and reliability as well as easy integration, deployment and extensibility.

      This approach provides:

•  Broad family of integrated messaging applications that work closely together to share and intelligently process data for use by both consumers and business users.

•  Reusable identity management architecture that consolidates, integrates and synchronizes user identity information scattered throughout business data systems into centralized, consistent profiles that streamline user account management, enable personalization of communications services, and simplify deployment of security infrastructure.

•  Anywhere, anytime mobility that enables applications and services to be accessed through a broad range of wireless, web and voice devices as well as with standards-based clients such as Microsoft Outlook.

•  Modular, extensible design that allows integrated solutions as well as individual components to be deployed incrementally to best meet customers’ needs.

•  Open, standards-based technology that simplifies integration with current and future infrastructure and third-party applications, minimizing deployment costs and future-proofing investments.

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•  Carrier-class scalability with proven reliability. Our platform is used in demanding carrier, service provider, enterprise, and government environments domestically and internationally, including multiple installations that serve millions of users each.

•  Low total cost of ownership at scale. Our efficient use of resources, even in large installations allows customers to take advantage of their existing hardware, use less storage space, and require less information technology professionals’ time.

Products

      The components of the Critical Path Communications Platform provide a wide range of integrated, customizable solutions. The key parts of the platform – multi-device access, integrated messaging applications and centralized identity management services – are delivered through the following products:

Access Products

      The Access components in the Critical Path Communications Platform manage connectivity of web, wireless, and voice devices to applications. They enable dynamic presentation of customized user interfaces, provide connectivity to external systems, and manage data synchronization.

•  Critical Path Presentation Server – Standards-based, carrier-class application server that enables the delivery of tightly integrated collaborative applications into a highly customized and personalized interface. This approach can help service providers differentiate offerings, stimulate usage and provide extensibility for future services. The Presentation Server provides single sign-on, an integrated user interface, dynamic tailoring according to classes of service selected, and access via web, wireless and voice devices for our applications. In addition, it enables the integration of third-party applications, providing a common interface for centrally configuring access to virtually any communications service that can be presented on a web or wireless device.

•  Critical Path Short Message Service (SMS) Access Server – Network-independent, feature-rich gateway between SMS text messaging and Simple Mail Transfer Protocol (SMTP) Internet email. Provides a bridge that connects the various incompatible SMS operator systems to create a single, common environment for delivering enhanced services to help drive traffic and create new revenue opportunities. Provides access to our email and address book applications from SMS phones and enables third-party applications to send and receive text messages for offering premium content and services such as weather, sports, games, and high-volume online voting.

•  Critical Path SyncML Server – Open, standards-based software server that enables the synchronization of contacts, events and tasks between wireless devices and the services provided by the Critical Path Personal Information Management (PIM) solution. The SyncML Server is integrated with Critical Path’s carrier-grade PIM servers – the Critical Path Personal Address Book Server and Critical Path Calendar Server – to provide plug-and-play functionality. With this product, carriers and service providers can enhance their PIM offering with SyncML features in order to attract and retain subscribers, such as mobile professionals, consumers, small businesses and enterprises.

Messaging Application Products

      Our integrated messaging applications work together to share data in order to deliver an improved user experience and provide intelligent processing of messages. For example, a meeting in someone’s calendar can automatically trigger an alert that is dynamically routed to the user via email, wireless, or instant message, depending upon the time of day, subject, or other user-configured attributes. After reading the alert, the user can send messages to co-workers listed in his or her personal address book, the same one used by our other messaging applications. By providing these capabilities on an integrated basis reduces the complexity of deployments, simplifies on-going support and reduces the total cost of ownership.

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      Our messaging application products include:

•  Critical Path Messaging Server – Highly scalable and robust messaging subsystem, offering a wide range of access (web, SMTP, POP3 and IMAP4) with the ability to handle millions of users across a large number of domains at low operating costs. It can be deployed in many different configurations, from single-server deployments up through redundant, globally-distributed installations.

•  Critical Path Personal Address Book Server – Centralized repository for all contact information used by our messaging applications with support for integrating with third-party applications such as voice dialing. Gives users continuous access to private and shared address information, allowing important phone numbers or email addresses to be quickly obtained from desktop email clients in the office, web browsers at home, or from wireless phones while on the road. Having a single place to keep contact information helps stimulate greater usage, improve loyalty and simplify deployment.

•  Critical Path Calendar Server – Standards-based calendaring application that helps both basic and advanced users effectively manage schedules and tasks. Sophisticated collaboration features are designed to enable group scheduling and allow shared access to calendars and task lists, helping to stimulate higher usage, loyalty and retention. Supports traditional desktop synchronization, SyncML and extensible notification capabilities.

•  Critical Path Internet File Server – Online file storage with support for both private access and secure sharing for enterprise collaboration as well as premium carrier applications such as MMS Photo/ Media Albums that stimulate usage and expose Web-based audiences to the benefits of MMS. Provides web, wireless or voice interfaces as well as access via WebDAV-compliant desktop clients such as Microsoft Windows clients.

•  Critical Path Notification Server – Automatically generates alerts based on user-specified events in Critical Path and third-party applications. Routes and delivers alert messages via SMS, WAP Push, email, or instant messaging over AOL®, Yahoo!® or MSN® Instant Messaging.

Identity Management Products

      Our identity management products organize and manage user identity information – such as names, user ids, passwords, email addresses, telephone numbers, group affiliations, roles and access rights – for applications, databases, directories and operating systems. They offer high scalability, supporting millions of entries with a single deployment.

      Our identity management products include:

•  Critical Path Meta-Directory Server – Consolidates user identity information that is scattered among disparate data systems and integrates it according to highly customizable business rules into a consistent, accurate profile for each user. Then, using customer-specified policies, appropriate portions of this clean identity data are automatically distributed to all applications and systems that depend upon having accurate, up-to-date information about each user. This reduces errors and delays that drive up helpdesk costs. Our Meta-Directory includes a wide breadth of pre-built connectors and supports industry-standard languages such as Java, Perl, XML and SOAP, as well as key mainframe and database systems. This frees customers from having to learn proprietary scripting languages helping them to deploy identity management solutions more rapidly with significantly lower upfront and ongoing costs.

•  Critical Path Directory Server – Provides a highly scalable, central repository for user profile information and other data shared by multiple systems and applications. This high volume LDAP directory is deployed in numerous critical environments, including security infrastructure for enterprise intranets and extranets, online banking services, Internet postal services, telecommunications carriers and government services. Optional hot-standby support provides automatic failover and disaster recovery.

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•  Critical Path Password Management – Provides centralized management and self-service administration of passwords for multiple applications and systems. Designed to help customers reduce burdens on helpdesks, increase user satisfaction and productivity as well as reduce vulnerability to out-of-date passwords.

Target Markets, Customers and Strategic Alliances

Customers and Target Markets

      We offer messaging and identity management solutions to enterprises, wireless carriers and telecommunications providers, broadband companies and service providers, and government agencies and postal authorities.

•  Enterprises – In the face of ever-tightening budgets, enterprises are looking for ways to cut capital expenses and operational costs. In addition, as work forces become more distributed and change more frequently, the need to keep track of employees, contractors, partners and customers and to communicate with them electronically is growing. Our identity management offerings help enterprises cut helpdesk costs and strengthen security infrastructure (particularly for single sign-on and access control for Web-based portals) with solutions for data and directory integration, user profile management, user provisioning and password synchronization. In addition, Critical Path’s hosted messaging solutions help enterprises reduce the cost of delivering new generations of messaging services while co-existing with Microsoft Exchange and other existing systems.

•  Wireless Carriers and Telecommunications Providers – After years of investment in new infrastructure and spectrum licenses combined with falling margins for traditional offerings, wireless carriers are extremely focused on driving more revenue on their existing networks. As a result, they are looking for ways to deliver differentiated services that will spur consumption of data and voice traffic, enable new premiums to be charged, attract new subscribers and retain subscribers longer. We offer a broad range of rich, integrated messaging and collaboration applications – available as licensed software and hosted services – as well as identity management infrastructure that work together to share and process data. With a proven ability to scale up to millions of subscribers per installation and a dedication to open standards that provides extensibility and investment protection, our software enables carriers to deliver a wide range of customized services, such as email, personal information management, premium MMS and SMS services, and unified communications, to both consumers and business users from a single platform.

•  Broadband Companies and Service Providers – Broadband providers such as cable, satellite and DSL operators are constantly looking to offer differentiated services that can take advantage of the high bandwidth they are providing to their subscribers. Our flexible messaging solutions – available both as licensed software and as hosted services – enable multimedia content to be integrated with rich messaging and collaboration applications designed to create premium services that attract new subscribers, increase loyalty and retain subscribers longer. We believe extensibility and ease of deployment of our software enables providers to reliably and incrementally roll out new services as their business expands. Our scalability handles growing subscriber bases smoothly, and our ability to offer the services either as licensed software or as hosted services gives providers the flexibility to choose the delivery method that best suits their business.

•  Government Agencies and Postal Authorities – Governments and postal authorities are increasingly becoming providers of digital services, both internally for employees, contractors and suppliers as well as externally to citizens and residents. Delivering services on a national scale to highly distributed users depends upon having strongly-managed identities and robust communications. Our identity management solutions enable agencies to create centralized repositories of identity information for keeping track of which users are allowed access to which services, particularly for Web-based infrastructure. Our messaging solutions are used worldwide, particularly by postal authorities, to provide “email for life.” These messaging solutions, available as licensed software as well as hosted services, can enable

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agencies to significantly reduce the cost of providing email, personal information management and collaboration services to users across the country and around the world.

Strategic Alliances

      A key element of our sales strategy is to expand distribution channels through strategic reseller or joint sales relationships. These alliances can provide access to a greater range of markets and customers by increasing the breadth of offerings that incorporate our products and services:

•  Systems Integrators – For many large enterprises and telecommunications carriers, our offerings are part of a larger solution. To provide the level of service required to bring together and implement such larger offerings, particularly for customers who require global coverage, we have allied with a number of systems integrators in the industry, including the Hewlett-Packard Company, Wipro, Cap Gemini Ernst & Young, Accenture, Bearingpoint, EDS Corporation, and Deloitte & Touche.

•  Solution Providers – Our technology is embedded into the solutions sold by a variety of companies. We believe these relationships enable our products to address a wider range of needs and, in many cases, provide access for follow-on sales of our other products. Key strategic alliance partners in this category include LogicaCMG Plc, Comverse Technology, Inc., CTI Square Ltd. and Entrust, Inc.

      Information regarding customers and sales by geographic area is included in Note 20 of Notes to Consolidated Financial Statements – Product and Geographic Information.

Sales and Marketing

Sales Strategies

      Direct Sales. We maintain a direct sales force to introduce prospective customers and channel partners to our products and services and to work in tandem with our business partners. Our worldwide direct sales team is organized around our target markets in each of our key geographic regions. Currently, we have sales staff located in domestic offices in or near San Francisco, Dallas, Boston and a variety of other cities throughout the United States. Internationally we have members of our sales organization located in Brazil, Denmark, France, Germany, India, Ireland, Italy, Japan, the Netherlands, Spain, Sweden, Switzerland and the United Kingdom.

      Channel Sales. We actively embrace sales alliances with specialized technology and service firms in a variety of channels in order to increase our presence and share in our target markets. Our flexible, customizable solutions are well suited for these firms and channel delivery, offering numerous opportunities for adding value through consulting services and integration with complementary products. We team with global System Integrators (SIs), Independent Software Vendors (ISVs), Original Equipment Manufacturers (OEMs) and Hardware vendors.

      Marketing Strategies. Our global marketing team is focused on product definition, lead generation, sales support and public relations to better equip our sales force and companies with whom we have sales alliances and to educate our key markets about the business value of our messaging and identity management solutions. We intend to continue to focus on targeted industry events, particularly in conjunction with our strategic alliances, to promote our brand presence and acquire customers.

Competition

      We offer a broad range of solutions; we are not aware of any one company that directly competes with every one of our products and services. Instead, we face a different set of competitors in each of our lines of business. Our messaging solutions compete against offerings from Openwave Systems Inc., Sun Microsystems’ Sun ONE software division (formerly iPlanet), Oracle Corporation, Microsoft Corporation, IBM Corporation’s Lotus division and Mirapoint Inc. as well as with a variety of smaller product suppliers. In the identity management market, we compete primarily with Sun Microsystems’ Sun ONE software division (formerly iPlanet), IBM Corporation, Microsoft Corporation, Novell Corporation, Siemens Corporation as well as

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various small identity management application vendors. In the market for outsourced hosted email services, we compete with such corporations as EasyLink Services Corporation (formerly Mail.com), CommTouch Corporation, USA.net and other smaller application service providers offering hosted Microsoft Exchange services.

      While these competitors and others exist in each of our individual lines of business, we believe our overall solution of products and services serves as a competitive advantage. Our products and services are designed to help customers easily integrate our broad range of products into their infrastructure, selecting multiple products and services from us as their requirements demand. In addition, our ability to deliver our messaging solutions either as licensed software or as hosted solutions enables our customers to choose the most efficient model for different parts of their business.

      We believe that competitive factors affecting the market for our digital communications solutions include:

•  total cost of ownership and operation;

•  breadth of platform features and functionality;

•  ease of integration into customers’ existing applications and systems;

•  scalability, reliability, performance and ease of expansion and upgrade;

•  ability to extensively customize, personalize and tailor solutions to different classes of users across multiple markets;

•  flexibility to enable customers to manage certain aspects of their systems internally and leverage outsourced services in other cases when resources, costs and time to market reasons favor an outsourced offering; and

•  perceived long-term stability of the vendor.

      The relative importance of each of these factors depends upon the specific customer environment. Although we believe that our products and services currently compete favorably with respect to such factors, we may not be able to maintain our competitive position against current and potential competitors.

      We believe competition will increase as current competitors increase the sophistication of their offerings and as new participants enter the market. Many current and potential competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than we do and may enter into strategic or commercial relationships with larger, more established and better-financed companies. Any delay in the development or introduction of products or services or updates, would also allow additional time for our competitors to improve their service or product offerings, and for new competitors to develop messaging and identity management products and services for our target markets. Increased competition could result in pricing pressures, reduced operating margins and loss of market share, any of which could cause our business to suffer.

Technology

Critical Path Communications Platform

      Our core expertise is in the development and deployment of highly scalable, open systems-based messaging and identity management software designed to ease integration with customers’ existing infrastructure. Our technology, called the Critical Path Communications Platform, provides an extensible set of access, messaging, and identity management services that allow us to deliver a wide range of solutions to enterprises, government agencies and service providers from a single technology base.

      All of the components of the Critical Path Communications Platform are designed to support mission-critical business environments. Our high performance, scalable and reliable servers operate in installations ranging from thousands to millions of users. Our components include a range of tools and software development kits (SDKs) that provide extensive customization and easy integration with third-party

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technologies. These components can be used on a standalone basis or together in many combinations, enabling us to deliver very flexible solutions. The Critical Path Communications Platform operates on Sun Microsystems’ Solaris, Microsoft’s Windows NT/2000 and HP’s HP-UX operating systems, with additional support for various components on IBM’s AIX and Red Hat’s distribution of the Linux operating systems.

Access

      We separate the construction and presentation of user interfaces for each application into a separate, highly extensible application server framework called Presentation Server. This approach enables the creation of customized, personalized application user interfaces to Communications Platform components and third party technologies through a powerful SDK. It offers mixed mode communications, so that services can be accessed from a multitude of devices ranging from the desktop, laptop, PDA, mobile handset or telephone using text, voice, and video. The Presentation Server is based on Java 2 Enterprise Edition (J2EE) and Java Server Pages (JSP) technologies, and supports Hypertext Markup Language (HTML), Wireless Markup Language (WML), VoiceXML and a range of other interface markup languages.

      Alongside our Presentation Server is our SyncML Server, a flexible engine for synchronizing information between server-based applications such as our messaging applications and client devices such as wireless phones. Both the SyncML Server and Presentation Server are complemented by our Short Message Service Access Server, a powerful application framework that enables the development of premium text messaging applications that send Short Message Service (SMS) messages. The SMS Access Server includes an application development SDK (SMASI) that applications can use to drive SMS traffic through all of the major SMS Center (SMSC) operations software systems. Our SMS Access Server also includes WAP Push support to enable next generation wireless applications like premium Multimedia Messaging Service (MMS) services.

Messaging Applications

      Our Messaging Server, a scalable, standards-based, messaging server enables the delivery of services from Email and Multimedia Messaging Services to Unified Messaging and next generation voicemail services through its powerful native IMAP mail store and SMTP relay. Its advanced architecture allows single or multiple domains to be split over multiple servers, distributed geographically as well as setup as clusters. It also has support for security features including secure-socket-layer (SSL) as well as anti-virus and anti-spam filtering.

      Built on top of our core messaging technology are a series of applications that provide personal information management and collaboration services. Our Personal Address Book provides centralized storage of contact information for all messaging applications (both from Critical Path as well as from third parties), enabling customers to consolidate multiple address books into a single service. Our Calendar offers sophisticated sharing, group scheduling and availability lookup needed by both consumers and business users. Our Internet File Server provides global sharing of files, both for enterprise collaboration and for extending MMS multimedia files to the web for easy storage and sharing. Our messaging applications utilize a centralized Notification Server to generate and dynamically route alert messages to the user over email, text messaging or instant messaging.

Identity Management

      Mission critical applications often depend upon having reliable user identity information. Our Meta-Directory software is designed to consolidate and integrate data from disparate systems according to highly customizable business rules into accurate, centralized profiles of each user. This enables user/resource provisioning, keeping information consistent between various messaging and business systems, and is designed to improve security, data integrity and reduce overall administration cost. At the core of our technology is an extensible engine for gathering data about users from a variety of business systems, including the various components of the Critical Path Communications Platform. Our Meta-Directory comes with plug-in “connectors” for a wide range of systems including Sybase’s SQL Server, Microsoft’s Exchange, Lotus’

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Notes, and products from Oracle Corporation, Peoplesoft Corporation, Siebel Systems and mainframe applications. It also connects to all of the major directory systems on the market, including Critical Path’s Directory Server, Microsoft’s Active Directory, Novell’s eDirectory and iPlanet’s Directory Server. Meta-Directory also includes a powerful SDK that enables the development of custom connectors using Perl, Java, XML and SOAP, freeing customers from having to learn proprietary scripting languages.

      The Critical Path Directory Server provides a common store of user or resource information that can be accessed via standard LDAP and X.500 protocols. The Directory can be used to store user profiles, digital certificates from PKI software and eBusiness systems. The Directory can be distributed over multiple systems to provide improved performance and ease of replication and updates. Critical Path’s Directory and Meta-Directory both incorporate security technology like SSL for secure transport and authentication.

      In addition to our Directory and Meta-Directory infrastructure products, we also offer a layered application called Critical Path Password Management. This software provides easy-to-use graphical interfaces for managing multiple passwords from a centralized location. It helps organizations enforce password policies and keep passwords on many different systems up to date.

      Complementing our Directory and Meta-Directory, the Critical Path System Console provides systems management functionality to the Critical Path Communications Platform. This includes system start/stop, systems monitoring, and configuration. Our Systems Console uses Sun JDMK technology and is designed to be interoperable with SNMP standards-based systems like HP’s OpenView.

Hosted Messaging

      We offer our messaging technology both in licensed form for on-premise deployment and a hosted service, managed in conjunction with our partner HP in their world-class data centers. Our hosted messaging service offers standards-based email service for carriers and service providers, Web hosting companies, Web portals and corporate enterprises providing accounts to their end-users for activities such as trading securities, shopping or participating in online communities. We have developed proprietary load balancing, account provisioning and management software that complements our proven messaging applications.

      Our hosted messaging service is comprised of multiple groups of servers and routers acting as a single, virtual point of contact to customers for messaging services. These systems are managed by HP, enabling us to offer customers service level agreements, 24x7 helpdesk support, and easy expansion around the globe.

      All aspects of our hosted messaging service are, in turn, deployed in a redundant configuration with the goal that if any process or system goes down, another will be available to handle customer traffic seamlessly. This behavior is called “transparent failover” and is designed to increase the availability of messaging services to the customer. Our hosted messaging service also includes a dynamic load-balancing system that acts as proxy servers for firewall safety. The load balancers are configured in parallel so that if one goes down, the load is transferred to the remaining systems. We have created a proprietary account provisioning protocol for account creation and maintenance. This enables account transitioning from other services or legacy systems to be bulk-loaded, tested, replicated and deployed on our service automatically. This protocol addresses a critical time to market issue by helping organizations to quickly transition to the new standards-based email service minimizing down-time and degradation to their existing internal systems. In addition, it can be used by customers and partners to rapidly facilitate automatic account sign-ups from web sites.

      Data Centers. Our hardware for operating production services currently is located in multiple data centers managed by HP. With high-speed connections to diverse backbone providers and robust network architecture, we aim to eliminate single points of failure, thus reducing the likelihood that our customers will suffer downtime as a result of network outages. Our data centers feature redundant systems for power, raised floors, HVAC temperature control systems, seismically braced racks, fire protection, and physical security and surveillance 24 hours a day, seven days a week.

      Security. We have a diverse set of firewall solutions that are specifically tailored for each of our hosted services, reducing the likelihood of security breaches. To enhance security for our network, our staff members

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monitor the network hardware 24 hours a day, seven days a week. Suspicious activity is reported and investigated immediately.

      Spam and Viruses. Our messaging services include Spam Blocking to help guard against unsolicited commercial email and Virus Scanning to help prevent the spread of Internet viruses and worms. Our message filtering technology has been enhanced through partnerships with Brightmail and Symantec, allowing our hosted messaging customers to benefit from new spam and virus filters as they are created in response to attacks worldwide.

Research and Development

      Our products and services are primarily based on systems that were internally developed or acquired through acquisitions. We must continually improve these systems to accommodate the level of use of our products and services. In addition, we may add new features and functionality to our products and services that could result in the need to develop, license or integrate additional technologies. Our inability to add additional software and hardware or to upgrade our technology or network infrastructure could have adverse consequences, which include service interruptions, impaired quality of the users’ experience and the diversion of development resources. Our failure to provide new features or functionality to our products and services also could result in these consequences. We may not be able to effectively upgrade and expand our systems in a timely manner or to integrate smoothly any newly developed or purchased technologies with our existing systems. These difficulties could harm or limit our ability to improve our business.

      We invested $30.7 million, $19.6 million and $19.0 million in research and development in 2001, 2002 and 2003, respectively. In addition, we incurred stock-based compensation expense of $3.7 million, $1.2 million and $15,000 related to research and development during 2001, 2002 and 2003, respectively. We anticipate that we will continue to devote significant resources to product development in the future as we add new features and functionality to our products and services. The market in which we compete is characterized by rapidly changing technology, evolving industry standards, frequent new service and product announcements, introductions and enhancements and changing customer demands. Accordingly, our future success will depend on our ability to adapt to rapidly changing technologies, to adapt our services to evolving industry standards and to continually improve the performance, features and reliability of our products and services. The failure to adapt to such changes would harm our business. In addition, the widespread adoption of new Internet, networking or telecommunications technologies or other technological changes could require us to undertake substantial expenditures to modify or adapt our services or infrastructure.

Intellectual Property

      We regard the protection of our trade secrets, patents, patent applications, copyrights and trademarks as critical to our success. We rely on a combination of statute, common law and contractual restrictions to establish and protect our proprietary rights and developed intellectual property in our product and service offerings. We have entered into proprietary information and invention assignment agreements with our employees, contractors and consultants, and nondisclosure agreements with customers, partners and third parties to whom we disclose confidential and proprietary information. Despite our efforts in this regard, former employees or third parties may infringe or misappropriate our proprietary rights that could harm our business. The validity, enforceability and scope of protection of our intellectual property can be tested and in some areas is still evolving.

      We have registered and used as a trademark “Critical Path” in the United States. We have also registered and used “Critical Path” in a variety of foreign countries where we have operations or do business. We plan to continue to enforce that mark and other trademarks in both the United States and internationally, although protection of the marks cannot be assured.

      We license our software and proprietary service offerings and despite all efforts to protect that property and ensure the quality of our brand and patented or copyrighted products or processes, current or future licensees could take actions that might harm the value of our intellectual property portfolio, our brand or reputation.

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      We have been involved in claims by third parties of patent, copyright and trademark infringement against us in the past. Any claim like this, regardless of the merits, could be time consuming to defend, result in costly and distracting litigation, cause delays in rollouts of services, products or updates or require us to enter into licensing agreements with third parties. Such licensing agreements may include payment of significant royalties or may not be available to us on commercially reasonable terms. Additionally, enforcing our intellectual property rights could entail significant expense, with such costs also potentially harming our results of operations.

Employees

      At December 31, 2003, we had 418 employees, including 130 in operations, 92 in sales and marketing, 132 in research and development and 64 in general corporate and administration. Our future success depends, in significant part, upon the continued service of our key technical and senior management personnel and our continuing ability to attract and retain highly qualified and experienced technical, sales and managerial personnel. Competition for such personnel can be intense, and we cannot guarantee that we can retain our key technical and managerial employees or that we will be able to attract, assimilate or retain other highly qualified technical, sales and managerial personnel in the future. None of our employees are represented by a labor union. We have not experienced any work stoppages and consider our relations with our employees to be good.

Government Regulation

      Although there are currently a limited number of laws and regulations directly applicable to the Internet and the operation of commercial messaging services, it is probable that laws and regulations will continue to be adopted with respect to the Internet or commercial email services covering issues such as user privacy, pricing, content, copyrights, distribution, antitrust and characteristics and quality of products and services. Further, the growth and development of the market for online email may prompt calls for more stringent consumer and copyright protection and privacy laws that may impose additional burdens on those companies conducting business online. The adoption of any additional laws or regulations may impair the growth of the Internet or commercial online services, which could, in turn, decrease the demand for our products and services and increase our cost of doing business, or otherwise harm our business, operating results and financial condition. Moreover, the applicability to the Internet of existing laws in various jurisdictions governing issues such as property ownership, sales and other taxes, libel and personal privacy is uncertain and may take years to resolve. Any such new legislation or regulation, the application of laws and regulations from jurisdictions whose laws do not currently apply to our business or the application of existing laws and regulations to the Internet could harm our business, operating results and financial condition.

      Certain of our service offerings include operations subject to the Digital Millenium Copyright Act of 1998. We have expended resources and implemented processes and controls in order to remain in compliance with DMCA, but there can be no assurance that our efforts will be sufficient and/or new legislation and case law will not affect the operation of and liability associated with a portion of our services.

      In addition, the applicability of laws and regulations directly applicable to the businesses of our customers, particularly customers in the fields of banking and health care, will continue to affect us. The security of information about our customers’ end-users continues to be an area where a variety of laws and regulations with respect to privacy and confidentiality are enacted. As our customers implement the protections and prohibitions with respect to the transmission of end-user data, our customers will look to us to assist them in remaining in compliance with this evolving area of regulation. In particular the Gramm-Leach-Bliley Act contains restrictions with respect to the use and protection of banking records for end-users whose information may pass through our system.

Geographic Information

      A summary of domestic and international financial data is set forth in Note 20 — Product and Geographic Information of Notes to the Consolidated Financial Statements in Item 15, which is incorporated

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herein by reference. A discussion of factors potentially affecting our domestic and international operations is set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Additional Factors that May Affect Future Operating Results,” in Item 7, which is incorporated herein by reference.

Recent Developments

      March 2004 Private Placement. In March 2004, we issued $18.5 million in principal amount of 10% senior secured convertible notes to investment entities affiliated with Crosslink Capital, Criterion Capital Management, Heights Capital Management and Apex Capital. These notes are convertible into approximately 12.3 million shares of Series E convertible preferred stock at $1.50 per share only if we receive shareholder approval. If we do not obtain shareholder approval, these notes will be convertible, at the option of each note holder, into shares of our common stock at $2.18 per share, provided the note holder will not be able to convert its notes into shares of common stock to the extent the note holder, together with its affiliates, would own 9.9% or more of our common stock after conversion.

      March 2004 Debt Extension. In March 2004, we executed an amendment with a group of investors led by Cheung Kong Group and its Whampoa Limited affiliates including Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited (referred to collectively as the Cheung Kong Investors), which would extend the maturity of the $32.8 million in face value of 5 3/4% convertible subordinated notes held by the Cheung Kong Investors from April 1, 2005 to April 1, 2006. The extension will only take place in the event our shareholders do not approve the exchange of the 5 3/4% convertible subordinated notes held by the Cheung Kong Investors for approximately 21.9 million shares of our Series E preferred stock. In addition, in the event the maturity date is extended to April 1, 2006, the interest rate on the 5 3/4% convertible subordinated notes held by the Cheung Kong Investors will increase to 7 1/2% for the period beginning April 1, 2005 and ending April 1, 2006, and we will be required to pay fees totaling $1.5 million.

      January 2004 Private Placement. In January 2004, we issued $15 million in principal amount of 10% senior secured convertible notes to Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P. These notes are convertible into approximately 10 million shares of Series E convertible preferred stock at $1.50 per share only if we receive shareholder approval. If we do not obtain shareholder approval, these notes will be convertible, at the option of each note holder, into shares of our common stock at $1.65 per share, provided the note holder will not be able to convert its notes into shares of common stock to the extent the note holder, together with its affiliates, would own 9.9% or more of our common stock after conversion.

      Rights Offering. We have filed a preliminary proxy statement for a special meeting and a registration statement relating to a proposed rights offering for holders of our common stock on a record date to be determined by our board of directors to purchase up to $21 million of Series E preferred stock.

      Management and Board Changes. In January 2004, William S. Cohen and Raul J. Fernandez resigned from our board of directors, and in February 2004, Peter L.S. Currie, a partners of General Atlantic Partners, LLC, one of our principal shareholders, was appointed to fill a vacancy. In March 2004, Chris Gorog resigned from our board of directors and Frost R.R. Prioleau was appointed to fill the vacancy. In February 2004, William M. Smartt resigned as our Executive Vice President and Chief Financial Officer and James Clark, formerly chief financial officer of Diversified Healthcare Services, Inc., was hired as his successor.

Item 2.  Properties

      Our corporate headquarters as well as primary operations and development activities are located in one office building in San Francisco, California. We currently occupy a total of 63,467 square feet in this building, under a lease that expires on December 31, 2006.

      In addition to this principal location, we currently occupy a 24,300 square foot building in Dublin, Ireland under a lease expiring on July 14, 2014. We lease additional facilities in Brazil, Canada, France, Ger-

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many, Ireland, Italy, Japan, Malaysia, Spain, Sweden, Switzerland, the United Kingdom and certain cities in the United States. We continually evaluate the adequacy of our existing facilities, and we believe that the current facilities are suitable for our needs for at least the next 12 months, or that additional space will be available on commercially reasonable terms, if necessary.

Item 3.  Legal Proceedings

      We are a party to lawsuits in the normal course of our business. Litigation in general, and securities and intellectual property litigation in particular, can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. Other than as described below, we are not a party to any other material legal proceedings.

      Action in the Superior Court of San Diego. On December 24, 2003, we were named in a lawsuit filed by former shareholders of Remedy Corporation against current and former officers and directors of Peregrine Systems, Inc., Peregrine’s former accountants, some of Peregrine’s customers, including us, and various other unnamed defendants. The complaint alleges that we, as Peregrine’s customer, engaged in a series of fraudulent transactions with Peregrine that were not accounted for by Peregrine in conformity with GAAP and that this substantially inflated the value of Peregrine securities issued as consideration in Remedy’s merger with Peregrine in August 2001. The complaint alleges causes of action for fraud and deceit, negligent misrepresentation, violations of California Corporations Code provisions regarding sales of securities by means of false statements or omissions, violations of California Corporations Code provisions regarding securities sales made on the basis of undisclosed, material inside information, common law conspiracy to commit fraud, and common law aiding and abetting the commission of fraud. The complaint seeks an unspecified amount of compensatory and punitive damages, along with rescission of the Peregrine securities purchased in the Remedy merger, interest and attorneys fees. We believe the claims are without merit and intend to defend ourselves vigorously. On February 23, 2004, we filed a demurrer and a motion to strike the complaint, both of which are currently scheduled to be heard on April 9, 2004. Because the litigation is at an early stage, the outcome cannot be predicted with any certainty.

      Securities Action in Northern District of California. On April 30, 2002, MBCP PeerLogic LLC and other named plaintiffs filed suit in the U.S. District Court for the Southern District of New York against us and certain of our former officers. The plaintiff shareholders had opted out of a shareholder litigation settlement that was approved by the U.S. District Court for the Northern District of California. On November 25, 2003, we entered into settlement of these claims, approved by the United States District Court for the Northern District of California, pursuant to which we agreed to issue 553,914 shares of common stock and 188,587 shares of Series D preferred stock in exchange for a release of plaintiffs’ claims, and recorded a charge of $5.1 million related to the value of these issuances as stock-based expense – general and administrative in the fourth quarter of 2003. We also agreed to exchange 69,149 shares of Series D preferred stock for 733,333 shares of Series E preferred stock if we obtain shareholder approval of the matters being submitted to a vote of our shareholders at a special meeting. The plaintiffs’ claims against us were voluntarily dismissed with prejudice, and without costs or attorneys’ fees to any party. Our counterclaims against plaintiffs were also dismissed with prejudice, and without costs or attorneys’ fees to any party.

      Derivative Actions in Northern District of California. Beginning on February 5, 2001, Critical Path was named as a nominal defendant in a number of derivative actions, purportedly brought on our behalf, filed in the Superior Court of the State of California and in the U.S. District Court for the Northern District of California. The derivative complaints alleged that certain of our former officers and directors breached their fiduciary duties, engaged in abuses of control, were unjustly enriched by sales of our common stock, engaged in insider trading in violation of California law or published false financial information in violation of California law. This case was fully and finally settled in December 2003 and approved by the Court. The settlement involved a monetary recovery by us of $330,000.

      Securities Class Action in Southern District of New York. Beginning on July 18, 2001, a number of securities class action complaints were filed against us, and certain of our former officers and directors and underwriters connected with our initial public offering of common stock in the U.S. District Court for the

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Southern District of New York (In re Initial Public Offering Sec. Litig.). The purported class action complaints were filed by individuals who allege that they purchased our common stock at the initial and secondary public offerings between March 29, 1999 and December 6, 2000. The complaints allege generally that the prospectus under which such securities were sold contained false and misleading statements with respect to discounts and excess commissions received by the underwriters as well as allegations of “laddering” whereby underwriters required their customers to purchase additional shares in the aftermarket in exchange for an allocation of IPO shares. The complaints seek an unspecified amount in damages on behalf of persons who purchased our stock during the specified period. Similar complaints have been filed against 55 underwriters and more than 300 other companies and other individuals. The over 1,000 complaints have been consolidated into a single action. We have reached an agreement in principle with the plaintiffs to resolve the cases. The proposed settlement involves no monetary payment by us and no admission of liability. However, it is subject to approval by the Court, which has not yet occurred.

      Securities and Exchange Commission Investigation. In 2001, the Securities and Exchange Commission investigated us and certain of our former officers, employees and directors with respect to non-specified accounting matters, financial reports, other public disclosures and trading activity in our securities. The SEC concluded its investigation of us in January 2002 and, without admitting or denying liability, we consented to a cease and desist order and an administrative order as to violation of certain non-fraud provisions of the federal securities laws. The investigation has also thus far resulted in charges being filed against five former officers and employees. We believe that the investigation of our former officers and employees may continue. While we continue to fully cooperate with any requests with respect to such investigation, we do not know the status of such investigation.

      Lease Dispute. In July 2000, PeerLogic, Inc. signed a lease for office space in San Francisco, California. In December 2000, Critical Path acquired PeerLogic as a wholly owned subsidiary. After review, we determined that local zoning laws likely prohibited a business such as us or PeerLogic from occupying the leased premises, and promptly sought a zoning determination from the San Francisco Zoning Administrator to resolve the matter. The Zoning Administrator determined that our proposed use of the leased premises was not permitted, but the landlord appealed this determination and prevailed before the San Francisco Board of Appeals. In July 2002, we filed a Petition for Writ of Mandamus with the San Francisco Superior Court, seeking reversal of the San Francisco Board of Appeals’ decision. In June 2003, the Court granted our petition and subsequently entered a judgment and writ remanding the matter to the San Francisco Board of Appeals and directing the Board of Appeals to make a new determination consistent with its judgment. The landlord subsequently appealed the Superior Court’s ruling.

      In April 2002, the landlord filed suit in San Francisco Superior Court against us alleging, among other things, breach of the lease and tort claims related to the lease transaction. In its complaint, the landlord sought unspecified damages for back rent, attorneys’ fees, treble damages under certain statutes, and unspecified punitive damages. In August 2003, we filed our answer to the second amended complaint and a cross-complaint against the landlord, under which we seek compensatory damages and unspecified punitive damages for the landlord’s failure to disclose the zoning restrictions on the leased premises before the lease was signed. In early February 2004, we reached an agreement in principle with the landlord to fully and finally settle this litigation as well as the zoning dispute described above in exchange for $100,000 in cash and a warrant to purchase 100,000 shares of common stock at a purchase price equal to current fair market value as of the date of settlement. However, a final written settlement agreement has not yet been executed. At December 31, 2003, we had accrued sufficient amounts to cover the cost of the proposed settlement.

      The uncertainty associated with these and other unresolved or threatened lawsuits could seriously harm our business and financial condition. In particular, the lawsuits or the lingering effects of previous lawsuits and the now completed SEC investigation could harm relationships with existing customers and our ability to obtain new customers and partners. The continued defense of lawsuits could also result in the diversion of management’s time and attention away from business operations, which could harm our business. Negative developments with respect to the settlements or the lawsuits could cause our stock price to further decline significantly. In addition, although we are unable to determine the amount, if any, that it may be required to

20

pay in connection with the resolution of these lawsuits, and although we maintain adequate and customary insurance, the size of any such payments could seriously harm our financial condition.

Item 4.  Submission of Matters to a Vote of Security Holders

      None.

PART II

Item 5.  Market for Registrant’s Common Equity and Related Shareholder Matters

      Our common stock has been quoted on the Nasdaq National Market under the symbol “CPTH” since March 29, 1999. The following table presents, for the periods indicated, the high and low sales prices per share of our common stock (as adjusted to reflect the reverse stock split of our authorized and outstanding common stock on August 4, 2003) as reported on the Nasdaq National Market.

		High		Low
Year Ended December 31, 2002
	First Quarter (from January 1, 2002 to March 31, 2002)	$	3.80	$	2.08
	Second Quarter (from April 1, 2002 to June 30, 2002)	$	2.50	$	1.00
	Third Quarter (from July 1, 2002 to September 30, 2002)	$	1.15	$	0.56
	Fourth Quarter (from October 1, 2002 to December 31, 2002)	$	0.93	$	0.41
Year Ended December 31, 2003
	First Quarter (from January 1, 2003 to March 31, 2003)	$	3.92	$	1.96
	Second Quarter (from April 1, 2003 to June 30, 2003)	$	4.76	$	2.80
	Third Quarter (from July 1, 2003 to September 30, 2003)	$	6.96	$	2.38
	Fourth Quarter (from October 1, 2003 to December 31, 2003)	$	3.30	$	1.10

      As of March 1, 2004, there were approximately 1,185 holders of record of our common stock. Most shares of our common stock are held by brokers and other institutions on behalf of shareholders.

Dividend Policy

      We have never declared or paid any dividends on our common stock. We do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain future earnings, if any, to finance operations and the expansion of our business. In addition, our credit facility prohibits declaration of dividends absent the bank’s consent. Any future determination to pay cash dividends will be at the discretion of the board of directors and will depend upon our financial condition, operating results, capital requirements and other factors the board of directors deems relevant.

Recent Sales of Unregistered Securities

      In March 2004, in connection with an amendment to the credit facility with Silicon Valley Bank to increase the size of the credit limit to a maximum of $6.0 million and extend the maturity date to June 30, 2005, we agreed to issue warrants to purchase up to 100,000 shares of our common stock to Silicon Valley Bank. These warrants were fully exercisable upon grant, had an exercise price of $2.07 per share and have an expiration date of March 12, 2011. The issuance of the warrants was exempt from registration under Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

      In March 2004, we issued $18.5 million in principal amount of 10% senior secured convertible notes to investment entities affiliated with Crosslink Capital, Criterion Capital Management, Heights Capital Management and Apex Capital. These notes are convertible into approximately 12.3 million shares of Series E convertible preferred stock at $1.50 per share only if we receive shareholder approval. If we do not obtain shareholder approval, these notes will be convertible, at the option of each note holder, into shares of our common stock at $2.18 per share, provided the note holder will not be able to convert its notes into shares of

21

common stock to the extent the note holder, together with its affiliates, would own 9.9% or more of our common stock after conversion. The investors were qualified institutional buyers and the issuance of the notes was exempt from registration under Section 4(2) of the Securities Act and Regulation D promulgated thereunder. A description of our Series E preferred stock is set forth at the end of this section.

      In January 2004, we issued an aggregate of $15 million in principal amount of 10% convertible secured notes to Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P. These notes are convertible into approximately 10 million shares of Series E preferred stock at $1.50 per share only if we receive shareholder approval. If we do not obtain shareholder approval, these notes will be convertible, at the option of each note holder, into shares of our common stock at $1.65 per share, provided the note holder will not be able to convert its notes into shares of common stock to the extent the note holder, together with its affiliates, would own 9.9% or more of our common stock after conversion. The investors were qualified institutional buyers and the issuance of the notes was exempt from registration under Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

      On November 26, 2003, in connection with the settlement with MBCP PeerLogic LLC and other named plaintiffs we issued 553,914 shares of common stock and 188,587 shares of Series E preferred stock in exchange for the release of plaintiffs’ claims. If we obtain shareholder approval of the matters described above and in the paragraph below, we have agreed to convert 69,149 shares of Series D preferred stock issued to these shareholder plaintiffs into 733,333 shares of Series E preferred stock. The issuance of the common stock was exempt from registration pursuant to an order from the United States District Court for the Northern District of California, dated November 25, 2003, approving issuance of shares pursuant to Section 3(a)(10) of the Securities Act. The issuance of the Series D preferred stock was exempt from registration under Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

      On November 18, 2003, we entered into a definitive agreement to issue an aggregate of $10 million in principal amount of 10% convertible secured notes to General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmbH & Co. K.G., (referred to collectively as the General Atlantic Investors), and to convert the notes, plus $1 million in accrued interest, into approximately 7.3 million shares of our Series E preferred stock. In the same agreement, we agreed to exchange approximately $32.8 million in face value of our 5 3/4% convertible subordinated notes held by a group of investors led by Cheung Kong Group and its Whampoa Limited affiliates including Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited (referred to collectively as the Cheung Kong Investors) for approximately 21.9 million shares of our Series E preferred stock. These notes are convertible into Series E preferred stock at $1.50 per share only if we receive shareholder approval. The investors were institutional accredited investors or qualified institutional buyers and the issuance of the notes was exempt from registration under Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

      In June 2002, in connection with the settlement of a consolidated class action lawsuit originally filed in the Northern District of California on February 2, 2001, we agreed to issue warrants to purchase up to 212,500 shares of our common stock to shareholder plaintiffs. These warrants were fully exercisable upon grant, had an exercise price of $40.00 per share and have an expiration date of June 18, 2005. The issuance of these warrants was exempt from registration pursuant to a final judgment dated June 18, 2002 from the United States District Court for the Northern District of California approving the issuance of the warrants under Section 3(a)(10) of the Securities Act of 1933 as part of the settlement entered into by the parties and based on a fairness hearing held by the court on May 23, 2002.

Description of Series E Preferred Stock

      The following is a summary of the terms of our Series E preferred stock, if approved by our shareholders in a special meeting.

      Dividends. The shares of Series E preferred stock rank senior to all capital stock of Critical Path with respect to the payment of dividends. Dividends on the shares of Series E preferred stock accrue at a simple

22

annual rate of 5 3/4% whether or not our board of directors declares them. Dividends in respect of the Series E preferred stock will not be paid in cash but will be added to the value of the Series E preferred stock and will be taken into account for purposes of determining the liquidation preference, conversion rate, dividends and voting rights. We must declare or pay dividends on the Series E preferred stock when we declare or pay dividends to the holders of common stock. Except for dividends accruing to the Series D preferred stock, we may make no dividends or distribution with respect to any shares of capital stock unless all dividends accruing to the Series E preferred stock have already been paid.

      Liquidation or Change of Control. In the event of a liquidation or change of control, we will pay each share of Series E preferred stock, prior to the payment of any other equity securities, an amount equal to the greater of the purchase price of the Series E preferred stock plus all accrued dividends or the value that would be paid to the holder of the number of shares of common stock into which such shares of Series E preferred stock are convertible immediately prior to the closing of such liquidation or change of control. A change of control includes, among others, any merger consolidation or other business combination transaction in which the shareholders owning a majority of our voting securities do not own a majority of our voting securities of the surviving entity, any tender, exchange or other offer whereby any person obtains a majority of the voting securities, any proxy contest in which a majority of the board of directors prior to such contest do not constitute a majority of the board of directors after such contest, any sale of all or substantially all of our assets or any other transaction that triggers the issuance of rights pursuant to our Shareholder Rights Plan (which issuance is not waived by the board of directors).

      Calls for Redemption. All, but not less than all, of the shares of Series E preferred stock may be called for redemption, at our option, after the third anniversary of the date shares of Series E preferred stock are first issued if on any date the average closing price per share of the common stock equals or exceeds four hundred percent (400%) of the sum of the per share purchase price of the Series E preferred stock and all accrued dividends through the most recent dividend accrual date for any 60 consecutive trading day period. We must provide notice of any such call for redemption within 30 days of such period and not less than 10 nor more than 30 days prior to the date set for redemption. The shares of Series E preferred stock must be called for redemption on the fourth anniversary of the date shares of Series E preferred stock are first issued. Notice of the mandatory call for redemption must be given not less than 30 nor more than 60 days prior to the date set for redemption. In the case of any call for redemption, we must pay the applicable redemption price by wire transfer of immediately available funds or check within seven days after we receive surrendered certificates representing the shares of Series E preferred stock called for redemption. If we do not have sufficient funds available by law to redeem the Series E preferred stock on the date set for the mandatory call, the holders of shares of Series E preferred stock will share ratably any funds available by law for redemption. Any shares of Series E preferred stock that remain outstanding following the mandatory redemption date will thereafter continue to accrue dividends until redeemed. Any additional funds available by law for redemption will be used to redeem the balance or a portion of the balance of any shares as soon as practicable.

      Voting. Each share of Series E preferred stock entitles its holder to vote at any shareholders’ meeting, on any matter entitled to be voted on by holders of our common stock, voting together as a single class with other shares entitled to vote on such matters. In order to comply with The Nasdaq Stock Market’s Marketplace Rule 4351, which prohibits issuers from creating a new class of securities that votes at a higher rate than an existing class of securities based on the relative investment in the issuer made by the new security holders, the voting power of the Series E preferred stock may be impaired. The voting formula for each share of Series E preferred stock will be the sum of $1.50 plus all accrued dividends for such share divided by the “voting conversion amount.” The voting conversion amount will be equal to the lower of (i) $1.70, (ii) the most recent closing bid price of the common stock as of the date the Series E preferred stock is first issued and (iii) the average closing bid prices for the five trading days prior to the date the Series E preferred stock is first issued; provided, however, the voting conversion amount will not be less than $1.50. The voting conversion amount will be determined on the date the Series E preferred stock is first issued and, once determined, will remain the same (subject to adjustment for stock splits, subdivisions, reclassifications, distributions and similar transactions).

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      In addition, holders of a majority of the outstanding shares of Series E preferred stock must approve:

•  Any amendment to the terms of the Series E preferred stock;

•  Any amendment to the number of authorized shares of Series E preferred stock and any issuance of shares of equity securities ranking senior to the Series E preferred stock; or

•  The redemption of any junior equity securities or the payment of dividends to junior equity holders.

      Conversion. Each share of Series E preferred stock will be convertible at any time at the option of the holder into the number of shares of common stock derived by dividing the purchase price of the Series E preferred stock plus all accrued dividends from the date of issuance through the most recent semi-annual dividend accrual date by $1.50, subject to certain antidilution provisions. The terms of the Series E preferred stock contain protection against dilution if Critical Path effects a subdivision or combination of common stock or in the event of a reclassification, recapitalization, stock split, stock dividend or other distribution payable in securities of Critical Path or any other person.

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Item 6.  Selected Financial Data

SELECTED CONSOLIDATED FINANCIAL INFORMATION

(in thousands, except per share data and footnotes)

      The selected consolidated statement of operations data during the years ended December 31, 1999, 2000, 2001, 2002 and 2003 and selected consolidated balance sheet data as of December 31, 1999, 2000, 2001, 2002 and 2003, have been derived from our Consolidated Financial Statements. The data set forth below should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included elsewhere in this document.

		Year Ended December 31,
		1999			2000(1)			2001(2)			2002(4)			2003(6)(7)(8)
Consolidated Statement of Operations Data:
Net revenues		$	16,157		$	135,653		$	104,173		$	87,133		$	72,297
Gross profit (loss)			(5,400	)		13,732			(18,868	)		16,711			24,013
Operating expenses			(117,850	)		(1,831,449	)		(222,830	)		(122,105	)		(74,884	)
Loss from operations (5)			(123,250	)		(1,817,717	)		(241,698	)		(105,394	)		(50,871	)
Non-operating income (expenses) (3)			6,309			(28,235	)		169,440			(11,538	)		(10,406	)
Loss before income taxes			(116,941	)		(1,845,952	)		(72,258	)		(116,932	)		(61,277	)
Provision for income taxes			—			(6,513	)		(7,206	)		(979	)		(856	)
Net loss		$	(116,941	)	$	(1,852,465	)	$	(79,464	)	$	(117,911	)	$	(62,133	)
Accretion on mandatorily redeemable preferred stock		$	—		$	—		$	(356	)	$	(13,904	)	$	(12,446	)
Net loss attributable to common shares		$	(116,941	)	$	(1,852,465	)	$	(79,820	)	$	(131,815	)	$	(74,579	)
Net loss per share attributable to common Shares — basic and diluted:
	Net loss per share attributable to common shares	$	(15.71	)	$	(122.68	)	$	(4.32	)	$	(6.78	)	$	(3.73	)
Weighted average shares — basic and Diluted			7,443			15,100			18,495			19,445			20,020

	At December 31,
	1999		2000		2001		2002			2003
Consolidated Balance Sheet Data:
Cash, cash equivalents and marketable securities	$	75,932	$	216,542	$	69,165	$	43,071		$	18,984
Working capital	$	76,060	$	186,777	$	57,983	$	19,961		$	1,876
Goodwill and other intangible assets	$	474,297	$	124,094	$	48,641	$	6,613		$	6,613
Total assets	$	673,805	$	497,610	$	199,952	$	104,006		$	67,725
Convertible subordinated notes payable	$	—	$	300,000	$	38,360	$	38,360		$	38,360
Capital lease obligations, long-term portion	$	5,669	$	4,687	$	1,149	$	1,332		$	1,295
Mandatorily redeemable preferred stock	$	—	$	—	$	5,556	$	26,900		$	55,301
Shareholders’ equity (deficit)	$	616,992	$	113,104	$	108,972	$	(8,554	)	$	(77,242	)

(1)	Operating expenses for the year ended December 31, 2000, include a $1.3 billion charge related to impairment of intangible assets including the deferred costs associated with our ICQ and Qwest relationships. See also Note 17 of Notes to Consolidated Financial Statements – Impairment of Long-Lived Assets.
(2)	Operating expenses for the year ended December 31, 2001, include a $26.6 million charge related to impairment of certain long lived assets and an $18.3 million charge related to costs incurred as a result of our strategic restructuring. See also Note 4 of Notes to Consolidated Financial Statements – Strategic Restructur-

25

ing and Employee Severance and Note 17 of Notes to Consolidated Financial Statements – Impairment of Long-Lived Assets.

(3)	Non-operating income for the year ended December 31, 2001, includes gains of $179.3 million, net of applicable taxes and write downs of related debt issuance costs, recognized on the retirement of $261.4 million of face value of Critical Path’s convertible subordinated notes. See also Note 11 of Notes to Consolidated Financial Statements – Convertible Subordinated Notes.
(4)	Operating expenses for the year ended December 31, 2002, include a $3.2 million charge related to costs incurred as a result of restructuring actions we took in the second and fourth quarters of 2002. See also Note 4 of Notes to Consolidated Financial Statements – Strategic Restructuring.
(5)	Included in operating expenses in 1999, 2000 and 2001 were goodwill amortization charges of $29.6 million, $341.7 million and $643,000, respectively. In accordance with SFAS No. 142, we ceased amortization of goodwill on January 1, 2002.
(6)	Operating expenses for the year ended December 31, 2003, include an $8.1 million charge related to costs incurred as a result of restructuring actions we took in the first through fourth quarters of 2003. This charge was partially offset by the first quarter 2003 reversal of approximately $1.2 million in restructuring expenses, which were accrued during 2001 and 2002, as we do not anticipate these amounts will be paid in the future. See also Note 4 of Notes to Consolidated Financial Statements – Strategic Restructuring.
(7)	Operating expenses for the year ended December 31, 2003, include a $5.1 million charge related to the settlement of litigation in the fourth quarter of 2003. See also Note 13 of Notes to Consolidated Financial Statements – Commitments and Contingencies.
(8)	Non-operating expense for the year ended December 31, 2003 includes an extraordinary gain of $3.8 million related to the early release of escrow funds related to The docSpace Company acquisition. See also Note 9 of Notes to Consolidated Financial Statements – Related Party Transactions.

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

      The following Management Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, as amended and in effect from time to time. The words “anticipates,” “expects,” “intends,” “plans,” “believes,” “seek,” “proposed,” and “estimate” and similar expressions are intended to identify forward-looking statements. These are statements that relate to future periods and include statements regarding our ability to operate in the future, our ability to obtain funding, including our intention to conduct a rights offering and our ability to consummate the rights offering if undertaken, of the rights offering and the amount of proceeds raised thereby, the adequacy of funds to meet anticipated operating needs, the amount of charges that we will record that will increase our net loss attributable to common shares in connection with the proposed issuance of our Series E preferred stock and amendment of the terms of our Series D preferred stock, our future strategic, operational and financial plans, possible financing, strategic or business combination transactions, anticipated or projected revenues, expenses and operational growth, markets and potential customers for our products and services, plans related to sales strategies and global sales efforts, the anticipated benefits of our relationships with strategic partners, growth of our competition, our ability to compete, investments in product development, the adequacy of our current facilities and our ability to obtain additional space, our litigation strategy, use of future earnings, the feature, benefits and performance of our current and future products and services, plans to reduce operating costs through continued expense reduction, anticipated effects of restructuring and retirement of debt, and our belief as to our ability to successfully emerge from the restructuring and refocusing of our operations. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, difficulties of forecasting future results due to our limited operating history, failure to obtain additional financing on favorable terms or at all, failure to meet sales and revenue forecasts, evolving business strategy and the emerging nature of the market for our products and services, the settlement of litigation and the continuing SEC investigation against former executives and

26

directors, turnover within and integration of senior management, board of directors members and other key personnel, difficulties in our strategic plans to exit certain products and services offerings, failure to expand our sales and marketing activities, potential difficulties associated with strategic relationships, investments and uncollected bills, general economic conditions in markets in which we do business, risks associated with our international operations, inability to predict future trading prices of our common stock which have fluctuated significantly in the past, foreign currency fluctuations, unplanned system interruptions and capacity constraints, software defects, risks associated with an inability to maintain continued compliance with Nasdaq National Market listing requirements and delisting actions by such market, and those discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Additional Factors That May Affect Future Operating Results‘ and elsewhere in this report. Readers are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements speak only as of the date hereof. We expressly disclaim any obligation to publicly release the results of any revisions to these forward-looking statements to reflect events or circumstances after the date of this filing.

										Change Over Prior Year
			Historical Amounts							2002						2003
			2001			2002		2003		$			%			$			%
			(In thousands, except percentages)
Period Ended December 31,
Net revenues
	Software license		$	30,960		$	35,176	$	22,104	$	4,216			14	%	$	(13,072	)		(37	)%
	Hosted messaging			43,821			24,893		19,444		(18,928	)		(43	)%		(5,449	)		(22	)%
	Professional Services			12,573			11,593		12,315		(980	)		(8	)%		722			6	%
	Maintenance and Support			16,819			15,471		18,434		(1,348	)		(8	)%		2,963			19	%
		Total net Revenues		104,173			87,133		72,297		(17,040	)		(16	)%		(14,836	)		(17	)%
Cost of net revenues
	Software license			1,533			2,682		4,068		1,149			75	%		1,386			52	%
	Hosted messaging			59,124			29,303		26,193		(29,821	)		(50	)%		(3,110	)		(11	)%
	Professional Services			10,315			10,020		12,203		(295	)		(3	)%		2,183			22	%
	Maintenance and Support			10,081			8,670		5,803		(1,411	)		(14	)%		(2,867	)		(33	)%
	Amortization of purchased Technology			21,284			18,522		—		(2,762	)		(13	)%		(18,522	)		(100	)%
	Acquisition-related Retention bonuses			—			—		—		—			—	%		—			—	%
	Stock-based expenses			4,050			1,225		17		(2,825	)		(70	)%		(1,208	)		(99	)%
	Impairment of long-lived assets			16,654			—		—		(16,654	)		(100	)%		—			—	%
		Total cost of net revenues		123,041			70,422		48,284		(52,619	)		(43	)%		(22,138	)		(31	)%
Gross profit (loss)				(18,868	)		16,711		24,013		35,579			189	%		7,302			44	%
Operating expenses
	Sales and marketing			53,356			43,604		31,224		(9,752	)		(18	)%		(12,380	)		(28	)%
	Research and Development			30,744			19,649		19,047		(11,095	)		(36	)%		(602	)		(3	)%
	General and administrative			42,260			22,128		12,603		(20,132	)		(48	)%		(9,525	)		(43	)%
	Amortization of goodwill and other intangible assets			32,746			24,773		—		(7,973	)		(24	)%		(24,773	)		(100	)%
	Acquisition-related retention bonuses			1,381			11		—		(1,370	)		(99	)%		(11	)		(100	)%
	Stock-based expenses			34,085			8,772		5,124		(25,313	)		(74	)%		(3,648	)		(42	)%
	Restructuring and other Expenses			18,267			3,168		6,886		(15,099	)		(83	)%		3,718			117	%
	Impairment of long-lived assets			9,991			—		—		(9,991	)		(100	)%		—			—	%
		Total operating Expenses		222,830			122,105		74,884		(100,725	)		(45	)%		(47,221	)		(39	)%

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										Change Over Prior Year
	Historical Amounts									2002						2003
	2001			2002			2003			$			%			$			%
	(In thousands, except percentages)
Loss from operations		(241,698	)		(105,394	)		(50,871	)		136,304			(56	)%		54,523			(52	)%
Interest and other income (expense), net		5,840			(5,852	)		(7,619	)		(11,692	)		(200	)%		(1,767	)		30	%
Interest expense		(14,714	)		(2,748	)		(3,336	)		11,966			(81	)%		(588	)		21	%
Equity in net loss of joint venture		(1,866	)		(1,408	)		—			458			(25	)%		1,408			(100	)%
Loss on investments		(702	)		(1,530	)		549			(828	)		118	%		2,079			(136	)%
Gain on retirement of convertible subordinated notes, net		180,882			—			—			(180,882	)		(100	)%		—			—	%
Loss before income taxes		(72,258	)		(116,932	)		(61,277	)		(44,674	)		62	%		55,655			48	%
Provision for income taxes		(7,206	)		(979	)		(856	)		6,227			(86	)%		123			(13	)%
Net loss	$	(79,464	)	$	(117,911	)	$	(62,133	)		(38,447	)		48	%		55,778			47	%
Accretion on mandatorily redeemable preferred stock		(356	)		(13,904	)		(12,446	)		(13,548	)		3,806	%		1,458			10	%
Net loss attributable to common shares	$	(79,820	)	$	(131,815	)	$	(74,579	)	$	(51,995	)		65	%	$	57,236			(43	)%

Overview

      Our business. We deliver digital communications software and services that enable enterprises, government agencies, wireless carriers, and Internet and wireline service providers to rapidly deploy highly scalable solutions for messaging and identity management. Built upon an open, extensible software platform, these solutions help organizations expand the range of digital communications services they provide, while helping to reduce overall costs. Our messaging solutions, available both as licensed software and as hosted services, provide integrated access to a broad range of communication and collaboration applications from wireless devices, web browsers, desktop clients, and voice systems. This integration can provide new revenue opportunities for carriers and service providers and enables them to attract new subscribers, drive more usage, and retain subscribers longer. For enterprises and governments, our solutions are designed to reduce burdens on helpdesks, simplify the deployment of key security infrastructure, enable easier compliance with new regulatory mandates, and help reduce the cost and effort of deploying modern messaging services to distributed organizations, mobile users, deskless workers, suppliers and customers.

Critical Path generates revenues from four primary sources:

      Licenses for use of our software products. Our various messaging applications are typically licensed by telecommunications carriers, postal and government agencies, and some highly distributed enterprises for deployment in their data centers. Such licenses are usually sold as a perpetual license on a per-user basis, one for each person who might access the capabilities provided by the software. Our identity management software is typically licensed by large enterprises, government agencies, and telecommunications carriers and is deployed on site in their data centers. Our identity management software is usually sold as a perpetual license according to the number of data elements and different business systems being managed; our layered applications are usually licensed per user.

      Annual support and maintenance subscriptions for our licensed software. We offer a variety of support and maintenance plans that enable customers of our licensed software to receive expedited technical support and access to new releases of our software. Most customers initially subscribe to these services when purchasing our software and then renew their subscriptions on an annual basis.

      Hosted service subscriptions for access to our messaging and other digital communications applications. We offer access to email, personal information management, resource scheduling, and “newsgroup” over the Internet and wireless networks for enterprises, telecommunications operators, and, for certain services,

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consumers. The software powering these services runs in data centers that we jointly operate with the Hewlett-Packard Company; unlike with licensed software, customers of these services do not need to install or maintain their own copies of the software. Instead, customers pay initial setup fees and regular monthly, quarterly or annual subscriptions for the services they would like to be able to access.

      Consulting, training, and professional services. We offer a range of different services designed to help our customers make more effective use of our products and services. Our licensed messaging and identity management software often require integration with customers’ existing infrastructure or customization to provide special features or capabilities. In addition, our consultants offer expertise and experience in designing and delivering new services that customers can use to supplement their own resources.

      We generate most of our revenues from telecommunications operators and from large enterprises. Wireless carriers, internet service providers and fixed-line service providers purchase our products and services primarily when they are looking to offer new services to their subscribers. While they also purchase our products and services to lower their cost of operating existing services or infrastructure, their spending is often tied to the level of investment they are willing to make on new revenue-generating services.

Restructuring initiatives

      Since our inception, we have incurred significant losses, and as of December 31, 2003, we had an accumulated deficit of approximately $2.2 billion, inclusive of a $1.3 billion charge for impairment of long-lived assets recorded in the fourth quarter of 2000. We intend to continue to invest in sales and marketing, development of our technology and solution offerings, and related enhancements. We may continue to incur operating losses. See the further discussion on our financial position in the Liquidity and Capital Resources section of Management Discussion and Analysis of Financial Condition and Results of Operations.

      During 2001 we evaluated our various products, services, facilities and the business plan under which we were operating. In connection with this review, we implemented and substantially completed a strategic restructuring plan that involved reorganizing and refocusing Critical Path’s product and service offerings, a reduction in workforce and a facilities and operations consolidation. Additionally, we implemented an aggressive expense management plan to further reduce operating costs. At the end of 2001, we had divested all of the products and services deemed to be non-core to our continued operations, reduced headcount by 44%, reduced the number of facilities by 65% and implemented other cost cutting measures, resulting in a significant reduction in overall operating expenses.

      In May 2002, we approved a restructuring plan to reduce our expense levels to be consistent with the then current business climate. In connection with the plan, a restructuring charge of $1.5 million was recognized in the second quarter of 2002. This charge was comprised of approximately $1.2 million in severance and related costs associated with the elimination of approximately 39 positions and $300,000 in facilities lease termination costs.

      In January 2003, we announced a restructuring initiative designed to further reduce our expense levels in an effort to achieve operating profitability assuming no or moderate revenue growth. The plan included the consolidation of some office locations and a global workforce reduction of approximately 175 positions, or approximately 30% of the workforce. The headcount reduction was partially offset by outsourcing approximately 75 positions to lower cost service providers. We incurred aggregate charges of approximately $8.0 million resulting from the cost reduction plan, inclusive of $7.0 million in cash and $1.0 million in non-cash expenses.

      In November 2003, we announced a restructuring of certain of our facility lease obligations in an effort to reduce our long-term cash obligations. In addition, we identified an additional 16 positions, primarily held by management-level employees, which were to be eliminated. Costs totaling $1.9 million were recognized during the fourth quarter of 2003 associated with these initiatives, including $1.4 million in lease restructuring and termination costs and $0.5 million in severance and related headcount reduction costs. During the fourth quarter of 2003, cash payments totaling $1.3 million were made associated with the facility restructuring activities and $0.4 million related to the headcount reductions.

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      In addition to these formal restructuring initiatives, we have sought to aggressively manage our cost structure, identifying incremental savings where possible. We intend to continue to aggressively manage our expenses in 2004, while maintaining strong service levels to our customers.

      In recent months, management has focused on capital financing initiatives in order to maintain our current and planned operations. Our history of losses from operations and cash flow deficits, in combination with our cash balances, raised concerns about our short-term ability to fund operations from our existing cash at the time. Consequently, we have secured additional funds through several rounds of financing that involved the sale of senior secured notes convertible into a new series of preferred stock, subject to the approval of our shareholders. See “Liquidity and Capital Resources – Recent Financing Transactions” below. Owing to the financing activities we undertook in the fourth quarter of 2003 and first quarter of 2004, management believes that our cash, cash equivalents and available line of credit as of the date of this filing will be sufficient to maintain current and planned operations for at least the next twelve months.

      In view of the rapidly evolving nature of our business, organizational restructuring and limited operating history, we believe that period-to-period comparisons of revenues and operating results, including gross profit margin and operating expenses as a percentage of total net revenues, are not meaningful and should not be relied upon as indications of future performance. At December 31, 2003, we had 418 employees, as compared to 577 employees at December 31, 2002 and 562 employees at December 31, 2001. We do not believe that our historical trends for revenues, expenses or personnel are indicative of future results.

Critical Accounting Policies, Judgments and Estimates

      The following discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.

      Our significant accounting policies are described in Note 1 to the consolidated financial statements as of and for the year ended December 31, 2003. We believe our most critical accounting policies and estimates include the following:

•  Revenue recognition;

•  Valuation and impairment of long-lived assets and identifiable intangible assets;

•  Estimating allowance for doubtful accounts and contingencies; and

•  Stock-based compensation.

Revenue recognition

      Our revenues are derived from four primary sources: software license sales, professional services, maintenance and support and hosted messaging services. Revenues are recognized once the related products or services have been delivered and collection of associated fees is considered probable.

      Software license revenues are generated from the sale of our messaging and identity management products under perpetual and term licenses. Software license revenues are recognized when persuasive evidence of an arrangement exists, delivery of the licensed software to the customer has occurred and the collection of a fixed or determinable license fee is considered probable. Our revenue recognition policies require that revenues recognized from software arrangements be allocated to each undelivered element of the arrangement based on the fair values of the elements, such as post contract customer support, installation, training or other services. Professional service revenues are generated from fees primarily related to training, installation and configuration services associated with implementing and maintaining our license software products for our customers. Professional service revenues are recognized in the period in which the services are performed. Maintenance and support service revenues are generated from fees for post-contract customer

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support agreements associated primarily with our software license products. Maintenance services typically include rights to future update and upgrade product releases and dial-up phone services and the associated fees are typically paid up-front by the customer, deferred and recognized ratably over the term of the support contract, which is generally one year.

      We also enter into arrangements that include multiple products and services where the services are deemed essential to the functionality of a delivered element, under such circumstances we recognize the entire arrangement fee using the percentage of completion method. Under this method, individual contract revenues are recorded based on the percentage relationship of the contract costs incurred as compared to management’s estimate of the total cost to complete the contract.

      We also sell our license software products through resellers. Revenues from reseller agreements may include a nonrefundable, advance royalty which is payable upon the signing of the contract and license fees based on the contracted value of our products purchased by the reseller. Additionally, revenues from reseller agreements may include nonrefundable fees related to software license products and related services for an identified customer of the reseller. Guaranteed license fees from resellers, where no right of return exists, are recognized when persuasive evidence of an arrangement exists, delivery of the licensed software has occurred and the collection of a fixed or determinable license fee is considered probable. Non-guaranteed per-copy license fees from resellers are initially deferred and are recognized when they are reported as sold to end-users by the reseller.

      Hosted messaging revenues are generated from fees for hosting services we offer related to our messaging and collaboration solutions, including but not limited to email, calendar, reserve and news groups. These are primarily based upon monthly contractual per unit rates for the services involved, which are recognized on a monthly basis over the term of the contract beginning with the month in which service delivery starts. Amounts billed or received in advance of service delivery, including branding and set-up fees, are initially deferred and subsequently recognized on a ratable basis over the expected term of the relationship beginning with the month in which service delivery starts.

Valuation and impairment of long-lived assets and identifiable intangible assets

      Finite-lived intangible assets are presented at cost, net of accumulated amortization. Amortization is calculated using the straight-line method over estimated useful lives of the assets, which has historically been between 3 and 5 years. We will record an impairment charge on finite-lived intangibles or long-lived assets when it determines that the carrying value of intangibles and long-lived assets may not be recoverable. Factors considered important which could trigger an impairment, include, but are not limited to:

•  significant under performance relative to expected historical or projected future operating results;

•  significant changes in the manner of our use of the acquired assets or the strategy for our overall business;

•  significant negative industry or economic trends;

•  significant decline in our stock price for a sustained period; and

•  our market capitalization relative to net book value.

      Based upon the existence of one or more of the above indicators of impairment, we measure any impairment based on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in our current business model.

      In April 2001, we announced a restructuring plan that involved reorganizing our product and service offerings, including eliminating various product and service lines associated with the following acquisitions: dotOne, Fabrik (Connect Service), FaxNet, and Netmosphere. As a result of the restructuring, we abandoned all of the technology associated with the products and services and terminated all employees originally acquired from dotOne, Fabrik, FaxNet and Netmosphere. As a result, we determined that an impairment analysis was required during the second quarter of 2001.

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      We believed that the termination of the product and service lines indicated that the carrying amount of long-lived assets may not be recoverable and therefore an impairment review was required under SFAS No. 121. When it was determined the carrying value of intangible assets may not be recoverable, we measured any impairment based on a projected discounted cash flow method using a discount rate commensurate with the risk inherent in the current business model. As no future revenues were to be recognized from the product and service lines that were eliminated, which represented separate asset groupings under SFAS No. 121, all of the remaining intangible assets associated with the product and service lines were written off in their entirety. As a result of the assessment, we recorded a $14.2 million impairment charge in the second quarter of 2001.

      In the fourth quarter of 2001, as a result of our consolidation of our facilities and asset base related to our previous restructurings, we performed an assessment of our property and equipment balances that related to our existing hosted messaging business line. As a result of this assessment, we specifically identified assets that it determined were not going to be utilized in the ongoing business and took an impairment charge related to these assets. As a result of this assessment, we recorded an additional impairment charge of $12.4 million in the fourth quarter of 2001.

      We classified the impairment of existing technology and property and equipment to cost of net revenues, and the impairment of goodwill and other intangible assets as other operating expense. The impairment charges were allocated to these classifications to conform to the classifications of the amortization charges associated with these assets. The amortization and impairment charges relating to existing technology and the impaired property and equipment were charged to cost of net revenues as we believe these were the only costs that were directly related to the generation of our revenues.

Estimating allowance for doubtful accounts and contingencies

      The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and contingencies at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. For this reason, actual results could differ from those estimates. Management must make estimates surrounding their ability to collect revenues and related accounts receivable. Management specifically analyzes accounts receivable, historical and current economic trends, previous bad debts, customer concentrations, credit worthiness of customers, and payment terms of customer accounts, when evaluating adequacy of the allowance for doubtful accounts.

      Management estimates liabilities and contingencies at the end of each period. The current financial statement presentation reflects management’s best estimates of liabilities and pending litigation which are probable and where the amount and range of loss can be estimated. We record the minimum liability related to those claims where there is a range of loss. Because of the uncertainties related to the probability of loss and the amount and range of loss on the pending litigation, management may not be able to make an accurate estimate of the liability that could result from an unfavorable outcome. As additional information becomes available, we will continue to assess the potential exposure related to our pending litigation and update our estimates and related disclosures. Such future revisions in our estimates could materially impact our financial results.

Stock-based compensation

      Our stock-based employee compensation plans are described more fully in Note 16 of Notes to Consolidated Financial Statements – Shareholders’ Equity (Deficit). We account for those plans under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25 and related interpretations. Stock-based employee compensation cost is reflected in net loss, as some options granted under those plans had an exercise price less than the fair value of the underlying common stock on the date of grant.

      We amortize stock-based compensation using the straight-line method over the remaining vesting periods of the related options, which is generally four years. Pro forma information regarding net loss and net loss per share is required. This information is required to be determined as if we had accounted for employee stock

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options under the fair value method of Statement of Financial Accounting Standards (“SFAS”) No. 123, as amended by SFAS No. 148.

      The fair value of options and shares issued pursuant to the option plans at the grant date were estimated using the Black-Scholes model. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions including the expected stock price volatility. We use projected volatility rates, which are based upon historical volatility rates trended into future years. Because our employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of our options.

      The following table illustrates the effect on net loss and net loss per share if we had applied the fair value recognition provisions of SFAS No. 123, to stock-based employee compensation.

		Year Ended December 31,
		2001			2002			2003
		(In thousands, except per share amounts)
Net loss attributable to common shares — as Reported		$	(79,820	)	$	(131,815	)	$	(74,579	)
Add:
	Unearned stock-based employee compensation expense included in reported net loss attributable to common shares		38,165			9,997			59
Deduct
	Total stock-based employee compensation expense determined under a fair value based method for all grants, net of related tax effects		(23,901	)		(68,658	)		(26,696	)
Net loss attributable to common shares — pro forma		$	(65,556	)	$	(190,476	)	$	(101,216	)
Basic and diluted net loss per share attributable to common shares — as reported		$	(4.32	)	$	(6.78	)	$	(3.73	)
Basic and diluted net loss per share attributable to common shares — pro forma		$	(3.54	)	$	(9.80	)	$	(5.06	)

      The effects of applying pro forma disclosures of net loss and net loss per share are not likely to be representative of the pro forma effects on net loss and net loss per share in the future years, as the number of future shares to be issued under these plans is not known and the assumptions used to determine the fair value can vary significantly.

Results of Operations

      The following table presents our net revenues and selected cost of net revenues data during 2001, 2002 and 2003 and the relative composition of net revenues and the selected cost of net revenues data as a percentage of net revenues during 2001, 2002 and 2003.

								Percentage of Total
		Historical Amounts						Net Revenues
		2001		2002		2003		2001			2002			2003
		(In thousands, except percentages)
Year Ended December 31,
Net revenues
	Software license	$	30,960	$	35,176	$	22,104		30	%		40	%		31	%
	Hosted messaging		43,821		24,893		19,444		42			29			27
	Professional services		12,573		11,593		12,315		12			13			17
	Maintenance and support		16,819		15,471		18,434		16			18			25

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								Percentage of
								Related Net Revenues
Selected cost of net revenues
	Software license	$	1,533	$	2,682	$	4,068		5	%	8	%	18	%
	Hosted messaging		59,124		29,303		26,193		135		118		135
	Professional services		10,315		10,020		12,203		82		86		99
	Maintenance and support		10,081		8,670		5,803		60		56		31

Net Revenues

      Software License. We recognized $22.1 million in software license revenues during 2003, as compared to $35.2 million in 2002 and $31.0 million in 2001. Software license revenues in 2003 decreased $13.1 million from 2002 due primarily to unfavorable worldwide macroeconomic conditions and an uncertain political climate delaying customer information technology spending. Software license revenues in 2002 increased $4.2 million from 2001 due primarily to renewed customer confidence in Critical Path and continued improvement of our license product offerings. Uncertainty surrounding our prospects and viability in the first half of 2001 caused a number of existing and potential customers to delay purchasing decisions. This uncertainty stemmed from our restatement of certain previously released financial results for the third quarter of 2000 and subsequently resulted in the termination and resignation of much of the leadership in our sales organization and significant turnover within our senior management group. During the second half of 2001 and first half of 2002, we restructured our business, reorganized our management team, and endeavored to rebuild customer confidence in us. This increase was partially offset by our elimination of certain non-core software license products and services during the second half of 2001 as part of our 2001 restructuring initiatives. We recognized no software license revenues related to non-core products and services in 2002 and 2003, as compared to approximately $2.5 million in 2001. Excluding related non-core products and services, software license revenues were $22.1 million in 2003, $35.2 million in 2002 and $28.5 million in 2001.

      Hosted Messaging. We recognized $19.4 million in hosted messaging revenues during 2003, as compared to $24.9 million in 2002 and $43.8 million in 2001. Hosted messaging revenues in 2003 decreased $5.4 million from 2002 due primarily to a net loss in customers and reduced volume from existing customers. Hosted messaging revenues in 2002 decreased $18.9 million from 2001 due primarily to our elimination of certain non-core hosted messaging products and services in the second half of 2001 as part of our 2001 restructuring initiatives. In addition, during 2002, we experienced a net loss in customers and reduced volume from existing customers, which also contributed to the decline in hosted messaging revenues in 2002. We recognized no hosted messaging revenues related to non-core products and services in 2002 and 2003, as compared to approximately $13.6 million in 2001. Excluding related non-core products and services, hosted messaging revenues were $19.4 million in 2003, $24.9 million in 2002 and $30.2 million in 2001.

      Professional Services. We recognized $12.3 million in professional services revenues during 2003, as compared to $11.6 million in 2002 and $12.6 million in 2001. Professional services revenues in 2003 increased $722,000 from 2002 due primarily to improved utilization rates and additional projects associated with software license sales. Professional services revenues in 2002 decreased $980,000 from 2001 due primarily to our elimination of certain non-core products and services in the second half of 2001 as part of our 2001 restructuring initiatives. We recognized no professional services revenues related to non-core products and services in 2002 and 2003, as compared to approximately $1.7 million in 2001. Excluding related non-core products and services, professional services revenues were $12.3 million in 2003, $11.6 million in 2002 and $10.9 million in 2001.

      Maintenance and Support. We recognized $18.4 million in maintenance and support revenues during 2003, as compared to $15.5 million in 2002 and $16.8 million in 2001. Maintenance and support revenues in 2003 increased $3.0 million from 2002 due primarily to favorable renewal rates and additional license sales with associated maintenance and support during 2002 and 2003. Maintenance and support revenues in 2002 decreased $1.3 million from 2001 due primarily to our elimination of certain non-core products and services in the second half of 2001 as part of our 2001 restructuring initiatives. We recognized no maintenance and support revenues related to non-core products and services in 2002 and 2003, as compared to approximately

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$3.8 million in 2001. Excluding related non-core products and services, maintenance and support revenues were $18.4 million in 2003, $15.5 million in 2002 and $13.0 million in 2001.

      Our international operations accounted for approximately 62% of net revenues in 2003, 54% in 2002 and 40% in 2001. The significant year over year increases in international revenues as a percentage of total revenues reflect continued strength in our European markets.

Cost of Net Revenues

      Software License. Cost of net software license revenues consists primarily of product media duplication, manuals and packaging materials, personnel and facility costs and third-party royalties. Software license costs were $4.1 million in 2003, as compared to $2.7 million in 2002 and $1.5 million in 2001. Software license costs in 2003 increased by $1.4 million from 2002 due primarily to an increase in third party costs associated with certain license transactions that required us to purchase third party technology to integrate with our offering. Software license costs in 2002 increased by $1.2 million from 2001 due primarily to an increase in software license revenues over the same period and, to a lesser extent, an increase in third party costs.

      Hosted Messaging. Cost of net hosted messaging revenues consists primarily of costs incurred in the delivery and support of messaging services, including depreciation of capital equipment used in network infrastructure, amortization of purchased technology, Internet connection charges, accretion of acquisition-related retention bonuses, personnel costs incurred in operations, and other direct and allocated indirect costs. Hosted messaging costs were $26.2 million in 2003, as compared to $29.3 million in 2002 and $59.1 million in 2001. Hosted messaging costs in 2003 decreased by $3.1 million from 2002 due primarily to cost savings generated through our 2002 and 2003 restructuring initiatives, including the reduction in employees and related overhead and personnel costs of $859,000, the cancellation of certain outside consulting arrangements of $960,000, the sale or exit of several non-core services, the retirement of surplus network infrastructure equipment and software and the consolidation of data centers. Hosted messaging costs in 2002 decreased by $29.8 million from 2001 due primarily to cost savings generated through our 2001 and 2002 restructuring initiatives, including the reduction in employees and related overhead and personnel costs of $3.5 million, the cancellation of certain outside consulting arrangements of $2.4 million, the sale or exit of several non-core services, the retirement of surplus network infrastructure equipment and software and the consolidation of data centers of $13.1 million. Depreciation expense related to cost of net hosted messaging revenues totaled $26.3 million, $15.3 million and $9.4 million during 2001, 2002 and 2003, respectively.

      Professional Services. Cost of professional services revenues consists primarily of personnel costs including custom engineering, installation and training services for our licensed solutions, and other direct and allocated indirect costs. Professional services costs were $12.2 million in 2003, as compared to $10.0 million in 2002 and $10.3 million in 2001. Professional services costs in 2003 increased by $2.2 million from 2002 due primarily to $2.3 million in incremental consulting and personnel costs associated with a major European services project partially offset by cost savings generated through our 2002 and 2003 restructuring initiatives, including the termination of employees and the reduction in related overhead and personnel costs. Professional services costs in 2002 decreased by $0.3 million from 2001, due primarily to cost savings generated through our 2001 and 2002 restructuring initiatives.

      Maintenance and Support. Cost of maintenance and support revenues consists primarily of personnel costs related to the customer support functions for both hosted and licensed solutions, and other direct and allocated indirect costs. Maintenance and support costs were $5.8 million in 2003, as compared to $8.7 million in 2002 and $10.1 million in 2001. Maintenance and support costs in 2003 decreased by $2.9 million from 2002 due primarily to cost savings generated through our 2002 and 2003 restructuring initiatives, including the termination of employees and the reduction in related overhead and personnel costs. Maintenance and support costs in 2002 decreased by $1.4 million from 2001 due primarily to cost savings generated through our 2001 and 2002 restructuring initiatives.

      Operations, customer support and professional services headcount totaled 130 employees at December 31, 2003, 182 employees at December 31, 2002 and 192 employees at December 31, 2001. Headcount decreased year over year as a result of our 2001, 2002 and 2003 strategic restructuring initiatives.

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      The following table presents selected operating expenses of Critical Path during 2001, 2002 and 2003.

								Percentage of Total
		Historical Amounts						Net Revenues
		2001		2002		2003		2001			2002			2003
		(In thousands, except percentages)
Year Ended December 31,
Selected operating expenses
	Sales and marketing	$	53,356	$	43,604	$	31,224		51	%		50	%		43	%
	Research and development		30,744		19,649		19,047		30			23			26
	General and administrative		42,260		22,128		12,603		41			25			17

Operating Expenses

      Sales and Marketing. Sales and marketing expenses consist primarily of compensation for sales and marketing personnel, advertising, public relations, other promotional costs, and, to a lesser extent, related overhead. Sales and marketing expenses were $31.2 million in 2003, as compared to $43.6 million in 2002 and $53.4 million in 2001. Sales and marketing expenses in 2003 decreased by $12.4 million from 2002 due primarily to cost savings generated through our 2002 and 2003 restructuring initiatives, including the termination of employees and reduction in related overhead and personnel costs of approximately $7.0 million, the reduction in certain marketing program costs of approximately $2.3 million, and savings related to facilities consolidation of $3.2 million. Sales and marketing expenses in 2002 decreased by $9.8 million from 2001 due primarily to cost savings generated through our 2001 and 2002 restructuring initiatives, including the termination of employees and reduction in related overhead and personnel costs of approximately $5.4 million, the reduction in certain marketing program costs of approximately $2.8 million, and the consolidation of facilities of $2.6 million. These cost savings were partially offset by an increase in outside expenses of approximately $921,000. Sales and marketing headcount totaled 92 at December 31, 2003, 144 at December 31, 2002 and 131 at December 31, 2001. Sales and marketing headcount decreased by 52 employees in 2003 as a result of our 2002 and 2003 restructuring initiatives and increased in 2002 by 13 employees as a result of the reorganization of our sales force.

      Research and Development. Research and development expenses consist primarily of compensation for technical staff, payments to outside contractors, depreciation of capital equipment associated with research and development activities, and, to a lesser extent, related overhead. Research and development expenses were $19.0 million in 2003, as compared to $19.6 million in 2002 and $30.7 million in 2001. Research and development expenses in 2003 decreased by $602,000 from 2002 due primarily to cost savings generated through our 2002 and 2003 restructuring initiatives, including the termination of employees and the reduction in related overhead and personnel costs of approximately $1.2 million and the consolidation of facilities of $1.0 million. These cost savings were partially offset by an increase in outside consulting expenses of approximately $595,000. Research and development expenses in 2002 decreased by $11.1 million from 2001 due primarily to cost savings generated through our 2001 and 2002 restructuring initiatives, including the termination of employees and the reduction in related overhead and personnel costs of approximately $5.3 million, the cancellation of certain outside consulting arrangements of $1.5 million, and savings of $4.6 million related to the consolidation of facilities. Research and development headcount totaled 132 at December 31, 2003, 163 at December 31, 2002 and 148 at December 31, 2001. Research and development headcount decreased by 31 employees in 2003 as a result of our 2002 and 2003 restructuring initiatives and increased by 15 employees in 2002 as a result of the reorganization of our engineering team.

      General and Administrative. General and administrative expenses consist primarily of compensation for personnel, fees for outside professional services, occupancy costs and, to a lesser extent, related overhead. General and administrative expenses were $12.6 million in 2003, as compared to $22.1 million in 2002 and $42.3 million in 2001. General and administrative expenses in 2003 decreased by $9.5 million from 2002 due primarily to cost savings generated through our 2002 and 2003 restructuring initiatives, including the termination of employees and the reduction in related overhead and personnel costs of approximately $2.9 million, the reduction in outside legal and litigation fees of $1.9 million, the reduction in bad debt

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expenses of $952,000, the reduction in consulting expenses of $2.1 million, and a reduction in accounting and audit fees of $179,000. General and administrative expenses in 2002 decreased by $20.1 million from 2001 due primarily to cost savings generated though our 2001 and 2002 restructuring initiatives, including the termination of employees and the reduction in related overhead and personnel costs of approximately $3.5 million, the reduction in outside legal and litigation fees of $6.7 million, the reduction in bad debt expenses of $4.3 million, the reduction in consulting expenses of $2.0 million, and the reduction in accounting and audit fees of $946,000. General and administrative headcount totaled 64 at December 31, 2003, 88 at December 31, 2002, and 91 at December 31, 2001. General and administrative headcount decreased by 24 employees in 2003 as a result of our 2002 and 2003 restructuring initiatives and decreased in 2002 by 3 employees as a result of our 2001 and 2002 restructuring initiatives.

Goodwill and Other Intangibles Assets

      Amortization of Goodwill. In connection with our acquisitions completed in 1999, 2000 and 2002, all of which were accounted for using the purchase method of accounting, we recorded goodwill and other intangible assets associated with assembled workforce, customer base, and existing technology. During 2001 we recorded goodwill amortization of $643,000. In July 2001, the Financial Accounting Standards Board issued SFAS No. 142, Goodwill and Other Intangible Assets, which was effective for fiscal years beginning after December 15, 2001. SFAS No. 142 required, among other things, the discontinuance of goodwill amortization and the reclassification of certain existing recognized intangibles as goodwill. In connection with the adoption of SFAS No. 142, in January 2002, we reclassified certain intangible assets and related amortization associated with assembled workforce to goodwill and ceased any future amortization of goodwill. Amortization expenses related to these assets totaled $4.7 million during 2001 and were included in amortization of goodwill and other intangible assets. There was no amortization expense recorded in 2002 or 2003. See also Note 8 of Notes to Consolidated Financial Statements – Goodwill and Other Intangible Assets.

      Amortization of Intangible Assets. In connection with our acquisitions completed in 1999 and 2000, all of which were accounted for using the purchase method of accounting, we recorded goodwill and other intangible assets, primarily for assembled workforce, customer base and existing technology. Additionally, we recorded intangible assets related to certain warrants issued to strategic partners. In connection with the adoption of SFAS No. 142, discussed above, we reclassified certain intangible assets and related amortization associated with assembled workforce out of intangible assets and into goodwill. Based on the types of identifiable intangibles assets acquired, amortization expenses of $21.3 million, $18.5 million and zero were allocated to the cost of net revenues and amortization expenses of $32.7 million, $24.8 million and zero were allocated to operating expenses in 2001, 2002 and 2003, respectively.

      In April 2001, we announced a restructuring plan that involved reorganizing our product and service offerings, including eliminating various product and service lines associated with the following acquisitions: dotOne, Fabrik (Connect Service), FaxNet, and Netmosphere. As a result of the restructuring, we abandoned all of the technology associated with the products and services and all employees originally acquired from dotOne, Fabrik, FaxNet and Netmosphere were terminated. As a result, we determined that an impairment analysis was required during the second quarter of 2001.

      We believed that the termination of the product and service lines indicated that the carrying amount of long-lived assets may not be recoverable and therefore an impairment review was required under SFAS No. 121. When it was determined the carrying value of intangible assets may not be recoverable, we measured any impairment based on a projected discounted cash flow method using a discount rate commensurate with the risk inherent in the current business model. As no future revenues were to be recognized from the product and service lines that were eliminated, which represented separate asset groupings under SFAS No. 121, all of the remaining intangible assets associated with the product and service lines were written off in their entirety. As a result of the assessment, we recorded a $14.2 million impairment charge in the second quarter of 2001.

      In the fourth quarter of 2001, as a result of the consolidation of our facilities and asset base related to our previous restructurings, we performed an assessment of our property and equipment balances that related to

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our existing hosted messaging business line. As a result of this assessment, we specifically identified assets that we determined were not going to be utilized in the ongoing business and took an impairment charge related to these assets. As a result of this assessment, we recorded an additional impairment charge of $12.4 million in the fourth quarter of 2001.

      The charges related to the impairment of certain long-lived assets recorded in 2001, included impairment charges of $16.7 million which were allocated to the cost of net revenues and impairment charges of $10.0 million which were allocated to operating expenses. We classified the impairment of existing technology and property and equipment to cost of net revenues, and the impairment of goodwill and other intangible assets as other operating expense. The impairment charges were allocated to these classifications to conform to the classifications of the amortization charges associated with these assets. The amortization and impairment charges relating to existing technology and the impaired property and equipment were charged to cost of net revenues as we believes these were the only costs that were directly related to the generation of our revenues. See also the Critical Accounting Policies, Judgements and Estimates, section of Management’s Discussion and Analysis and Note 8 of Notes to Consolidated Financial Statements – Goodwill and Other Intangible Assets.

      Warrants. During 1999, 2000 and 2003, we issued warrants to purchase shares of our preferred and common stock pursuant to certain strategic agreements. See also Note 8 of Notes to Consolidated Financial Statements – Goodwill and Other Intangible Assets and Note 17 – Impairment of Long-Lived Assets.

      In November 2003, we entered into an agreement with one of our landlords, Equity Office Management LLC, pursuant to which we restructured the lease covering our Santa Monica facility. As part of the agreement, Equity Office Management LLC agreed to reduce the square footage under lease and the related lease obligation in exchange for $381,000 in cash and warrants to purchase up to 25,000 shares of our common stock. The warrants were fully vested upon issuance and are exercisable over a five-year period beginning on December 1, 2003, at a price of $2.49 per share.

      Using the Black-Scholes option pricing model and assuming a term of five years and expected volatility of 138%, the fair value of the warrants on the effective date of the agreement approximated $48,000, which was recorded in restructuring and other expenses in the fourth quarter of 2003.

      In January 1999, we entered into an agreement with ICQ, Inc., a subsidiary of AOL Time Warner, pursuant to which we provide email hosting services that are integrated with ICQ’s instant messaging service provided to ICQ’s customers. As part of the agreement, ICQ agreed to provide us with sub-branded advertising in exchange for warrants to purchase up to 2,442,766 shares of Series B preferred stock, issuable upon attainment of each of five milestones.

      As of April 9, 2000, all five milestones had been attained and all related warrants were exercised during 2000 in two net exercises of 766,674 and 1,441,067 shares. Using the Black-Scholes option-pricing model and assuming a term of seven years and expected volatility of 90%, the final revised aggregate fair value of all vested warrants was $93.8 million, which was being amortized to advertising expense using the straight-line method over four years. Aggregate charges to stock-based expenses of $19.5 million and $14.7 million were recorded to operating expenses during 2000 and 2001, respectively, related to these warrants. During 2002, amortization of intangible assets totaled $14.7 million related to these warrants. The value of these warrants was fully amortized at December 31, 2002.

      In October 1999, we entered into an agreement with Qwest Communications Corporation, a telecommunications company, pursuant to which we agreed to provide email hosting services to Qwest’s customers. As part of the agreement, Qwest agreed to provide us with sub-branded advertising in exchange for warrants to purchase up to 3,534,540 shares of our common stock upon attainment of each of six milestones.

      As of December 31, 2001, only the first of the six milestones had been attained. None of the remaining milestones were considered probable and as a result, the fair value of the warrants relating to the shares underlying the second through sixth milestones was not recognized. During 2001 and 2002, $4.6 million and $4.6 million, respectively, was charged to stock-based operating expense related to the vested warrants. The

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value of these warrants was fully amortized at December 31, 2002 and accordingly no expense was recognized related to these warrants during 2003.

      In December 1999, we entered into an agreement with Worldsport Network Ltd., the sole and exclusive provider of Internet solutions for the General Association of International Sports Federations (“GAISF”) and a majority of the international federations it recognizes. Under the terms of the agreement, Worldsport offers our web-based email and calendaring services to the GAISF network and its members. As part of the agreement, Worldsport agreed to provide us with sub-branded advertising in exchange for warrants to purchase up to a 1.25% equity interest in Critical Path on a fully diluted basis upon attainment of each of five milestones based on the number of email boxes for which Worldsport registers and provides sub-branding. The warrants are exercisable for five years after becoming vested. Any warrants not vested within five years of the date of the agreement will be canceled. Worldsport ceased operations and filed for bankruptcy during 2000 and we continue to believe the warrants will ultimately expire unvested and unexercised.

      In December 1999, we entered into an agreement with one of our lessors, in connection with an office lease, pursuant to which the lessor was issued warrants to purchase up to 25,000 shares of our common stock. The warrants may be exercised beginning January 1, 2000 through December 20, 2006 at a price of $90.00 per share. The warrants vest at the beginning of each month on a straight-line basis in the amount of 521 shares per month.

      Using the Black-Scholes option pricing model and assuming a term of six years and expected volatility of 90%, the fair value of the warrants on the effective date of the agreement approximated $2.0 million, which was being amortized to general and administrative expenses using the straight-line method over ten years beginning January 2000. During both 2000 and 2001, approximately $200,000 was charged to stock-based expense related to the vested warrants. In March 2002, the lease was terminated and the remaining value of $1.6 million was recognized to stock-based expense.

      In January 2000, docSpace entered into an agreement with a major telecommunications company (“Telco”) pursuant to which docSpace would provide secure messaging services to the Telco’s customers. As part of the agreement, Telco agreed to provide marketing, publicity, and promotional services to docSpace. As a result of the completion of our acquisition of docSpace, we assumed warrants that allowed Telco to purchase up to 349,123 shares of our common stock upon attainment of each of three milestones.

      Subsequent to the acquisition, we entered into discussions with Telco to modify their relationship. Accordingly, the vesting provisions of the proposed agreement were modified to reflect the requirements of the new relationship. As of December 31, 2003, none of the vesting milestones of the original agreement had been attained and none of the milestones are considered probable. Accordingly no deferred compensation associated with the warrants has been recognized. Future changes in the trading price of our common stock at the end of each quarter, and at the time certain milestones are achieved, may cause changes in the ultimate amount of the related stock-based charges.

      Acquisition-Related Retention Bonuses. In connection with the acquisitions of dotOne, Amplitude, Xeti, FaxNet, ISOCOR, and docSpace, during 1999 and 2000, we established a retention bonus program in the aggregate amount of $20.7 million to provide incentives for certain former employees of these companies to continue their employment with Critical Path. Payments of bonuses to designated employees occurred on the six-month, twelve-month or eighteen-month anniversary date of the related acquisition, depending on the program, unless the designated employee voluntarily terminates employment with Critical Path prior to the respective acquisition’s applicable anniversary. A ratable share of the adjusted eligible bonus amount has been accrued and charged to compensation expense over the respective six, twelve or eighteen month period commencing on the date the bonuses were granted. There were no acquisition-related retention bonuses granted during 2001, 2002 and 2003.

      As of December 31, 2001, the aggregate, adjusted eligible bonus totaled $1.9 million, and the ratable charge to compensation expense for the year then ended was $1.4 million. Based on the functions of the employees scheduled to receive acquisition bonuses in 2001, this amount was charged to operating expenses.

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During 2002, the charges to compensation related to acquisition bonuses were insignificant and there were no related charges in 2003. Additionally, as of December 31, 2002 and 2003, no acquisition bonuses remained.

      Stock-Based Expenses. Stock-based expenses totaled $38.2 million, $10.0 million and $85,000 in 2001, 2002 and 2003, respectively, associated with stock options granted to employees and consultants. Based on the functions of the employees and consultants participating in the related option grants, during 2001, 2002 and 2003, expenses of $4.1 million, $1.2 million and $17,000, respectively, were allocated to cost of net revenues and expenses of $34.1 million, $8.8 million and $68,000, respectively, were allocated to operating expenses. See also the Critical Accounting Policies, Judgments and Estimates, Section of Management’s Discussion and Analysis and Note 16 of Notes to Consolidated Financial Statements – Shareholders’ Equity (Deficit).

      During 2001, 2002 and 2003, we incurred stock-based charges of approximately $1.7 million, $17,000 and $181,000, respectively, in connection with certain severance agreements for terminated employees and consulting arrangements. These charges were included in operating expenses based on the functions of the related employees and consultants.

      In connection with the settlement of a class action lawsuit, we agreed to issue warrants to purchase up to 850,000 shares of our common stock at $10.00 per share, and recorded a charge of $697,000 to general and administrative expense related to the fair value of these warrants.

      In November 2003, in connection with a court-approved settlement of claims by certain former shareholders of PeerLogic, Inc., we agreed to issue 553,914 shares of common stock and 188,587 shares of Series D preferred stock, and recorded stock-based compensation expense of $5.1 million related to the fair value of the issued stock. We also agreed to exchange 69,149 shares of Series D preferred stock for 733,333 shares of Series E preferred stock if we obtain shareholder approval of the matters being submitted to a vote of our shareholders at a special meeting.

      All unearned compensation balances related to the 1998, 1999 and 2001 grants were fully amortized as of December 31, 2003.

Strategic Restructurings (in millions)

      The following tables summarize strategic restructuring costs we incurred during the three years ended December 31, 2003:

		Liabilities at								Cash					Liabilities at
		December 31,		Total			Noncash			Receipts					December 31,
Year ended December 31, 2001		2000		Charges			Charges			(Payments)			Adjustments		2001
Workforce reduction		$	—	$	10.3		$	(1.3	)	$	(8.9	)	$	—	$	0.1
Facility and operations consolidation and other charges			—		9.0			(5.5	)		(1.6	)		—		1.9
Non-core product and service sales and divestitures			—		(1.0	)		(1.1	)		2.3			—		0.2
	Total	$	—	$	18.3		$	(7.9	)	$	(8.2	)	$	—	$	2.2

		Liabilities at							Cash					Liabilities at
		December 31,		Total		Noncash			Receipts					December 31,
Year ended December 31, 2002		2001		Charges		Charges			(Payments)			Adjustments		2002
Workforce reduction		$	0.1	$	2.1	$	—		$	(1.0	)	$	—	$	1.2
Facility and operations consolidation and other charges			1.9		1.1		(0.4	)		(1.5	)		—		1.1
Non-core product and service sales and divestitures			0.2		—		—			0.1			—		0.3
	Total	$	2.2	$	3.2	$	(0.4	)	$	(2.4	)	$	—	$	2.6

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		Liabilities at							Cash						Liabilities at
		December 31,		Total		Noncash			Receipts						December 31,
Year ended December 31, 2003		2002		Charges		Charges			(Payments)			Adjustments			2003
Workforce reduction		$	1.2	$	6.0	$	(0.2	)	$	(6.2	)	$	(0.6	)	$	0.2
Facility and operations consolidation and other charges			1.1		1.8		(0.3	)		(1.7	)		(0.3	)		0.6
Non-core product and service sales and divestitures			0.3		0.3		—			(0.3	)		(0.3	)		—
	Total	$	2.6	$	8.1	$	(0.5	)	$	(8.2	)	$	(1.2	)	$	0.8

      In April 2001, we announced a strategic restructuring plan that involved reorganizing and refocusing our product and service offerings, a workforce reduction, and a facilities and operations consolidation. Additionally, we implemented an aggressive expense management plan to further reduce operating costs while maintaining strong customer service. We completed this restructuring plan in 2001, including the divestiture of all products and services deemed to be non-core products and services to our continued operations, a 44% reduction in headcount, a 65% reduction in the number of facilities and the implementation of other cost cutting measures, resulting in a significant reduction in overall operating expenses. The non-core products and services comprised approximately 21% of total revenues in the year ended December 31, 2001.

      During 2001, we sold or discontinued all of our non-core products and services and as a result of these transactions recognized a net gain of $1.0 million for the year ended December 31, 2001. We reduced headcount from 1,011 employees at March 31, 2001 to 562 employees at December 31, 2001. Charges related to the headcount reduction consisted primarily of the payment of severance and fringe benefits, and aggregated approximately $10.3 million during 2001. In connection with these restructuring actions, we reduced the number of facilities we occupied from 77 at March 31, 2001 to 27 at December 31, 2001. Lease termination and facility consolidation related charges consisted primarily of lease termination costs, future lease payments and related fees, and aggregated approximately $9.0 million during 2001.

      The initiatives contemplated under these restructurings were completed during 2003, and during the first quarter of 2003, we reversed approximately $1.2 million in restructuring expenses, which were originally accrued in 2001 and 2002 associated with the restructuring initiatives discussed above, as we determined these amounts will not be paid in the future. The reversal of these expenses is reflected in the “Adjustments” column of the Strategic Restructuring table presented above.

      In May 2002, the board of directors approved a restructuring plan to further reduce our expense levels consistent with the then current business climate. In connection with the plan, a restructuring charge of $1.5 million was recognized in the second quarter of 2002. This charge was comprised of approximately $1.2 million in severance and related costs associated with the elimination of approximately 39 positions and $300,000 in facilities lease termination costs. The balance of the accrual at December 31, 2003, of approximately $0.4 million is expected to be utilized by the end of 2004.

      In January 2003, we announced a restructuring initiative designed to further reduce our expense levels in an effort to achieve operating profitability assuming no or moderate revenue growth. The plan includes the consolidation of some office locations and a global workforce reduction of approximately 175 positions, or approximately 30% of the workforce. The headcount reduction was partially offset by outsourcing approximately 75 positions to lower cost service providers. We incurred aggregate charges of approximately $8.0 million resulting from the cost reduction plan, inclusive of $7.0 million in cash and $1.0 million in non-cash expenses. Included in this plan were approximately $1.7 million in charges incurred in the fourth quarter of 2002, comprised of approximately $0.7 million in severance and related costs and $1.0 million in facilities lease termination costs. During 2003, cash payments totaling $6.5 million were made related to the restructuring. At December 31, 2003, the balance of the accrual was approximately $0.2 million and is expected to be utilized by the end of the second quarter of 2004.

      More recently, in November 2003, we announced that we were restructuring certain of our facility lease obligations in an effort to reduce our long-term cash obligations. In addition, we identified an additional 16

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positions, primarily held by management-level employees, which were to be eliminated. Costs totaling $1.8 million were recognized during the fourth quarter of 2003 associated with these initiatives, including $1.3 million in lease restructuring and termination costs and $0.5 million in severance and related headcount reduction costs. During the fourth quarter of 2003, cash payments totaling $1.2 million were made associated with the facility restructuring activities and $0.4 million related to the headcount reductions. The remaining accrual of $0.2 million associated with this restructuring is expected to be utilized by the end of the first quarter of 2004. In addition, we expect to incur a total of approximately $1.0 million in the first six months of 2004 related to headcount reductions under this or other cost reduction initiatives.

Interest and Other Income (Expense), Net

      Interest and other income (expense), net consists primarily of interest earnings on cash, cash equivalents and short-term investments as well as net gains (losses) on foreign exchange transactions and changes in the fair value of the liquidation preference on the Series D preferred stock. We completed private placements of equity securities in April 1998, September 1998 and January 1999, and we completed public offerings of common stock in April 1999 and June 1999. In addition, on March 30, 2000, we issued $300.0 million of five-year, 5 3/4% Convertible Subordinated Notes due on April 1, 2005. During 2001, 2002 and 2003 we earned $4.6 million, $1.5 million and $0.4 million, respectively, in interest income related to interest income on cash, cash equivalents and short-term investments. During 2001, we used $48.7 million to retire a substantial portion of our convertible subordinated notes. A significant amount of cash was used to fund our operating activities during 2001, 2002 and 2003, contributing to a significant decrease in interest income in 2002 and 2003. During 2001, we recognized a net gain from foreign currency transactions associated with our international operations of $947,000, and net losses of $817,000 and $440,000 in 2002 and 2003, respectively. Based on the current international markets, we expect that fluctuations in foreign currencies could have a significant impact on our operating results in 2004.

      In connection with the financing transaction closed in December 2001, the Series D preferred stock was deemed to have an embedded derivative. In accordance with the provisions of SFAS No. 133, Accounting for Derivative Instruments, we are required to adjust the carrying value of the preference to its fair value at each balance sheet date and recognize any change since the prior balance sheet date as a component of other income or expense. The estimated fair value of the liquidation preference had increased to $24.8 million and $12.6 million and $5.2 million at December 31, 2003, 2002 and 2001, respectively, resulting in a net charge to other expense of $12.2 million in 2003, $7.4 million in 2002 and $5.2 million in 2001.

Release of The docSpace Company Escrow Funds

      In June 2003, we entered into an agreement with the former shareholders of The docSpace Company, Inc. to release back to us approximately $3.8 million of approximately $4.7 million in remaining funds held in escrow related to our acquisition of The docSpace Company in 2000. The funds were remitted to us in June 2003, and we recognized a gain of $3.8 million in Other Income during the second quarter of 2003.

      The escrow account was initially established in February 2000 with $5.0 million to be used to reimburse the former shareholders of The docSpace Company for certain qualifying expenses related to the establishment, maintenance and dissolution of the various holding companies established by the sellers in connection with the structuring of The docSpace Company acquisition. The escrow fund is scheduled to terminate in February 2005, unless all related holding companies are dissolved prior to such date, at which time all remaining funds held in escrow will be remitted to us. The remaining funds held in escrow are expected to be sufficient to cover all foreseeable costs over the remaining term of the escrow agreement based on analysis performed by both us and the docSpace shareholders; however, in the event such funds are not sufficient we will be responsible for the reimbursement of any qualifying expenses.

Depreciation Expense

      Depreciation expense primarily relates to the expensing, over the estimated useful lives, of capital equipment used in network infrastructure and for our hosted messaging services, leasehold improvements and

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equipment used in our general operations. Depreciation expense totaled $43.0 million, $27.2 million and $16.3 million during 2001, 2002 and 2003, respectively. Included in these amounts was depreciation expense related to cost of net hosted messaging revenues, which totaled $26.3 million, $15.3 million and $9.4 million during 2001, 2002 and 2003, respectively. The remaining depreciation expense related to capital expenditures incurred for general operations of our business and has been allocated to cost of net revenues and operating expense, as appropriate. Depreciation expense decreased year over year due primarily to the write-down and completion of depreciation on equipment related to our hosted messaging operations, partially offset by capital expenditures related to our network infrastructure.

Interest Expense

      Interest expense consists primarily of interest expense and amortization of issuance costs related to our 5 3/4% Convertible Subordinated Notes issued in March 2000 and interest on certain capital leases. We incurred approximately $13.0 million, $2.2 million and $2.2 million in interest expense on the Convertible Subordinated Notes, and approximately $1.6 million, $275,000 and $275,000 related to amortization of debt issuance costs in 2001, 2002 and 2003, respectively.

Equity in Net Loss of Japanese Joint Venture

      In June 2000, we established a joint venture, Critical Path Pacific, Inc. with Mitsui and Co., Ltd., NTT Communications Corporation and NEC Corporation to deliver advanced Internet messaging solutions to businesses in Asia. We invested $7.5 million and held a 40% ownership interest in the joint venture. This investment was accounted for using the equity method. We recorded equity in net loss of joint venture of approximately $1.9 million, $1.4 million and zero during 2001, 2002 and 2003, respectively.

      On June 6, 2002, we acquired the remaining 60% ownership interest in Critical Path Pacific, Inc. for $3.0 million in cash and the assumption of $2.6 million in business restructuring and capital lease obligations and changed the name to Critical Path Japan, Inc. The excess of the purchase price of $5.6 million over the fair value of the acquired net assets, primarily working capital and fixed assets, of $4.6 million was recorded as goodwill. In accordance with SFAS No. 142, this goodwill asset of approximately $1.0 million will not be amortized; however, we will test this asset for impairment on an annual basis, or more frequently if events or circumstances indicate that the asset might be impaired. We began including the financial results of Critical Path Japan in our own consolidated results subsequent to the acquisition date. As a result, the second quarter of 2002 represented the last quarter in which we used the equity method to account for our ownership interest in Critical Path Pacific.

(Gain) Loss on Investments

      During 2001 and 2002, we determined that certain of our investments in public and private companies were other than temporarily impaired and recorded write downs of $702,000 and $1.5 million, respectively.

      During 2003, we executed sales of our remaining public and private investments. As a result, as of December 31, 2003, we did not carry any investments on our balance sheet. The sale of our investments during 2003 resulted in a net gain of $549,000, which was comprised of $2.4 million in aggregate cash proceeds, the recognition of $1.5 million in unrealized losses and the elimination of $357,000 in assets held as equity investments. See also Note 6 of Notes to Consolidated Financial Statements – Investments.

Provision for Income Taxes

      No current provision or benefit for U.S. federal or state income taxes has been recorded as we have incurred net operating losses for income tax purposes since our inception. No deferred provision or benefit for federal or state income taxes has been recorded as we are in a net deferred tax asset position for which a full valuation allowance has been provided due to uncertainty of realization. We recognized a provision for foreign income taxes of $7.2 million, $979,000 and $856,000 during 2001, 2002 and 2003, respectively, as certain of our European operations generated income taxable in certain European jurisdictions.

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Credit Facility

      In September 2002, we entered into a $15.0 million one-year line of credit with Silicon Valley Bank, to be utilized for working capital and general corporate operations. The credit facility was amended on March 25, 2003 and again on July 18, 2003, as a result of non-compliance with the financial covenants of the facility. We regained compliance with the covenants in the credit facility upon execution of the line of credit agreement on July 18, 2003 and extended the maturity of the credit facility to January 30, 2004. In December 2003 we did not comply with a certain financial covenant and it subsequently received a letter from Silicon Valley Bank on December 17, 2003 waiving such covenant violation. The credit facility is collateralized by certain of our assets and borrowings under the current agreement bear a variable interest rate of Prime plus 2.0%, which has ranged from 5.25% to 6.25%, and is subject to certain covenants. Interest is paid each month with principal due at maturity. Commitment fees related to the credit facility included an initial commitment fee of 0.50%, or $75,000, and additional commitment fees of $35,000 for each amendment. The facility carries an additional fee based on unused credit of 0.45% payable at the end of each quarterly period in arrears and an early termination fee of 1.0% of the total credit facility through maturity. During the first quarter of 2003, we drew down $4.9 million against the line of credit and repaid $2.5 million during the fourth quarter of 2003. As of December 31, 2003, a $2.4 million balance remained outstanding. Additionally, during the year, we reduced letters of credit held under the credit facility from $3.0 million at December 31, 2002 to $2.7 million at December 31, 2003. All associated interest and fees are included as a component of interest expense.

      On January 30, 2004, we executed an amendment with Silicon Valley Bank, which reduced the size of the credit line to a maximum of $5.0 million and extended the maturity date to October 31, 2004. Subsequently, on March 12, 2004 we executed an additional amendment with Silicon Valley Bank, which increased the size of the credit line to a maximum of $6.0 million and extended the maturity date to June 30, 2005. The credit facility continues to be collateralized by specified assets, and borrowings under the current agreement bear a variable interest rate of between Prime plus 1.5% and Prime plus 3.0%, which has historically ranged from 5.25% to 6.25%, and is subject to covenants. Interest is paid each month with principal due at maturity. Initial commitment fees of $20,000 and $100,000 were charged related to the January and March amendments, respectively. Additionally, the facility carries an expedite fee of $50,000, an unused facility fee of either 0.45% or 2.00%, based upon the level of cash balances held at the bank, payable at the end of each quarterly period in arrears, and an early termination fee of $50,000 if the facility is canceled prior to August 1, 2004. In connection with the March 2004 amendment to the credit facility, we agreed to issue warrants to purchase up to 100,000 shares of our common stock to Silicon Valley Bank. These warrants were fully exercisable upon grant, had an exercise price of $2.07 per share and have an expiration date of March 12, 2011.

5 3/4% Convertible Subordinated Notes

      In March 2000, we issued $300.0 million of five-year, 5 3/4% Convertible Subordinated Notes due April 2005 to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933. We incurred approximately $10.8 million in debt issuance costs, consisting primarily of underwriting discount and legal and other professional fees. These costs have been capitalized and will be recognized as a component of interest expense on a straight-line basis, which approximates the effective interest method, over the five-year term of the Notes. Interest is payable on April 1 and October 1 of each year. As of December 31, 2002 and 2003, there was approximately $556,000 in accrued interest payable. These Notes are subordinated in right of payment to all senior debt of Critical Path and effectively subordinated to all existing and future debt and other liabilities of Critical Path’s subsidiaries.

      During 2001, we retired $261.4 million of face value of these notes, which resulted in a gain on retirement of $179.3 million, inclusive of $6.8 million in write downs of related debt issuance costs. We used cash of $48.7 million and a portion of the subordinated notes were retired through the issuance of the preferred stock in the financing transaction completed in December 2001. See also Note 15 of Notes to Consolidated Financial Statements – Financing Transactions and Preferred Stock. As of December 31, 2002 and 2003, the total balance outstanding was $38.4 million. These Notes are carried at cost and had an approximate fair value at December 31, 2002 and 2003 of $32.4 million and $35.8 million, respectively.

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      In March 2004, we executed an amendment with a group of investors led by Cheung Kong Group and its Whampoa Limited affiliates including Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited (referred to collectively as the Cheung Kong Investors) which would extend the maturity of the $32.8 million in face value of 5 3/4% convertible subordinated notes held by the Cheung Kong Investors from April 1, 2005 to April 1, 2006. The extension will only take place in the event our shareholders do not approve the exchange of the 5 3/4% convertible subordinated notes held by the Cheung Kong Investors for approximately 21.9 million shares of our Series E preferred stock. In addition, in the event the maturity date is extended to April 1, 2006, the interest rate on the 5 3/4% convertible subordinated notes held by the Cheung Kong Investors will increase to 7 1/2% for the period beginning April 1, 2005 and ending April 1, 2006, and we will be required to pay fees totaling $1.5 million.

10% Senior Secured Convertible Notes

      In November 2003, we issued in a private placement $10 million in 10% senior secured convertible notes to General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmbH & Co. K.G. (referred to collectively as the General Atlantic Investors). These notes have the following carrying value at December 31, 2003:

		December 31,
		2003
10% Senior Secured Convertible Notes		$	9,250
Amount allocated to derivative instrument			750
Accretion on 10% Senior Secured Convertible Notes			16
	Carrying value of 10% Senior Secured Convertible Notes	$	10,016

      At issuance, the senior secured convertible note issued to the General Atlantic Investors was deemed to have an embedded derivative, related to the acceleration of any unearned interest upon conversion prior to the first anniversary of its issue date. The fair value of this derivative, which was fixed at $750,000 at issuance, was recorded as a reduction in the carrying amount of the senior secured convertible note and will accrete over the initial year of the notes’ four year term.

      As part of our November 2003 private placement of 10% Senior Secured Convertible Notes, we agreed to seek shareholder approval to amend the terms of the Series D preferred stock to, among other things, amend the Series D preferred stock liquidation preference upon a liquidation and change of control, to eliminate the participation feature, to reduce the conversion price from $4.20 to $1.50 and to reduce the amount of dividends to which the holders of Series D preferred stock are entitled. See also the 10% Senior Secured Convertible Notes discussion below.

      Upon shareholder approval, the $10 million in principal amount of senior secured convertible notes held by the General Atlantic Investors, plus interest, will convert into 7.3 million shares of Series E preferred stock at $1.50 per share. As a result, interest expense of approximately $5.7 million will be recognized as of the date of conversion resulting from the beneficial conversion feature included in the Series E preferred stock. Interest expense of $100,000 was accrued on the debt during 2003 and remained payable as of December 31, 2003.

      In January 2004, we issued $15 million in principal amount of 10% senior secured convertible notes to Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P. These notes are convertible into approximately 10 million shares of Series E convertible preferred stock at $1.50 per share only if we receive shareholder approval. As a result, interest expense of approximately $1.5 million will be recognized as of the date of conversion resulting from the beneficial conversion feature included in the Series E preferred stock. If we do not obtain shareholder approval, these notes will be convertible, at the option of each note holder, into shares of our common stock at $1.65 per share, provided the note holder will not be able to convert its notes into shares of common stock to the extent the note holder, together with its affiliates, would own 9.9% or more of our common stock after conversion. If these notes do not convert into Series E preferred stock or common stock, they become due and payable on the fourth anniversary of their issuance.

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      In March 2004, we issued $18.5 million in principal amount of 10% senior secured convertible notes to investment entities affiliated with Crosslink Capital, Criterion Capital Management, Heights Capital Management and Apex Capital. These notes are convertible into approximately 12.3 million shares of Series E convertible preferred stock at $1.50 per share only if we receive shareholder approval. If we do not obtain shareholder approval, these notes will be convertible, at the option of each note holder, into shares of our common stock at $2.18 per share, provided the note holder will not be able to convert its notes into shares of common stock to the extent the note holder, together with its affiliates, would own 9.9% or more of our common stock after conversion. As a result, interest expense of approximately $8.4 million will be recognized as of the date of conversion resulting from the beneficial conversion feature included in the Series E preferred stock. If these notes do not convert into Series E preferred stock or common stock, they become due and payable on the fourth anniversary of their issuance. The terms of the 10% senior secured convertible notes, including their covenants and other limitations, are discussed below under the caption “Liquidity and Capital Resources – Recent Financing Transactions – Debt covenants and restrictions.”

     Series D Preferred Stock

      In December 2001, we completed a financing transaction with a group of investors and their affiliated entities. In connection with this financing transaction, we issued 4 million shares of our Series D Cumulative Redeemable Convertible Participating Preferred Stock, in a private offering, resulting in gross cash proceeds of approximately $30 million, and the simultaneous retirement of approximately $65 million in face value of our outstanding convertible subordinated notes. See also Note 15 of Notes to Consolidated Financial Statements – Financing Transactions and Preferred Stock. The investors were led by General Atlantic Partners LLC and affiliates and included Hutchison Whampoa Limited and affiliates and Vectis Group LLC and affiliates. In addition, General Atlantic LLC was granted warrants to purchase 625,000 shares of our common stock in connection with this offering.

      The Series D preferred stock issued in the financing transaction ranks senior to all of our preferred and common stock in priority of dividends, rights of redemption and payment upon liquidation. The fair value ascribed to the preferred stock was based on actual cash paid by independent investors and the approximate fair value of the convertible subordinated notes retired in connection with the offering. The principal terms of the preferred stock include an automatic redemption on November 8, 2006, cumulative dividends at a rate of 8% per year, compounded on a semi-annual basis and payable in cash or additional shares of Series D preferred stock, conversion into shares of common stock calculated based on the Accreted Value — that is, the purchase price plus accrued dividends — divided by $4.20, and preference in the return of equity in any liquidation or change of control.

      We received net cash proceeds associated with the issuance of the Series D preferred stock of approximately $27 million, which was net of a $2.75 million transaction fee paid to Vectis Group LLC and approximately $200,000 in related legal and accounting fees. At issuance, the total amount of these costs was recorded as a reduction of the carrying amount of the Series D preferred stock and will accrete over the term of the Series D preferred stock. Additionally, at issuance, the Series D preferred stock was deemed to have an embedded beneficial conversion feature which was limited to the net proceeds allocable to preferred stock of approximately $42 million. The value of the beneficial conversion feature, at issuance, was initially recorded as a reduction of the carrying amount of the Series D preferred stock and will accrete over the term of the Series D preferred stock.

      The purchase agreement provides for a preferential return of equity to the Series D preferred stockholders, before any return of equity to the common shareholders, and also provides for the Series D preferred stockholders to participate on a pro rata basis with the common shareholders, in any remaining equity, once the preferential return has been satisfied. Under the terms of this provision, the preferential return of equity is equal to the purchase price of the Series D preferred stock plus all dividends that would have accrued during the term of the preferred stock, even if a change in control occurs prior to the redemption date. The right to receive a preferential return lapses if either: (i) Critical Path is sold for a price per share of Series D preferred stock, had each such share been converted into common stock prior to change in control of at least four times the Accreted Value, or (ii) Critical Path’s stock trades on NASDAQ for 60 days prior to

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the change-in-control at an average price of not less than four times the Accreted Value. As part of our November 2003 private placement of 10% Senior Secured Convertible Notes, we agreed to seek shareholder approval to amend the terms of the Series D preferred stock to, among other things, amend the Series D preferred stock liquidation preference upon a liquidation and change of control, to eliminate the participation feature, to reduce the conversion price from $4.20 to $1.50 and to reduce the amount of dividends to which the holders of Series D preferred stock are entitled. See also the 10% Senior Secured Convertible Notes discussion below.

      At December 31, 2001, 2002 and 2003, the estimated fair value of the liquidation preference was $5.2 million, $12.6 million and $24.8 million, respectively, and was allocated to that feature and recorded as a separate component of the Series D preferred stock. In accordance with the provisions of SFAS No. 133, Accounting for Derivative Instruments, we are required to adjust the carrying value of the preference to its fair value at each balance sheet date and recognize any change since the prior balance sheet date as a component of operating income.

      The warrants are exercisable at any time after November 8, 2002 until November 8, 2006 at an exercise price of $4.20, and convert into one share of our common stock. A portion of the proceeds received for the Series D preferred stock was allocated to the warrants and the preferred stock, based upon their relative fair market values. As a result of this allocation, approximately $5.25 million of the proceeds were allocated to the warrants, which was recorded as a reduction of the carrying value of the Series D preferred stock. Using the Black-Scholes option pricing model, assuming a four-year term, 200% volatility, a risk-free rate of 6.0% and no dividend yield, the fair market value of the warrants was $6.2 million. As part of our November 2003 private placement of 10% Senior Secured Convertible Notes, we agreed to seek shareholder approval to amend the warrants to reduce the exercise price per share from $4.20 to $1.50. See also 10% Senior Secured Convertible Notes below.

Accretion on redeemable convertible preferred shares and valuation of liquidation preference

      In connection with the financing transaction completed during December 2001, we received gross cash proceeds of approximately $30 million and retired approximately $65 million in face value of our outstanding convertible subordinated notes in exchange for shares of our Series D preferred stock. See also Financing Transactions below and Note 15 of Notes to Consolidated Financial Statements – Financing Transactions and Preferred Stock.

      During 2001, 2002 and 2003, the accretion on preferred stock totaled $356,000, $13.9 million and $12.4 million, respectively. The accretion during 2001 was comprised of $121,000 in accrued dividends and accretion of $235,000. During 2002 the accretion on preferred stock was comprised of $4.4 million in accrued dividends and accretion of $9.5 million. During 2003 the accretion on preferred stock was comprised of $4.9 million in accrued dividends and accretion of $7.5 million.

Related Party Transactions

      We have entered into certain transactions with related parties since our inception. These transactions and relationships are discussed in Part 3, Item 13 – Certain Relationships and Related Party Transactions and Note 9 of the Notes to Consolidated Financials Statements – Related Party Transactions.

Liquidity and Capital Resources

      We have operated at a loss since our inception. With our history of operating losses, our primary sources of capital have come from both debt and equity financings that we have completed over the past several years. Cash and cash equivalents totaled $19.0 million at December 31, 2003. Of our cash and cash equivalents at December 31, 2003, $5.0 million is expected to support our outstanding obligations to Silicon Valley Bank and $7.6 million is located in accounts outside the United States, which may not be available to our domestic operations. Accordingly, our readily available cash resources in the United States as of December 31, 2003 were $6.4 million.

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      During 2003, we used an average of approximately $8.7 million of cash per quarter to fund our operating activities. Based on this rate of use of cash and our financial position in the fourth quarter of 2003, management was concerned that our cash requirements would exceed our available cash in the near term. In response to this concern, we have recently consummated several financing transactions in order to secure sufficient funding to meet our expected cash requirements for at least the next twelve months. With the proceeds from the recent financing transactions discussed below, we believe that our cash, cash equivalents and available line of credit as of the date of this filing will be sufficient to maintain current and planned operations for at least the next twelve months.

Recent Financing Transactions

      On November 18, 2003, we entered into a definitive agreement to issue an aggregate of $10 million in principal amount of 10% convertible secured notes to the General Atlantic Investors, and to convert the notes, plus $1 million in accrued interest, into approximately 7.3 million shares of our Series E preferred stock. In the same agreement, we agreed to exchange approximately $32.8 million in face value of our 5 3/4% convertible subordinated notes held by the Cheung Kong Investors for approximately 21.9 million shares of our Series E preferred stock. These notes are convertible into shares of Series E preferred stock at $1.50 per share only if we receive shareholder approval.

      In November 2003, we announced our intention to make a rights offering to public shareholders of record to purchase up to approximately $21 million of newly issued Series E convertible preferred shares at a purchase price of $1.50 per share. Existing holders of our common stock, as of the date of record, will have the right to purchase approximately two shares of the new Series E preferred stock for every three shares of common stock they own as of the record date. We intend to initiate this offering if and when the registration statement filed with the Securities and Exchange Commission relating to the rights offering is declared effective.

      In January 2004, we issued $15 million in principal amount of 10% senior secured convertible notes to Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P. These notes are convertible into approximately 10 million shares of Series E preferred stock at $1.50 per share only if we receive shareholder approval. As a result, interest expense of approximately $1.5 million will be recognized as of the date of conversion resulting from the beneficial conversion feature included in the Series E preferred stock. If we do not obtain shareholder approval, these notes will be convertible, at the option of each note holder, into shares of our common stock at $1.65 per share, provided the note holder will not be able to convert its notes into shares of common stock to the extent the note holder, together with its affiliates, would own 9.9% or more of our common stock after conversion. If these notes do not convert into Series E preferred stock or common stock, they become due and payable on the fourth anniversary of their issuance.

      In March 2004, we issued $18.5 million in principal amount of 10% senior secured convertible notes to investment entities affiliated with Crosslink Capital, Criterion Capital Management, Heights Capital Management and Apex Capital. These notes are convertible into approximately 12.3 million shares of Series E preferred stock at $1.50 per share only if we receive shareholder approval. If we do not obtain shareholder approval, these notes will be convertible, at the option of each note holder, into shares of our common stock at $2.18 per share, provided the note holder will not be able to convert its notes into shares of common stock to the extent the note holder, together with its affiliates, would own 9.9% or more of our common stock after conversion. As a result, interest expense of approximately $8.4 million will be recognized as of the date of conversion resulting from the beneficial conversion feature included in the Series E preferred stock. If these notes do not convert into Series E preferred stock or common stock, they become due and payable on the fourth anniversary of their issuance.

      Upon shareholder approval of the matters being presented at a special meeting, the $43.5 million in principal amount of 10% senior secured convertible notes, plus interest, will automatically convert into approximately 29 million shares of Series E preferred stock at $1.50 per share. Additionally upon such approval, the $32.8 million in face value of its 5 3/4% convertible subordinated notes due in April 2005 held by

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the Cheung Kong Investors will automatically be converted into approximately 21.9 million shares of Series E preferred stock. The Series E preferred stock will be issued to these investors only if Critical Path receives shareholder approval and will rank senior in preference to all of our existing equity. These preferred shares will accrue dividends at an annual rate of 5 3/4% of the purchase price of $1.50 per share.

      In March 2004, we executed an amendment with a group of investors led by the Cheung Kong Investors which would extend the maturity of the $32.8 million in face value of 5 3/4% convertible subordinated notes held by the Cheung Kong Investors from April 1, 2005 to April 1, 2006. The extension will only take place in the event our shareholders do not approve the exchange of the 5 3/4% convertible subordinated notes held by the Cheung Kong Investors for approximately 21.9 million shares of our Series E preferred stock. In addition, in the event the maturity date is extended to April 1, 2006, the interest rate on the 5 3/4% convertible subordinated notes held by the Cheung Kong Investors will increase to 7 1/2% for the period beginning April 1, 2005 and ending April 1, 2006, and we will be required to pay fees totaling $1.5 million.

      In a separate agreement, members of the Cheung Kong Investors have granted us an option, which we may exercise in our sole discretion, to repurchase approximately 10.9 million shares of the Series E preferred stock held by the Cheung Kong Investors at $1.50 per share. Our option expires 10 business days after the Cheung Kong Investors acquire shares of the Series E preferred stock after the close of the proposed rights offering of the preferred stock.

      On January 30, 2004, we executed an amendment with Silicon Valley Bank, which reduced the size of the credit line to a maximum of $5.0 million and extended the maturity date to October 31, 2004. Subsequently, on March 12, 2004 we executed an additional amendment with Silicon Valley Bank, which increased the size of the credit line to a maximum of $6.0 million and extended the maturity date to June 30, 2005. The credit facility continues to be collateralized by certain of our assets and borrowings under the current agreement bear a variable interest rate of between Prime plus 1.5% and Prime plus 3.0%, which has historically ranged from 5.25% to 6.25%, and is subject to certain covenants. Interest is paid each month with principal due at maturity. Initial commitment fees of $20,000 and $100,000 were charged related to the January and March amendments, respectively. Additionally, the facility carries an expedite fee of $50,000, an unused facility fee of either 0.45% or 2.00%, based upon the level of cash balances held at the bank, payable at the end of each quarterly period in arrears, and an early termination fee of $50,000 if the facility is canceled prior to August 1, 2004. In connection with the March amendment to the credit facility, we agreed to issue warrants to purchase up to 100,000 shares of our common stock to Silicon Valley Bank. These warrants were fully exercisable upon grant, had an exercise price of $2.07 per share and have an expiration date of March 12, 2011.

Debt covenants and restrictions

10% senior secured convertible notes

      The 10% senior secured convertible notes become due and payable upon the consummation of a qualified asset sale, a change of control or any financing or series of financings that in the aggregate raises at least $40 million.

      Additionally, the notes become due and payable when declared due and payable by a holder upon the occurrence of an event of default, which include, subject to some exceptions: (1) our failure to pay any amounts due under notes when they are due and payable, (2) our default on any indebtedness with a principal amount of at least $500,000, (3) our voluntary or involuntary bankruptcy, (4) any judgment for the payment of money of more than $500,000, (5) the attachment by our lenders of any of our assets, or (6) the occurrence of any event having a material adverse effect on our business, operations, assets, properties or condition.

      The 10% senior secured convertible notes also contain a financial covenant that requires us to maintain a minimum monthly average operating cash flow, over any given fiscal quarter, for our operations in the Americas of negative $3.0 million. Additionally, we may not incur, create or assume indebtedness or liens under the notes, with specified exceptions. Also, with some exceptions, under the notes we may not: (1) merge with another entity, (2) make any restricted payments, including dividends, distributions and the redemption

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any of our options or capital stock, (3) enter into any transactions with any affiliates, (4) make investments, (5) change the nature of our business, (6) permit our domestic subsidiaries to hold real or personal property in excess of specified amounts or (7) create any new subsidiaries.

      If we breach any representation or warranty or fail to abide by any of our covenants, including the foregoing covenants, then the 10% senior secured convertible notes may become immediately due and payable. If these notes do not convert into Series E preferred stock or common stock, the principal and related interest will become due and payable on the fourth anniversary of their issuance.

Silicon Valley Bank credit facility

      The Silicon Valley Bank credit facility contains provisions for the acceleration of payment of the indebtedness in the event of a default which include, subject to some exceptions: (1) breach of representation or warranty, (2) failure to pay any amounts due under the credit facility when due and payable, (3) exceeding the credit limit, (4) breach of financial covenants or other covenants, (5) attachment by our lenders of any of our assets, (6) default on any permitted indebtedness, (7) any breach which results in a material adverse change to our business, operations, assets, properties or condition, (8) dissolution or voluntary or involuntary bankruptcy, (9) revocation of a guaranty or pledge, (10) payment by the Company of subordinated indebtedness, (11) change in beneficial ownership, (12) fraud or (13) any material adverse change to our business, operations, assets, properties or condition.

      The maturity date of the Silicon Valley Bank credit facility is June 30, 2005.

5 3/4% convertible subordinated notes

      The holders of the 5 3/4% convertible subordinated notes may convert the notes into shares of our common stock at any time before their maturity or the business day before their redemption or repurchase by us. The conversion rate is 9.8546 shares per $1,000 principal amount of notes subject to adjustment in specified circumstances. This rate is equivalent to a conversion price of approximately $405.92 per share. In the event of a change of control, the holders of the 5 3/4% convertible subordinated notes have the option of requiring us to repurchase any notes held at a price of 100% of the principal amount of the notes plus accrued interest to the date of repurchase.

      In March 2004, we executed an amendment with a group of investors led by the Cheung Kong Investors which would extend the maturity of the $32.8 million in face value of 5 3/4% convertible subordinated notes held by the Cheung Kong Investors from April 1, 2005 to April 1, 2006. The extension will only take place in the event our shareholders do not approve the exchange of the 5 3/4% convertible subordinated notes held by the Cheung Kong Investors for approximately 21.9 million shares of our Series E preferred stock. In addition, in the event the maturity date is extended to April 1, 2006, the interest rate on the 5 3/4% convertible subordinated notes held by the Cheung Kong Investors will increase to 7 1/2%, for the period beginning April 1, 2005 and ending April 1, 2006, and we will be required to pay fees totaling $1.5 million.

Ability to incur additional indebtedness

      Subject to certain exceptions for, among others, indebtedness for accounts payable incurred in the ordinary course of business or indebtedness to acquire any equipment or similar property, holders of: (1) a majority of the 10% senior secured convertible notes issued in November, (2) a majority of the 10% senior secured convertible notes issued in January and (3) a majority of the 10% senior secured convertible notes issued in March, must consent to our incurrence of any additional indebtedness. Under the terms of our line of credit with Silicon Valley Bank, we are not permitted to incur additional indebtedness without the approval, by Silicon Valley Bank in its sole discretion, that the terms of the debt are adequately subordinated to the obligations due under the Silicon Valley Bank credit facility. In addition, we must seek the consent of the holders of a majority of our Series D preferred stock in order to incur any additional indebtedness.

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2003, 2002 and 2001 Liquidity Discussion

      Operating Activities. Cash, cash equivalents and marketable securities were $19.0 million, $43.9 million and $69.2 million at December 31, 2003, 2002, and 2001, respectively. Cash and cash equivalents decreased by $14.5 million during 2003, $25.9 million during 2002 and $156.5 million during 2001. We used cash to fund operating activities of $34.9 million during 2003, $25.1 million during 2002 and $91.2 million during 2001, primarily due to our net loss, adjusted for non-cash charges, as operating costs, primarily employee and employee related costs, exceeded the related revenues from the sale of our software products and services. Also contributing to the use of cash in operating activities in 2003, 2002 and 2001 were net cash outlays totaling $8.2 million, $2.4 million and $8.2 million, respectively, related to our 2003, 2002 and 2001 strategic restructuring activities. Additionally during 2003, we paid $2.2 million in interest payments related to the convertible subordinated notes, $2.2 million in insurance premiums and we used $2.9 million to make certain software and hardware support and maintenance renewal payments. A more detailed discussion of our 2001, 2002 and 2003 operating results can be found in the Results of Operations section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

      Of the cash held outside of the United States, we may face restrictions on our ability to use that cash for purposes other than the operation of each of our respective foreign subsidiaries that hold the cash. For example, our ability to use cash held in our German subsidiary for any reason other than the operation of this subsidiary may result in certain tax liabilities and may be subject to local laws that could prevent the transfer of cash from Germany to any other foreign or domestic account.

      We are exposed to foreign currency exchange rate risk inherent in our sales commitments, anticipated sales, contracts with vendors, and working capital, as a significant portion or our worldwide operations have a functional currency other than the United States dollar. The impact of future exchange rate fluctuations cannot be predicted adequately. To date, we have not sought to hedge the risks associated with fluctuations in exchange rates.

      Revenue generated from the sale of our products and services may not increase to a level that exceeds our expenses or could fluctuate significantly as a result of changes in customer demand or acceptance of future products. Although we expect to continue to review our operating expenses, if we are not successful in achieving a cost reduction or generating sufficient revenues, our cash flow from operations will continue to be negatively impacted.

      Our primary source of operating cash flow is the collection of accounts receivable from our customers and the timing of payments to our vendors and service providers. We measure the effectiveness of our collections efforts by an analysis of the average number of days our accounts receivable are outstanding. Collections of accounts receivable and related days outstanding will fluctuate in future periods due to the timing, amount of our future revenues, payment terms on customer contracts and the effectiveness of our collection efforts.

      A number of non-cash items have been charged to expense and increased our net loss in 2003. These items include depreciation and amortization of property and equipment and intangible assets, amortization of unearned stock-based compensation and other stock-based compensation charges and provisions for doubtful accounts. To the extent these non-cash items increase or decrease in amount and increase or decrease our future operating results, there will be no corresponding impact on our cash flows.

      Our operating cash flows will be impacted in the future based on the timing of payments to our vendors for accounts payable. We endeavor to pay our vendors and service providers in accordance with the invoice terms and conditions. The timing of cash payments in future periods may be impacted by the nature of accounts payable arrangements.

      Investing Activities. During 2003, $6.3 million in cash was provided by investing activities while during 2002 and 2001 we used cash in investing activities of $1.8 million and $34.9 million. Cash used in investing activities typically relates to the purchase of property and equipment, primarily for the acquisition of additional network infrastructure equipment, strategic investments in private entities and short-term investments in high-grade, low risk instruments. Cash proceeds typically are comprised of the sale of investments and marketable

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securities and the release of restricted cash and funds held in escrow. Investments in property and equipment totaled $12.2 million, $6.8 million, and $11.2 million during 2003, 2002 and 2001.

      During 2003, we received $3.8 million from the early release of funds held in escrow and $2.4 million from the sale of certain of our public and private investments during the second quarter of 2003. Additionally, we received $9.6 million from the sale of marketable securities and $2.7 million in previously restricted cash. In 2002, we acquired the remaining 60% ownership interest in Critical Path Pacific, Inc. and recognized an increase in cash of $4.5 million, net of the $3.0 million cash portion of the purchase price. In 2001, we acquired the outstanding 27.13% interest in our Italian subsidiary, Critical Path Italy, for approximately $4.2 million, and paid an investment banking fee of $5.7 million associated with our ISOCOR acquisition.

      We primarily invest excess cash in money market funds and other highly liquid securities with maturities of less than 90 days with the intent to make such funds readily available for operating purposes. During 2002 and 2001, we invested a portion of our cash in high-grade, low risk investments with an average maturity of three- to twelve-months. At December 31, 2003, we did not hold any marketable securities. As of December 31, 2002 and 2001, marketable securities totaled approximately $9.6 million and $9.7 million, respectively.

      Financing Activities. During 2003, financing activities provided $12.6 million in cash while during 2002 and 2001 we used cash in financing activities of $0.8 million and $30.3 million, respectively, to retire a significant portion of our convertible debt and to payoff capital lease obligations. The cash outlays were partially offset by proceeds raised in a financing transaction closed in the fourth quarter of 2001 with General Atlantic Partners and certain other investors detailed below, the repayment of notes receivable from officers and shareholders and from the exercise of stock options.

      During 2003, we raised $10 million through the issuance of 10% senior secured convertible notes to General Atlantic Investors and $4.9 million in proceeds related to our line of credit facility with Silicon Valley Bank. Additionally, we raised $1.1 million in proceeds from the issuance of common stock during 2003. These cash inflows were partially offset by approximately $814,000 in principal payments on note and capital lease obligations and $2.6 million in payments against the line of credit facility. As of December 31, 2003 a $2.4 million balance remained outstanding. Additionally, during the year we reduced letters of credit held under the credit facility from $3.0 million at December 31, 2002 to $2.7 million at December 31, 2003. All associated interest and fees are included as a component of interest expense.

      During 2002, we used $3.8 million to payoff capital lease obligations. These cash outlays were partially offset by $1.2 million in proceeds from the repayment of certain officer and shareholder notes receivable and $1.8 million in proceeds from the exercise of stock options.

      During 2001, we used cash in financing activities of $59.6 million to retire $261.4 million of face value of 5 3/4% convertible subordinated notes and to repay certain capital lease obligations. See also Note 15 of Notes to Consolidated Financial Statements – Financing Transaction and Preferred Stock. These cash outlays were partially offset by $26.8 million in proceeds raised in the financing transaction closed in the fourth quarter of 2001 detailed below and $2.6 million in proceeds from the exercise of stock options.

      The financing transaction closed in 2001 was with a group of investors led by General Atlantic Partners, LLC and its affiliates. The financing transaction consisted of approximately $30 million in gross cash proceeds and the retirement of $65 million in face value of our 5 3/4% convertible subordinated notes in the form of shares of mandatorily redeemable convertible preferred stock, and the issuance to General Atlantic Partners and its affiliates of warrants to purchase 625,000 shares of common stock. The cash proceeds to us, net of transaction costs, totaled $26.8 million.

      We receive cash from the exercise of stock options and the sale of stock under our employee stock purchase plan. While we expect to continue to receive these proceeds in future periods, the timing and amount of such proceeds is difficult to predict and is contingent on a number of factors including the price of our common stock, the number of employees participating in the stock option plans and our employee stock purchase plan and general market conditions.

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      We have no present understandings, commitments or agreements for any material acquisitions of, or investments in, other complementary businesses, products or technologies. We continually evaluate potential acquisitions of, or investments in, other businesses, products and technologies, and may in the future utilize our cash resources or may require additional equity or debt financing to accomplish any acquisitions or investments. These alternatives could increase liquidity through the infusion of investment capital by third-party investors or decrease our liquidity as a result of Critical Path seeking to fund expansion into these markets. Such expansions might also cause an increase in capital expenditures and operating expenses.

      The table below sets forth our significant obligations and commitments as of December 31, 2003.

Contractual Obligations and Commitments

			Fiscal Year
													2008
			Total		2004		2005		2006		2007		and Beyond
			(In thousands)
Contractual Cash Obligations:
	Convertible notes, including interest(1)		$	55,486	$	2,206	$	39,280	$	—	$	14,000	$	—
	Line of credit facility			2,299		2,299		—		—		—		—
	Operating lease obligations			19,595		4,805		4,214		4,076		1,366		5,134
	Capital lease obligations			2,088		1,024		640		424		—		—
	Other purchase obligations(2)			10,276		7,713		1,387		1,061		115
		Total Contractual Cash Obligations	$	89,744	$	18,047	$	45,521	$	5,561	$	15,481	$	5,134

(1)	Includes the Critical Path 5 3/4% Convertible Subordinated Notes due April 2005 and 10% Senior Secured Notes due in November 2007.
(2)	Represent certain contractual obligations related to licensed software, maintenance contracts, management of data center operations and network infrastructure storage costs.

      Since December 31, 2003, we have issued an additional $33.5 million in principal amount of 10% senior secured notes. These notes are convertible into shares of Series E preferred stock, if we receive shareholder approval, and otherwise are convertible into shares of common stock, if we do not, at the option of the holder. A discussion of the terms of the convertible notes is provided above under the caption “Liquidity and Capital Resources – Recent Financing Transactions.” If the holders of the convertible notes convert the notes or a portion of the notes to shares of our equity stock, then the contractual obligation would be correspondingly reduced. In the event that these notes are not converted into shares of our equity stock, $21 million in principal and interest will be due and payable in January 2008 and $25.9 million in principal and interest will be due and payable in March 2008.

      In March 2004, we executed an agreement that extends the maturity of $32.8 million in face value of the 5 3/4% convertible subordinated notes due in April 2005 to April 2006, if our shareholders do not approve the conversion of these notes into new Series E preferred stock. In the event the maturity is extended, $32.8 million currently due in April 2005 will be extended to April 2006. In addition, under the agreement we would be required to increase the interest rate for the extended one year period to 7.5% and pay a fee for such extension of $1.5 million. Under the amended agreement for the $32.8 million in notes, $100,000 in fees would be due in 2004, $2.6 million in fees and interest would be due in 2005 and $34 million in principal and interest would be due in 2006.

Recent Accounting Pronouncements

      In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments Hedging Activities. This statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 clarifies under what circumstances a contract with an initial net investment

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meets the characteristic of a derivative as discussed in SFAS No. 133. In addition, it clarifies when a derivative contains a financing component that warrants special reporting in the condensed consolidated statement of cash flows. The provisions of this standard are effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. In addition, except as stated below, all provisions of this statement should be applied prospectively. The provisions of this statement that relate to SFAS No. 133 implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003 should continue to be applied in accordance with their respective effective dates. In addition, certain provisions relating to forward purchases or sales of when-issued securities or other securities that do not yet exist should be applied to existing contracts as well as new contracts entered into after June 30, 2003. The adoption of SFAS No. 149 did not have a material impact on our financial position and results of operations.

      In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 addresses certain financial instruments that, under previous guidance, could be accounted for as equity, but now must be classified as liabilities in statements of financial position. These financial instruments include: 1) mandatorily redeemable financial instruments, 2) obligations to repurchase the issuer’s equity shares by transferring assets, and 3) obligations to issue a variable number of shares. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise effective at the beginning of the first interim period beginning after June 15, 2003. We adopted SFAS No. 150 in the third quarter of 2003 and such adoption did not have a material effect on our financial position and results of operations.

      In May 2003, the EITF reached a consensus on EITF Issue No. 03-05, Applicability of AICPA Statement of Position 97-2, Software Revenue Recognition, to Non-Software Deliverables in Arrangements Containing More-Than-Incidental Software. EITF No. 03-05 addresses the applicability of Statement of Position No. 97-2 regarding software and non-software deliverables in a multiple element arrangement, giving consideration to whether the deliverables are essential to the functionality of one another. EITF Issue No. 03-05 is effective for interim periods beginning after August 13, 2003. The adoption of EITF Issue No. 03-05 did not have a material impact on our financial position and results of operations.

      In January 2003, the FASB issued FASB Interpretation (“FIN”) No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. FIN No. 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN No. 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN No. 46 must be applied for the first interim or annual period beginning after June 15, 2003. In addition, FIN No. 46 requires that we make disclosures in our consolidated financial statements for the year ended December 31, 2002 when we believe it is reasonably possible that we will consolidate or disclose information about variable interest entities after FIN No. 46 becomes effective. In December 2003, FASB issued a revised FIN No. 46. The FASB deferred the effective date for VIEs that are non–special purpose entities created before February 1, 2003, to the first interim or annual reporting period that ends after March 15, 2004. At this time, we do not believe it is reasonably possible that we will consolidate or disclose information about variable interest entities. However, we will continue to assess the impact of FIN No. 46 on our consolidated financial statements.

      In November 2002, the EITF reached a consensus on EITF No. 00-21, Revenue Arrangements with Multiple Deliverables. EITF No. 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which the vendor will perform multiple revenue-generating activities. EITF No. 00-21 is effective for interim periods beginning after June 15, 2003. We adopted EITF No. 00-21 in the third quarter of 2003 and such adoption did not have a material effect on our financial position and results of operations.

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ADDITIONAL FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

We have a history of losses, expect continuing losses and may never achieve profitability.

      We have not achieved profitability in any period and may continue to incur net losses in accordance with generally accepted accounting principles for the foreseeable future. In addition, we intend to continue to spend resources on maintaining and strengthening our business, and this may, in the near term, cause our operating expenses to increase and our operating results to decline.

      In past quarters, we have spent heavily on technology and infrastructure development. We may continue to spend substantial financial and other resources to further develop and introduce new messaging and identity management solutions, and to improve our sales and marketing organizations, strategic relationships and operating infrastructure. We expect that our cost of revenues, sales and marketing expenses, general and administrative expenses, operations, research and customer support expenses and depreciation and amortization expenses could continue to increase in absolute dollars and may increase as a percent of revenues. In addition, in future periods we may incur significant non-cash charges related to stock-based compensation. If revenues do not correspondingly increase, our operating results could decline. If we continue to incur net losses in future periods, we may not be able to retain employees, or fund investments in capital equipment, sales and marketing programs, and research and development to successfully compete against our competitors. We also may never obtain sufficient revenues to exceed our cost structure and achieve profitability. If we do achieve profitability, we may not be able to sustain or increase profitability in the future. This may also, in turn, cause the price of our common stock to demonstrate volatility and/or continue to decline.

We may need to raise additional capital and may need to initiate other operational strategies to continue our operations.

      In the future, we may be required to raise additional funds, particularly if we are unable to generate positive cash flow as a result of our operations. Such financing may not be available in sufficient amounts or on terms acceptable to us. Additionally, we face a number of challenges in operating our business, including our ability to overcome viability concerns of our prospective customers given our recent capital needs, the amount of resources necessary to maintain worldwide operations and continued sluggishness in technology spending. Concerns about our long-term viability may cause our stock price to fall and impair our ability to raise additional capital and may create a concern among our current and future customers and vendors as to whether we will be able to fulfill our contractual obligations. As a result, current and future customers may determine not to do business with us, which would cause our revenues to decline.

The conversion of our preferred stock would result in a substantial number of additional shares of common stock outstanding, which could decrease the price of our common stock.

      As of March 1, 2004, there were 4,188,587 shares of Series D preferred stock outstanding which were convertible, at the option of the holders, into approximately 16.3 million shares of common stock. If we obtain shareholder approval, we will also amend the terms of the Series D preferred stock, including the conversion ratio, to increase the number of shares of common stock initially issuable upon conversion of the Series D preferred stock to approximately 44.8 million. In addition, if we obtain shareholder approval, we will be issuing approximately 52.3 million shares of Series E preferred stock which are initially convertible, at the option of the holders, into an equal number of shares of common stock. In addition, if all the subscription rights being offered in the proposed rights offering are exercised, the shares of Series E preferred stock issued in the rights offering will initially convert into up to approximately 14.0 million shares of common stock. Accordingly, if we obtain shareholder approval and we sell all the shares of preferred stock offered in the proposed rights offering, our preferred stock will initially be convertible into approximately 111.1 million shares of common stock. Even if we do not obtain shareholder approval, in addition to the approximately 16.2 million shares of common stock currently issuable upon conversion of the outstanding Series D preferred stock, approximately $33.5 million in principal amount of 10% convertible secured notes plus accrued dividends will be convertible, at the option of each note holder, into approximately 17.6 million shares of common stock. Increasing the number of

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additional shares of common stock that may be sold into the market by this amount could substantially decrease the price of our common stock.

As the preferred stock accrues dividends, the number of shares of common stock issuable upon conversion will increase, which may increase the dilution to our holders of common stock and further decrease the price of our common stock.

      Currently, shares of Series D preferred stock accrue dividends at a compounded annual rate of 8%. If the maximum amount of dividends were to accrue to the Series D preferred stock prior to the automatic call for redemption date, a total of approximately 20.3 million shares of common stock, or an additional 4.1 million shares, would be issuable upon conversion. If our shareholders approve the amendment to the terms of the Series D preferred stock and we issue approximately 52.3 million shares of Series E preferred stock, all of which will accrue dividends at a rate of 5 3/4% per year, and the maximum amount of dividends accrue prior to the automatic call for redemption date, the number of shares of common stock issuable upon conversion will increase by approximately 12 million shares to approximately 64.3 million shares.

Our preferred stock carries a substantial liquidation preference, which could significantly impact the return to common equity holders upon an acquisition.

      In the event of liquidation, dissolution, winding up or change of control of Critical Path, if we issue shares of Series E preferred stock, the holders of Series E preferred stock would be entitled to receive $1.50 per share of Series E preferred stock plus all accrued dividends on such share before any proceeds from the liquidation, dissolution or winding up is paid with respect to any other series or class of our capital stock. Accordingly, if we obtain stockholder approval for the transactions contemplated by the convertible note purchase and exchange agreement and the January 2004 and March 2004 private placements, the approximately 52.3 million shares of Series E preferred stock that will be outstanding will initially have an aggregate liquidation preference of approximately $78.4 million. If all 14 million additional shares of Series E preferred stock are purchased pursuant to the proposed rights offering, the initial aggregate liquidation preference of the Series E preferred stock will increase to approximately $99.4 million. The aggregate amount of the preference will increase as the shares of Series E preferred stock accrue dividends based on simple interest at an annual rate of 5 3/4%. After all of the then outstanding shares of Series E preferred stock have received payment of their liquidation preference, the holders of Series D preferred stock would be entitled to receive, at a minimum, $13.75 per share of Series D preferred stock plus all accrued dividends on such share before any proceeds from the liquidation, dissolution or winding up is paid to holders of our common stock. As of March 1, 2004, the shares of Series D preferred stock have an aggregate initial liquidation preference of approximately $68.4 million, which, as amended, will increase on a daily basis at an annual rate of 5 3/4%. As amended, the shares of Series D preferred stock have a maximum aggregate initial liquidation preference of approximately $91 million. If we are acquired before the fourth anniversary of the date the shares of Series E preferred stock are first issued, the holders of Series D preferred stock will be entitled to receive an initial preference payment equal to approximately $91 million, regardless of the amount of dividends accrued at the time of the acquisition. Holders of our common stock will not receive any proceeds from a liquidation, winding up or dissolution, including from a change of control, until after the liquidation preferences of the our Series E preferred stock and our Series D preferred stock are paid in full. Consequently, the sale of all or substantially all of the shares of Critical Path may likely result in all or substantially all of the proceeds of such transaction being distributed to the holders of our Series E preferred stock and Series D preferred stock.

      From time to time we engage in discussions with or receive proposals from third parties relating to potential acquisitions or strategic transactions that could constitute a change of control. While we have not engaged in any transaction of this type in the past, we will in the future continue to evaluate potential business combinations or strategic transactions which, if consummated, may constitute a change of control and trigger the liquidation preferences described above.

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Issuance of Series E preferred stock and the amendment to the terms of our Series D preferred stock will cause us to record charges that increase the net loss attributable to our common shareholders, which may be material to our results of operations for the period in which they are recorded.

      Based on our current estimates, the application of generally accepted accounting principles to account for the proposed rights offering, the conversion of the notes we privately sold in November 2003, January 2004 and March 2004 into Series E preferred stock, the amendment of the terms of our Series D preferred stock and the issuance of Series E preferred stock in exchange for some outstanding shares of Series D preferred stock will cause us to record charges that increase our net loss attributable to common shares. Because these charges will be based in part on the fair value of our common stock and the Series E preferred stock on the date or dates the Series E preferred stock is issued, and on the fair value of the Series D preferred stock on the date its rights and preferences are modified, we are only able to estimate the amount of the charges that will occur. Assuming that these transactions occurred on November 18, 2003, except for the issuance of the notes which occurred on November 26, 2003, January 16, 2004 and March 9, 2004 and the estimated fair market values of the common stock, the Series E preferred stock and the Series D preferred stock on such dates, we estimate that one-time charges would total approximately $54.9 million to be recorded in the period that shareholders approve the transactions, and that additional charges totaling $3.2 million would be recorded over the four-year redemption period of the Series E preferred stock if all of the shares offered of Series E preferred stock are purchased in the proposed rights offering. A change in the fair value of our common stock, or our Series E preferred stock, as of the date or dates we issue the Series E preferred stock, or our Series D preferred stock, as of the date we amend the terms of the Series D preferred stock, would cause these estimates to vary.

Our cash resources located in accounts outside of the United States are not readily available for our domestic operations.

      We face restrictions on our ability to use cash that we currently hold outside of the United States for purposes other than the operation of each of our respective foreign subsidiaries that hold such cash. For example, our ability to use cash held in our German subsidiary for any reason other than the operation of this subsidiary may result in certain tax liabilities and are subject to local laws that could prevent the transfer of cash from Germany to any other foreign or domestic account. At December 31, 2003, approximately $7.6 million was held outside of the United States. Our inability to utilize this cash could slow our ability to grow our business and reach our business objectives. We may also be forced to incur certain costs, such as tax liabilities, to be able to use this cash for domestic operations, which could cause our expenses to increase and our operating results to decline.

Due to our evolving business strategy and the nature of the messaging and directory infrastructure market, our future revenues are unpredictable and our quarterly operating results may fluctuate.

      We cannot accurately forecast our revenues as a result of our evolving business strategy and the emerging nature of the Internet messaging infrastructure market. Forecasting is further complicated by recent strategic and operational restructurings, as well as fluctuations in license revenues as a percentage of total revenues from 30% in 2001 to 40% in 2002 and 31% in 2003. Our revenues in some past quarters fell and could continue to fall short of expectations if we experience delays or cancellations of even a small number of orders. We often offer volume-based pricing, which may affect our operating margins. A number of factors are likely to cause fluctuations in operating results, including, but not limited to:

•  the demand for licensed solutions for messaging, and identity management products;

•  the demand for outsourced messaging services generally and the use of messaging and identity management infrastructure products and services in particular;

•  our ability to attract and retain customers and maintain customer satisfaction;

•  our ability to attract and retain qualified personnel with industry expertise, particularly sales personnel;

•  the ability to upgrade, develop and maintain our systems and infrastructure and to effectively respond to the rapid technology change of the messaging and identity management infrastructure market;

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•  the budgeting and payment cycles of our customers and potential customers;

•  the amount and timing of operating costs and capital expenditures relating to expansion of business and infrastructure;

•  our ability to quickly handle and alleviate technical difficulties or system outages;

•  the announcement or introduction of new or enhanced services by competitors;

•  general economic and market conditions and their affect on our operations and the operations of our customers; and

•  the effect of war, terrorism and any related conflicts or similar events worldwide.

      In addition to the factors set forth above, operating results have been and will continue to be impacted by the extent to which we incur non-cash charges associated with stock-based arrangements with employees and non-employees. In particular, during the year ended December 31, 2002 and the three months ended March 31, 2003, we incurred stock-based compensation expense of $10.0 million and $59,000, respectively, relating to the grant of options and warrants to employees and non-employees in prior years. As of March 31, 2003, we had recognized all stock-based compensation related to these prior grants. We incurred non-cash charges of $85,000 during the year ended December 31, 2003, associated with the acceleration of vesting of stock options and the extension of stock option exercise periods in connection with employee terminations. Grants of options and warrants also may be dilutive to existing shareholders.

      Our revenues and operating results have declined and could continue to decline as a result of the elimination of product or service offerings through termination, sale or other disposition. Future decisions to eliminate, revise or limit any other offerings of a product or service would involve other factors that could cause our revenues to decline and our expenses to increase, including the expenditure of capital, the realization of losses, further reductions in our workforce, facility consolidation or the elimination of revenues along with the associated costs.

      As a result of the foregoing, we do not believe that period-to-period comparisons of operating results are a good indication of future performance. It is likely that operating results in some quarters will be below market expectations. In this event, the price of our common stock is likely to prove volatile and/or subject to further declines.

If we fail to improve our sales and marketing results, we may be unable to grow our business, which could cause our operating results to decline.

      Our ability to increase revenues will depend on our ability to continue successfully to recruit, train and retain experienced and effective sales and marketing personnel and for our personnel to achieve results once they are employed with us. Competition for experienced and effective personnel in certain markets is intense and we may not be able to hire and retain personnel with relevant experience. The complexity and implementation of our messaging and identity management infrastructure products and services require highly trained sales and marketing personnel to educate prospective customers regarding the use and benefits of our services. Current and prospective customers, in turn, must be able to educate their end-users. Any delays or difficulties encountered in our staffing and training efforts would impair our ability to attract new customers and enhance our relationships with existing customers, and ultimately, grow revenues. This would also adversely impact the timing and extent of our revenues from quarter to quarter and overall or could jeopardize sales altogether. Because we have experienced turnover in our sales force and have fewer resources than many of our competitors, our sales and marketing organizations may not be able to compete successfully against the sales and marketing organizations of our competitors. Moreover, our competitors frequently have larger and more established sales forces calling upon potential enterprise customers with more frequency. In addition, certain of our competitors have longer and closer relationships with the senior management of enterprise customers who decide whose technologies and solutions to deploy. If we do not successfully operate and grow our sales and marketing activities, our revenues and operating results could decline and the price of our common stock could continue to decline.

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We have experienced significant turnover of senior management and our current executive management team has been together for a limited time, which could slow the growth of our business and cause our operating results to decline.

      Throughout 2002, 2003 and the early part of 2004, we announced a series of changes in our management that included the departure of many senior executives, and there have also been many changes in our board of directors. Many of the members of our current board of directors and senior executives joined us in 2002 and 2003, and we may continue to make additional changes to our senior management team. Our chief financial officer, James Clark, joined us on February 4, 2004. Because of these changes, our management team has not worked together as a group for a significant length of time and may not be able to work together effectively to successfully execute on revenue goals, implement our strategies and manage our operations. If our management team is unable to accomplish our business objectives, our ability to grow our business and successfully meet operational challenges could be severely impaired. We do not have long-term employment agreements with any of our executive officers. It is possible that this high turnover at our senior management levels may also continue for a variety of reasons. The loss of the services of one or more of our key senior executive officers could also affect our ability to successfully implement our business objectives which could slow the growth of our business and cause our operating results to decline.

We depend on strategic relationships and the loss of any key strategic relationships could reduce our ability to sell our products and services and our revenues to decline.

      We depend on strategic relationships to expand distribution channels and opportunities and to undertake joint product development and marketing efforts. Our ability to increase revenues depends upon aggressively marketing our services through new and existing strategic relationships. In the third quarter of 2002, we entered into certain partnership agreements in our hosted messaging business with the Hewlett-Packard Company for the development and marketing of a complete managed messaging solution. In coming quarters we will continue to invest heavily in this relationship and make changes in our operations, including completion of the outsourcing of our data operations, to accommodate the integration of this partnership. To the extent this integration does not proceed as anticipated or the anticipated benefits of this partnership are not borne out, our revenues may not reach the level expected from the amount of capital we have invested in this relationship and our financial results may decline. In addition, if service levels are not adequate in connection with the outsourcing of our data centers, our customers may terminate agreements and our revenues will decline. We have also invested heavily and continue to invest in this model of hosted services operations. To the extent this strategic decision and the business relationships surrounding its execution do not prove profitable and productive, our revenues and financial results could decline. We also depend on a broad acceptance of our software and outsourced messaging services on the part of potential resellers and partners and our acceptance as a supplier of outsourced messaging solutions. We also depend on joint marketing and product development through strategic relationships to achieve further market acceptance and brand recognition. Our agreements with strategic partners typically do not restrict them from introducing competing services. These agreements typically are for terms of one to three years, and automatically renew for additional one-year periods unless either party gives prior notice of its intention to terminate the agreement. In addition, these agreements are terminable by our partners without cause, and some agreements are terminable by us, upon a period of 30 to 120 days notice. Most of our hosted customer agreements also provide for the partial refund of fees paid or other monetary penalties in the event that our services fail to meet defined minimum performance standards. Distribution partners may choose not to renew existing arrangements on commercially acceptable terms, or at all. In addition to strategic relationships, we also depend on the ability of our customers aggressively to sell and market our services to their end-users. If we lose any strategic relationships, fail to renew these agreements or relationships, fail to fully exploit our relationships, or fail to develop new strategic relationships, we could encounter increased difficulty in selling our products and services.

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A limited number of customers account for a high percentage of our revenues and if we lose a major customer or are unable to attract new customers, revenues could decline.

      We expect that sales of our products and services to a limited number of customers will continue to account for a high percentage of our revenue for the foreseeable future. For example, for the year ended December 31, 2003, our top 10 customers accounted for approximately 27% of our total revenues. Similarly, for the year ended December 31, 2002, our top 10 customers accounted for approximately 31% of our total revenues and, for the year ended December 31, 2001, our top 10 customers accounted for approximately 20% of our total revenues. Our future success depends on our ability to retain our current customers, and to attract new customers, in our target markets. The loss of one or several major customers, whether through termination of agreements, acquisitions or bankruptcy, could significantly reduce our revenues. Our agreements with our customers typically have terms of one to three years often with automatic one-year renewals and can be terminated without cause upon certain notice periods that vary among our agreements and range from a period of 30 to 120 days notice.

      In addition, a number of our customers, particularly for our hosted services business and in the technology industry, have also suffered from falling revenue. Especially in the telecommunications industry, which represented 53% of the revenues from our top 10 customers for the year ended December 31, 2003. Similarly, customers in the telecommunications industry accounted for 44% of revenues from our top 10 customers for the year ended December 31, 2002 and for 55% of revenues from our top 10 customers for the year ended December 31, 2001. The relative financial performance of our customers will continue to impact our sales cycles and our ability to attract new business. Worldwide technology spending has also decreased in recent quarters across all industries. If our customers terminate their agreements for any reason before the end of the contract term, the loss of the customer could reduce our current and future revenues. Also, if we are unable to enter into agreements with new customers and develop business with our existing customers, our business will not grow and we will not generate additional revenues.

If we are unable to successfully compete in our product market, our ability to retain our customers and attract new customers could decline.

      Because we have a variety of messaging and directory infrastructure products and services, we encounter different competitors at each level of our products and services. Our primary competitors for service providers seeking insourced or outsourced product-based solutions are Sun Microsystems’ iPlanet, OpenWave Systems, Inc., Mirapoint, Inc., Oracle Corporation, Microsoft Corporation and IBM Corporation’s Lotus Division. In the enterprise eBusiness directory category, we compete primarily with iPlanet, Microsoft Corporation and Novell Corporation, and our competitors in the meta-directory market are iPlanet, Microsoft, Novell and Siemens Corporation. Our competitors for corporate customers seeking outsourced hosted messaging solutions are e-mail service providers, such as CommTouch, Easylink Services Corporation (formerly Mail.com), USA.Net and application service providers who offer hosted communications services and hosted Microsoft Exchange services. If we are unable to successfully compete in our product market, our ability to retain our customers and attract new customers could decline.

We believe that some of the competitive factors affecting the market for messaging and identity management infrastructure solutions include:

•  breadth of platform features and functionality of our offerings and the sophistication and innovation of competitors;

•  total cost of ownership and operation;

•  scalability, reliability, performance and ease of expansion and upgrade;

•  ease of integration to customers’ existing systems; and

•  flexibility to enable customers to manage certain aspects of their systems internally and leverage outsourced services in other cases when resources, costs and time to market reasons favor an outsourced offering.

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      We believe competition will continue to be fierce and further increase as current competitors aggressively pursue customers, increase the sophistication of their offerings and as new participants enter the market. Many of our current and potential competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than we do and may enter into strategic or commercial relationships with larger, more established and better-financed companies. Any delay in our development and delivery of new services or enhancement of existing services would allow our competitors additional time to improve their service or product offerings, and provide time for new competitors to develop and market messaging and directory infrastructure products and services and solicit prospective customers within our target markets. Increased competition could result in pricing pressures, reduced operating margins and loss of market share, any of which could cause our financial results to decline.

We may not be able to respond to the rapid technological change of the messaging and identity management infrastructure industry.

      The messaging and identity management infrastructure industry is characterized by rapid technological change, changes in user and customer requirements and preferences, and the emergence of new industry standards and practices that could render our existing services, proprietary technology and systems obsolete. We must continually develop or introduce and improve the performance, features and reliability of our services, particularly in response to competitive offerings. Our success depends, in part, on our ability to enhance our existing email and messaging services and to develop new services, functionality and technology that address the increasingly sophisticated and varied needs of prospective customers. If we do not properly identify the feature preferences of prospective customers, or if we fail to deliver email features that meet the standards of these customers, our ability to market our service successfully and to increase revenues could be impaired. The development of proprietary technology and necessary service enhancements entails significant technical and business risks and requires substantial expenditures and lead-time. We may not be able to keep pace with the latest technological developments. We may also be unable to use new technologies effectively or adapt services to customer requirements or emerging industry standards.

Our sales cycle is lengthy, and any delays or cancellations in order in a particular quarter could cause our operating results to be below expectations which may cause our stock price to decline.

      Because we sell complex and sophisticated technology, our sales cycle, in particular with respect to our software solutions, can be long and unpredictable, often taking between four to 18 months. Because of the nature of our product and service offerings it can take many months of customer education and product evaluation before a purchase decision is made. In addition, many factors can influence the decision to purchase our product and service offerings including budgetary restraints and decreases in capital expenditures, quarterly fluctuations in operating results of customers and potential customers, the emerging and evolving nature of the internet-based services and wireless services markets. Furthermore, general global economic conditions, and weakness in global securities markets, continuing recessionary spending levels, and a protracted slowdown in technology spending in particular, have further lengthened and affected our sales cycle. Such factors have led to and could continue to lead to delays and postponements in purchasing decisions and in many cases cancellations of anticipated orders. Any delay or cancellation in sales of our products or services could cause our operating results to be lower than those projected and cause our stock price to decline.

Failure to resolve pending securities claims and other material lawsuits may lead to continued costs and expenses and increased doubts from existing and potential customers and investors as to our prospects, which could cause our revenues and our stock price to decline.

      We are a defendant in a shareholder lawsuit filed in San Diego Superior Court by shareholders of one of our former customers alleging we participated in fraudulent transactions to inflate artificially revenues of that customer. We are also a defendant in a number of securities class action lawsuits filed in the U.S. District Court for the Southern District of New York, alleging that prospectuses under which securities were sold contained false and misleading statements with respect to discounts and commissions received by underwriters. Should these lawsuits linger for a long period of time, whether ultimately resolved in our favor or not, or

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further lawsuits be filed against us, coverage limits of our insurance or our ability to pay such amounts may not be adequate to cover the fees and expenses and any ultimate resolution associated with such litigation. Likewise, we may not be able to conclude or settle such litigation on terms that coincide with the coverage limits of our insurance or ability to pay upon any final determination. It is also likely that our insurance may not cover some or all of the claims alleged in the pending lawsuits, which would require us, rather than our insurance carrier, to pay all or some of the expenses and damages, if any, relating to these claims. The size of these payments, individually or in the aggregate, could seriously impair our cash reserves and financial condition. The continued defense of these lawsuits also could result in continued diversion of our management’s time and attention away from business operations, which could cause our financial results to decline. A failure to resolve definitively current or future material litigation in which we are involved or in which we may become involved in the future, regardless of the merits of the respective cases, could also cast doubt as to our prospects in the eyes of our customers, potential customers and investors, which could cause our revenues and stock price to further decline.

Lingering effects of the recent SEC investigation could cause further disruption in our operations and lead to a decline in our financial results.

      In 2001, the SEC investigated us and certain of our former officers and directors related to non-specified accounting matters, financial reports, other public disclosures and trading activity in our stock. In February 2002, the SEC concluded the investigation as to us. We consented, without admitting or denying liability, to a cease and desist order and an administrative order for violation of certain non-fraud provisions of the federal securities laws. In addition, since then the SEC and the Department of Justice charged five of our former employees with various violations of the securities laws. We believe that the investigation continues with respect to a number of other of our former executives and employees and expect that such investigation may result in further charges against former employees although we do not know the status of such investigation. Despite the conclusion of the investigation of us, lingering concerns about these actions have nevertheless cast doubt on our future in the eyes of customers and investors. In addition, a number of recent arrests, allegations and investigations in connection with accounting improprieties, insider trading and fraud at other public companies have created investor uncertainty and scrutiny in general as to the stability and veracity of public companies’ financial statements. Such lingering doubts stemming from our past accounting restatements and such general market uncertainty could cause the price of our common stock to continue to fluctuate and/or decline further.

Our failure to carefully manage expenses and growth could require us to use substantial resources and cause our operating results to decline.

      In the past, our management of operational expenses, including the restructurings of our operations, and the growth of our business have placed significant strains on managerial, operational and financial resources and contributed to our history of losses. In addition, to manage any future growth and profitability, we may need to improve or replace our existing operational, customer service and financial systems, procedures and controls. Any failure to properly manage these systems and procedural transitions could impair our ability to attract and service customers, and could cause us to incur higher operating costs and delays in the execution of our business plan. If we cannot manage growth and expenses effectively, our business and operating results could decline.

Limitations of our director and officer liability insurance may cause us to use our capital resources, which could cause our financial results to decline or slow our growth.

      Our current director and officer liability insurance, which was put in place in March 2003, and continues through March 2004, may not be adequate for the liabilities and expenses potentially incurred in connection with current and future claims. To the extent liabilities, expenses or settlements exceed the limitations or are outside of the scope of coverage, our business and financial condition could materially decline.

      Under California law, in connection with our charter documents and indemnification agreements we entered into with our executive officers and directors, we must indemnify our current and former officers and

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directors to the fullest extent permitted by law. The indemnification covers any expenses and liabilities reasonably incurred in connection with the investigation, defense, settlement or appeal of legal proceedings. We have made payments and may continue to make payments in connection with the indemnification of officers and directors in connection with lawsuits and possibly pending investigations. See “Lingering effects of the recent SEC investigations could cause further disruption in our operations and lead to a decline in our financial results” on page 62. However, it is unlikely that our director and officer liability insurance will be available to cover such payments.

We may experience difficulty in attracting and retaining key personnel, which may negatively affect our ability to develop new services or retain and attract customers.

      The loss of the services of key personnel may create a negative perception of our business and adversely affect our ability to achieve our business goals. Our success also depends on our ability to recruit, retain and motivate highly skilled sales and marketing, operational, technical and managerial personnel. Competition for these people is intense and we may not be able to successfully recruit, train or retain qualified personnel. If we fail to do so, we may be unable to develop new services or continue to provide a high level of customer service, which could result in the loss of customers and revenues. In addition, volatility and declines in our stock price may also affect our ability to retain key personnel, all of whom have been granted stock-based incentive compensation. In recent quarters we have also initiated reductions in our work force and job eliminations to balance the size of our employee base with anticipated revenue levels. Reductions in our workforce could make it difficult to motivate and retain remaining employees or attract needed new employees, and provide distractions affecting our ability to deliver products and solutions in a timely fashion and provide a high level of customer service and support.

      We do not have long-term employment agreements with any of our key personnel. In addition, we do not maintain key person life insurance on our employees and have no plans to do so. The loss of the services of one or more of our current key personnel could make it difficult to successfully implement our business objectives.

If we are not successful in implementing strategic plans for our operations, our expenses may not be offset by our corresponding sales and our financial results could significantly decline.

      In 2002, we incurred a number of restructuring charges related to the right sizing of our business given market conditions and the current operating environment. These efforts included additional facilities and equipment lease terminations, continuing expense management and headcount reductions. In 2003, we continued to restructure our operations including consolidating some office locations and reducing our global workforce by approximately 175 positions, or approximately 30% of the workforce. We expect to continue to make determinations about the strategic future of our business and operations, and our ability to execute on such plans effectively and to make such determinations prudently could affect our future operations. A failure to execute successfully on such plans and to plan appropriately could cause or expenses to continue to outpace our revenues and our financial condition could significantly decline.

We may experience a decrease in market demand due to the slowed economy in the United States, which has been further stymied by the concerns of terrorism, war and social and political instability.

      Economic growth has slowed significantly. In addition, the terrorist attacks in the United States and turmoil and war in the Middle East have increased the uncertainty in the United States economy and may further add to the decline in the United States business environment. The war on terrorism, along with the effects of terrorist attacks and other similar events, and the war in Iraq, could contribute further to the slowdown of the already slumping market demand for goods and services, including digital communications software and services. If the economy continues to decline as a result of the recent economic, political and social turmoil, or if there are further terrorist attacks in the United States or elsewhere, or as a result of war in the Middle East and elsewhere, we may experience decreases in the demand for our products and services, which may cause our operating results to decline.

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We may face continued technical, operational and strategic challenges preventing us from successfully integrating or divesting acquired businesses.

      Acquisitions involve risks related to the integration and management of acquired technology, operations and personnel. In addition, in connection with our strategic restructuring, we elected to divest or discontinue many of the acquired businesses. Both the integration and divestiture of acquired businesses have been and will continue to be complex, time consuming and expensive processes, which may disrupt and distract our management. With respect to integration, we must operate as a combined organization utilizing common information and communication systems, operating procedures, financial controls and human resources practices to be successful. With respect to the divestitures, the timing and transition of those businesses and their customers to other entities has required and will continue to require resources from our legal, finance and corporate development teams as well as expenses associated with the conclusion of those transactions, winding up of entities and businesses. In addition to the added costs of the divestitures, we may not ultimately achieve anticipated benefits and/or cost reductions from such divestitures.

      In the past, due to the significant underperformance of some of our acquisitions relative to expectation, we eliminated certain acquired product or service offerings through termination, sale or other disposition. Such decisions to eliminate or limit our offering of an acquired product or service involved and could continue to include the expenditure of capital, the realization of losses, further reduction in workforce, facility consolidation and the elimination of revenues along with the associated costs, any of which could cause our operating results to decline.

We currently license many third-party technologies and may need to license further technologies which could delay and increase the cost of product and service developments.

      We intend to continue to license certain technologies from third parties and incorporate them into our products and services, including web server technology, virus and anti-spam solutions, storage and encryption technology and billing and customer tracking solutions. The market is evolving and we may need to license additional technologies to remain competitive. We may not be able to license these technologies on commercially reasonable terms or at all. To the extent we cannot license needed technologies or solutions, we may have to devote our resources to the development of such technologies, which could delay and increase the cost of product and service developments.

      In addition, we may fail to integrate successfully any licensed or hosted technology into our services. These third-party in-licenses may expose us to increased risks, including risks related to the integration of new technology, potential patent and copyright infringement issues, the diversion of resources from the development of proprietary technology, and an inability to generate revenues from new technology sufficient to offset associated acquisition and maintenance costs. In addition, an inability to obtain needed licenses could delay product and service development until equivalent technology can be identified, licensed and integrated. Any delays in services or integration problems could hinder our ability to retain and attract customers and cause our business and operating results to suffer.

Changes in the regulatory environment for the operation of our business or those of our customers could pose risks.

      Few laws currently apply directly to activity on the Internet and the messaging business; however, new laws are proposed and other laws made applicable to Internet communications every year. In particular, the operations of our business faces risks associated with privacy, confidentiality of user data and communications, consumer protection, taxation, content, copyright, trade secrets, trademarks, antitrust, defamation and other legal issues. In particular, legal concerns with respect to communication of confidential data have affected our financial services and health care customers due to newly enacted federal legislation. The growth of the industry and the proliferation of Internet-based messaging devices and services may prompt further legislative attention to our industry and thus invite more regulatory control of our business. The imposition of more stringent protections or new regulations and application of laws to our business could burden our company and those with which we do business. Any decreased generalized demand for our services or the loss of, or

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decrease, in business by a key partner due to regulation or the expense of compliance with any regulation, could either increase the costs associated with our business or affect revenue, either of which could cause our financial condition or operating results to decline. Certain of our service offerings include operations subject to the Digital Millennium Copyright Act of 1998 and the European Union’s recent privacy directives. Our efforts to remain in compliance with DMCA and the EU privacy directives may not be sufficient. New legislation and case law may also affect our products and services and the manner in which we offer them, which could cause our revenues to decline.

      In addition, the applicability of laws and regulations directly applicable to the businesses of our customers, particularly customers in the fields of banking and health care, will continue to affect us. The security of information about our customers’ end-users continues to be an area where a variety of laws and regulations with respect to privacy and confidentiality are enacted. As our customers implement the protections and prohibitions with respect to the transmission of end user data, our customers will look to us to assist them in remaining in compliance with this evolving area of regulation. In particular the Gramm-Leach-Bliley Act contains restrictions with respect to the use and protection of banking records for end-users whose information may pass through our system and the Health Insurance Portability and Accountability Act contains provisions that require our customers to ensure the confidentiality of their customers’ health care information.

      Finally, the Sarbanes-Oxley Act of 2002 and new rules subsequently implemented by the Securities and Exchange Commission have required changes in corporate governance practices of public companies. In addition to final rules and rule proposals already made by the Securities and Exchange Commission, the Nasdaq Stock Market has adopted revisions to its requirements for listed companies. We are currently reviewing all of our accounting policies and practices, legal disclosure and corporate governance policies under the new legislation, including those related to our relationships with our independent auditors, enhanced financial disclosures, internal controls, board and board committee practices, corporate responsibility and loan practices, and intend fully to comply with such laws. We expect these new rules and regulations to make it more difficult for us to attract and retain qualified executive officers and qualified members of our board of directors, particularly to serve on our various committees of the Board including, in particular, the audit committee. Given the significant turnover of the members of our board of directors and the fact that some members would not qualify as “independent” under the new SEC rules and the listing standards adopted by the Nasdaq Stock Market to which we are subject, it may be difficult for us to maintain sufficient independent directors to comply with these new rules and regulations. For instance, we currently do not have a sufficient number of independent directors to constitute a majority of the board or to serve on the audit committee of the board under listing standards that will apply later this year. If we fail to comply, our common stock may be delisted from the Nasdaq National Market. Please see the discussion below titled “We may not be able to maintain our listing on the Nasdaq National Market, and if we fail to do so, the price and liquidity of our common stock may decline.”

We may not be able to maintain our listing on the Nasdaq National Market, and if we fail to do so, the price and liquidity of our common stock may decline.

      The Nasdaq Stock Market has quantitative maintenance criteria for the continued listing of common stock on the Nasdaq National Market. The current requirements affecting us include (i) having total assets of at least $50 million, (ii) having total revenue of $50 million, and (iii) maintaining a minimum closing bid price per share of $1.00. On December 23, 2002, The Nasdaq Stock Market Inc. issued us a letter that we were not in compliance with the minimum closing bid price requirement and, therefore, faced delisting proceedings. Since that time, we have worked with The Nasdaq Stock Market in an effort to maintain our listing. On July 24, 2003, The Nasdaq Stock Market notified us that we had regained compliance with the requirements for continued listing. Nevertheless, we may not be able to comply with the quantitative or quantitative maintenance criteria or any of the Nasdaq National Market’s listing requirements or other rules, or other markets listing requirements to the extent our stock is listed elsewhere, in the future. For instance, if we were to issue a large number of shares of common stock, the price per share of the common stock could fall. If we fail to maintain continued listing on the Nasdaq National Market and must move to a market with

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less liquidity, our stock price would likely further decline. If we are delisted, it could have a material adverse effect on the market price of, and the liquidity of the trading market for, our common stock.

We may have liability for Internet content and we may not have adequate liability insurance.

      As a provider of messaging and directory services, we face potential liability for defamation, negligence, copyright, patent or trademark infringement and other claims based on the nature and content of the materials transmitted via our services. We do not and cannot screen all of the content generated by our users, and we could be exposed to liability with respect to this content. Furthermore, some foreign governments, such as Germany, have enforced laws and regulations related to content distributed over the Internet that are more strict than those currently in place in the United States. In some instances, we may be subject to criminal liability in connection with Internet content transmission.

      Our current insurance may not cover claims of these types or may not be adequate to indemnify us for all liability that may be imposed. There is a risk that a single claim or multiple claims, if successfully asserted against us, could exceed the total of our coverage limits. There also is a risk that a single claim or multiple claims asserted against us may not qualify for coverage under our insurance policies as a result of coverage exclusions that are contained within these policies. Should either of these risks occur, capital contributed by our shareholders might need to be used to settle claims. Any imposition of liability, particularly liability that is not covered by insurance or is in excess of insurance coverage could result in substantial out-of-pocket costs to us, or could result in the imposition of criminal penalties.

Unknown software defects could disrupt our services and harm our business and reputation.

      Our software products are inherently complex. Additionally, our product and service offerings depend on complex software, both internally developed and licensed from third parties. Complex software often contains defects or errors in translation, particularly when first introduced or when new versions are released or localized for international markets. We may not discover software defects in our products or that affect new or current services or enhancements until after they are deployed. Despite testing, it is possible that defects may occur in the software. These defects could cause service interruptions, which could damage our reputation or increase service costs, cause us to lose revenue, delay market acceptance or divert development resources.

Unplanned system interruptions and capacity constraints could reduce our ability to provide messaging services and could harm our business reputation.

      Our customers have, in the past, experienced some interruptions in our hosted messaging service. We believe that these interruptions will continue to occur from time to time. These interruptions may be due to hardware failures, unsolicited bulk e-mail, or “spam,” attacks and operating system failures or other causes beyond our control. Our ability to retain existing customers and attract new customers will suffer and our revenues will decline if we experience frequent or long system interruptions that result in the unavailability or reduced performance of systems or networks or reduce our ability to provide email services. We expect to experience occasional temporary capacity constraints due to unanticipated sharply increased traffic, which may cause unanticipated system disruptions, slower response times, impaired quality and degradation in levels of customer service. If this were to continue to happen, our ability to retain existing customers and attract new customers could suffer dramatically and our revenues would decline.

      We have entered into hosted messaging agreements with some customers that require minimum performance standards, including standards regarding the availability and response time of messaging services. If we fail to meet these standards, our customers could terminate their relationships with us and we could be subject to contractual monetary penalties.

If our system security is breached, our reputation could suffer and our revenues could decline.

      A fundamental requirement for online communications is the secure transmission of confidential information over public networks. Third parties may attempt to breach our security or that of our customers. If these attempts are successful, customers’ confidential information, including customers’ profiles, passwords,

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financial account information, credit card numbers or other personal information could be breached. We may be liable to our customers for any breach in security and a breach could harm our reputation. We rely on encryption technology licensed from third parties. Our servers are vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions, delays or loss of data. We may be required to expend significant capital and other resources to license encryption technology and additional technologies to protect against security breaches or to alleviate problems caused by any breach. Failure to prevent security breaches may make it difficult to retain and attract customers and cause us to spend additional resources that could cause our operating results to decline.

We rely on trademark, copyright, trade secret laws, contractual restrictions and patents to protect our proprietary rights, and if these rights are not sufficiently protected, our ability to compete and generate revenue could be harmed.

      We rely on a combination of trademark, copyright and trade secret laws, contractual restrictions, such as confidentiality agreements and licenses, and patents to establish and protect our proprietary rights, which we view as critical to our success. Our ability to compete and grow our business could suffer if these rights are not adequately protected. Despite the precautionary measures we take, unauthorized third parties may infringe or copy portions of our services or reverse engineer or obtain and use information that we regard as proprietary, which could harm our competitive position and market share. In addition, we have several patents pending in the United States and may seek additional patents in the future. However, the status of United States patent protection in the software industry is not well defined and will evolve as the U.S. Patent and Trademark Office grants additional patents. We do not know if our patent applications or any of our future patent applications will be issued with the scope of the claims sought, if at all, or whether any patents we have received or will receive will be challenged or invalidated.

      Our proprietary rights may not be adequately protected because:

•  laws and contractual restrictions may not prevent misappropriation of our technologies or deter others from developing similar technologies;

•  policing unauthorized use of our products and trademarks is difficult, expensive and time-consuming, and we may be unable to determine the extent of this unauthorized use; and

•  end user license provisions in our contracts that protect us against unauthorized use, copying, transfer and disclosure of the licensed program may be unenforceable.

      In addition, the laws of some foreign countries may not protect proprietary rights to the same extent as do the laws of the United States. Our means of protecting proprietary rights in the United States or abroad may not be adequate and competitors may independently develop similar technology. Additionally, we cannot be certain that our products do not infringe issued patents that may relate to our products. In addition, because patent applications in the United States are not publicly disclosed until the patent is issued, applications may have been filed which relate to our software products.

Our reserves may be insufficient to cover receivables we are unable to collect.

      We assume a certain level of credit risk with our customers in order to do business. Conditions affecting any of our customers could cause them to become unable or unwilling to pay us in a timely manner, or at all, for products or services we have already provided them. For example, if economic conditions decline or if new or unanticipated government regulations are enacted which affect our customers, they may experience financial difficulties and be unable to pay their bills. In the past, we have experienced significant collection delays from certain customers, and we cannot predict whether we will continue to experience similar or more severe delays in the future. In particular, some of our customers are suffering from the general weakness in the economy and among technology companies in particular. Any reserves that we may establish to cover losses due to delays in their inability to pay may not be sufficient to cover our losses. If losses due to delays or inability to pay are greater than our reserves, our capital resources may not be sufficient to meet our operating needs and our business could suffer.

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If we do not successfully address the risks inherent in the conduct of our international operations, our revenues and financial results could decline.

      We derived 62% of our revenues from international sales in 2003 and 54% of our revenues from international sales in 2002. We intend to continue to operate in international markets and to spend significant financial and managerial resources to do so. In particular, in 2002 we purchased the remaining interests of our joint venture partners for our operations in Japan. We hope to expend revenues and plan to increase resources to grow our operations in the Asian market. If revenues from international operations do not exceed the expense of establishing and maintaining these operations, our business and our ability to increase revenue and improve our operating results could suffer. We have limited experience in international operations and may not be able to compete or operate effectively in international markets. We face certain risks inherent in conducting business internationally, including:

•  difficulties and costs of staffing and managing international operations;

•  fluctuations in currency exchange rates and imposition of currency exchange controls;

•  differing technology standards and language and translation issues;

•  difficulties in collecting accounts receivable and longer collection periods;

•  changes in regulatory requirements, including U.S. export restrictions on encryption technologies;

•  political and economic instability;

•  potential adverse tax consequences; and

•  reduced protection for intellectual property rights in some countries.

      Any of these factors could harm our international operations and, consequently, our business and consolidated operating results. Specifically, failure to successfully manage international growth could result in higher operating costs than anticipated or could delay or preclude altogether our ability to generate revenues in key international markets.

The issuance of our Series E preferred stock to the General Atlantic Investors and the Cheung Kong Investors upon conversion of their convertible notes and the amendment of the terms of the Series D preferred stock will result in significant equity ownership by the General Atlantic Investors and the Cheung Kong Investors, which may limit the ability of our other shareholders to influence significant corporate decisions either of which could delay or prevent a change of control or depress our stock price.

      If we obtain shareholder approval and convert the notes held by the General Atlantic Investors and the Cheung Kong Investors into Series E preferred stock and amend the terms of our Series D preferred stock, the General Atlantic Investors will beneficially own approximately 30% of our outstanding securities (which represents 21% of the voting power) and the Cheung Kong Investors will beneficially own approximately 26% of our outstanding securities (which represents 28% of the voting power). In addition, the General Atlantic Investors have the right, but not the obligation, to purchase 55% of the shares of Series E preferred stock not subscribed for by the holders of our common stock and the Cheung Kong Investors have the right, but not the obligation, to purchase 45% of the shares of Series E preferred stock not subscribed for by the holders of our common stock. Further, the General Atlantic Investors and the Cheung Kong Investors have the right to purchase shares of Series E preferred stock, if any, not purchased by the other. Accordingly, the percentage ownership of the General Atlantic Investors and the Cheung Kong Investors may increase as a result of the proposed rights offering. In addition, the holders of our Series D preferred stock, which is controlled by the General Atlantic Investors, are entitled to elect one director and, upon consummation of the transactions contemplated by the convertible note purchase and exchange agreement, the Cheung Kong Investors will have the right to elect one director. As a result, the General Atlantic Investors and the Cheung Kong Investors, although not affiliated, will have the ability, acting together, to control the outcome of shareholder votes, including votes concerning the election of a majority of our directors, approval of merger transactions involving us and the sale of all or substantially all of our assets or other business combination transactions, charter and

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bylaw amendments and other significant corporate actions, which could delay or prevent a change in control or depress our stock price.

The issuance of our Series E preferred stock to the General Atlantic Investors and the Cheung Kong Investors upon conversion of their convertible notes and the amendment of the terms of the Series D preferred stock will result in significant equity ownership by the General Atlantic Investors and the Cheung Kong Investors, which may result in potential conflicts of interests, which could adversely affect the holders of our common stock, delay a change in control and depress our stock price.

      The significant equity ownership by each of the General Atlantic Investors and the Cheung Kong Investors could create conflicts of interest between these majority shareholders and our other shareholders and between the General Atlantic Investors and the Cheung Kong Investors. For example, the General Atlantic Investors and the Cheung Kong Investors can approve a change in control transaction in order to receive payment of their liquidation preference even if our other shareholders oppose the transaction, which could depress the price of our common stock. Alternatively, the General Atlantic Investors and the Cheung Kong Investors may prevent or delay a corporate transaction that is favored by our other shareholders. In addition, it is also possible that the risk that the General Atlantic Investors and the Cheung Kong Investors may disagree on approving a significant corporate transaction, for example a change in control transaction, which could depress our stock price, limit the number of potential investors willing to pursue such a transaction with us or limit the price that investors might be willing to pay for future shares of our common stock.

The conversion price for our 10% senior secured convertible notes and the subscription price determined for our proposed rights offering is not necessarily an indication of our value.

      The conversion price for our 10% senior secured convertible notes and the subscription price per share of the Series E preferred stock in the rights offering was the price proposed by the General Atlantic Investors and the Cheung Kong Investors in connection with our negotiation of the convertible note purchase and exchange agreement and was approved by the independent members of our board of directors (which excluded William E. McGlashan, Jr., our chief executive officer and a related party of one of our holders of Series D preferred stock, and Raul J. Fernandez and William E. Ford, each of whom is affiliated with General Atlantic) based on the recommendation of the strategic alternatives committee of the board of directors. The conversion price for our 10% senior secured convertible notes and the subscription price do not necessarily bear any relationship to the book value of our assets, past operations, cash flows, losses, financial condition or any other established criteria for value.

The use of our net operating losses could be limited if we undergo an ownership change upon exercise of the subscription rights.

      If the exercise of the subscription rights in the proposed rights offering causes us to undergo an “ownership change” for federal income tax purposes (i.e., an increase by more than 50% of the amount of stock held by one or more of our 5% shareholders during the past 3 years), our use of our pre-change net operating losses will generally be limited annually to the product of the long-term tax-exempt rate (currently 4.58%) and the value of our stock immediately before the ownership change. This could increase our federal income tax liability if we generate taxable income in the future.

Our stock price has demonstrated volatility and overall declines during recent quarters and continued volatility in the stock market may cause further fluctuations and/or decline in our stock price.

      The trading price of our common stock has been and may continue to experience volatility, wide fluctuations and declines. For example, during the fourth quarter of 2003, the closing sale prices of our common stock on the Nasdaq National Market ranged from $1.26 on December 29, 2003 to $3.21 on October 31, 2003 and November 3, 2003. Our stock price may further decline or fluctuate in response to any number of factors and events, such as announcements related to technological innovations, intense regulatory scrutiny and new corporate and securities and other legislation, strategic and sales relationships, new product and service offerings by us or our competitors, litigation outcomes, changes in senior management, changes in

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financial estimates and recommendations of securities analysts, the operating and stock price performance of other companies that investors may deem comparable, news reports relating to trends in our markets and the market for our stock, media interest in accounting scandals and corporate governance questions, overall market conditions and domestic and international economic factors unrelated to our performance. In addition, the stock market in general, particularly with respect to technology stocks, has experienced extreme volatility and a significant cumulative decline in recent quarters. This volatility and decline has affected many companies, including our company, irrespective of the specific operating performance of such companies. These broad market influences and fluctuations may adversely affect the price of our stock, and our ability to remain listed on the Nasdaq National Market, regardless of our operating performance or other factors.

Our articles of incorporation and bylaws contain provisions that could delay or prevent a change in control.

      Our articles of incorporation and bylaws contain provisions that could delay or prevent a change in control of our company. These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. Some of these provisions:

•  authorize the issuance of preferred stock that can be created and issued by our board of directors without prior shareholder approval, commonly referred to as “blank check” preferred stock, with rights senior to those of our common stock;

•  prohibit shareholder action by written consent; and

•  establish advance notice requirements for submitting nominations for election to our board of directors and for proposing matters that can be acted upon by shareholders at a meeting.

      In March 2001, we adopted a shareholder rights plan or “poison pill.” This plan could cause the acquisition of our company by a party not approved by our board of directors to be prohibitively expensive.

      In addition, the General Atlantic Investors and the Cheung Kong Investors own a sufficient amount of our securities to be able to control the outcome of matters submitted to a vote of our shareholders, which could have the effect of discouraging or impeding an acquisition proposal.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

      The following table presents the hypothetical changes in fair value in our outstanding convertible subordinated notes and senior secured convertible note at December 31, 2003. The value of both instruments is sensitive to changes in interest rates. The modeling technique used measures the change in fair values arising from hypothetical parallel shifts in the yield curve of plus or minus 50 basis points (“BPS”), 100 BPS and 150 BPS over a twelve-month time horizon. The base value represents the traded fair market value of the notes (in thousands):

	Valuation of Borrowing Given								Valuation of Borrowing Given
	an Interest Rate Decrease								an Interest Rate Increase
	of X Basis Points						No Change		of X Basis Points
							in Interest
	150 BPS		100 BPS		50 BPS		Rate		50 BPS		100 BPS		150 BPS
5 3/4% convertible subordinated notes	$	36,340	$	36,165	$	35,991	$	35,819	$	35,647	$	35,476	$	35,306
10% senior secured convertible notes	$	10,239	$	10,188	$	10,138	$	10,088	$	10,038	$	9,988	$	9,939

      As of December 31, 2003, we had a $2.3 million balance outstanding against our variable rate line of credit with Silicon Valley Bank. An immediate 10% change in interest rate would not materially affect our results of operations.

      As of December 31, 2003, we held cash and cash equivalents of $19.0 million and no investments in marketable securities. See also Note 6 of Notes to Consolidated Financial Statements – Investments. Our long-term obligations consist of our $38.4 million five-year, 5 3/4% Convertible Subordinated Notes due April 2005, $10.0 million four-year, 10% Senior Subordinated Convertible Notes due November 2007 and certain

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fixed rate capital leases. Accordingly, an immediate 10% change in interest rates would not affect our long-term obligations or our results of operations.

      A significant portion of our international operations has a functional currency other than the United States dollar. Accordingly, we are exposed to foreign currency exchange rate risk inherent in our sales commitments, anticipated sales, and assets and liabilities of these operations. Fluctuations in exchange rates may harm our results of operations and could also result in exchange losses. The impact of future exchange rate fluctuations cannot be predicted with any certainty, however our exposure to foreign currency rate risk is primarily associated with fluctuations in the Euro, and, prior to March 1, 2002, the Italian Lira and Irish Punt. We realized a net gain on foreign exchange equal to $947,000 in 2001, and net losses of $817,000 and $440,000 in 2002 and 2003, respectively. To date, we have not sought to hedge the risks associated with fluctuations in exchange rates.

      Information relating to quantitative and qualitative disclosure about market risk is set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Item 8.  Financial Statements and Supplemental Data

Financial Statements

      Reference is made to the Index of Consolidated Financial Statements that appears in Item 15(a)(i) of this report. The Report of Independent Auditors, Consolidated Financial Statements, Notes to Consolidated Financial Statements and Financial Statement Schedule which are listed in the Index of Consolidated Financial Statements and which appear beginning on page 91 of this report are incorporated into this Item 8.

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

      None.

Item 9A.  Controls and Procedures

      (a) Evaluation of disclosure controls and procedures. We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

      Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, our Chief Executive Officer and Chief Financial Officer have concluded that, subject to the limitations noted above, our disclosure controls and procedures were effective to ensure that material information relating to us, including our consolidated subsidiaries, is made known to them by others within those entities, and that our system of disclosure controls and procedures was operating at a level such that they could give reasonable assurance that the objectives of our system of disclosure controls and procedures were met, particularly during the period in which this Annual Report on Form 10-K was being prepared.

      (b) Changes in internal control over financial reporting. There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified in connection with

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the evaluation described in Item 4(a) above that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART III

Item 10.  Directors and Executive Officers of the Registrant

Directors and Executive Officers

      The executive officers, directors and other key employees of Critical Path and their ages as of March 12, 2004 are as follows:

Name	Age		Position
William E. McGlashan, Jr.		40	Chairman of the Board and Chief Executive Officer
James Clark		47	Executive Vice President and Chief Financial Officer
Paul Bartlett		43	Chief Operating Officer
Bernard Harguindeguy		45	General Manager, Identity Management
Patrick Tracy Currie		42	Executive Vice President, Services and General Manager of Hosted Operations
Michael J. Zukerman		44	Senior Vice President, General Counsel and Secretary
Menelaos (Michael) Serbinis		30	Chief Technology Officer
Barry Twohig		37	Senior Vice President, Engineering
Peter L.S. Currie(3)		47	Director
Ross Dove(1)(2)(3)		51	Director
William E. Ford(1)		42	Director
Frost R. R. Prioleau(2)(3)		43	Director
Steven R. Springsteel(1)		46	Director

(1)	Member of the Audit Committee of the Board of Directors.
(2)	Member of the Compensation Committee of the Board of Directors.
(3)	Member of the Nominating and Corporate Governance Committee.

      William E. McGlashan, Jr. has served as a director and our Chief Executive Officer since December of 2001 and as Chairman of the Board since June 2002. Mr. McGlashan joined us in April 2001 as our Interim President and Chief Operating Officer. He was appointed Interim Chief Executive Officer in August 2001. Mr. McGlashan also serves as the chief executive officer and founder of the Vectis Group LLC, an investment company which he founded in 2000. Prior to his tenure at Vectis, he was a venture partner at Whitney and Co., a venture capital firm, and was also the co-founder and president of Pharmanex, a phyto-pharmaceutical company from 1995 to 2000. He co-founded and served as chief executive officer of Generation Ventures, a firm funded by Whitney & Co., from 1993 to 1995 and also co-founded and served as president for TRADE, Inc. from 1991 to 1993. Prior to that, Mr. McGlashan was a senior associate at Bain Capital from 1990 to 1991. Mr. McGlashan currently serves as a director of Vectis Group LLC, Hard Dollar Corporation and two not-for-profit organizations, JustGive and the San Francisco Conservation Corps.

      James Clark has served as our Chief Financial Officer since February 2004. Prior to joining us, from January 2002 to October 2003, he was the chief financial officer at Diversified Healthcare Services, Inc., which was recently acquired by Fair Isaac Corporation. Before that, he was the chief financial officer at several software and services businesses, including StellarNet, Inc. from February 2001 to January 2002, Netopia, Inc. from November 1994 to February 2001 and Integral Systems, Inc from November 1985 to November 1994. He is a certified public accountant.

      Paul Bartlett has served as our Chief Operating Officer since November 2003. From February 2003 until November 2003, Mr. Bartlett served as our Chief Financial Officer and Executive Vice President, Corporate Development. In April 2002, he first joined Critical Path as Executive Vice President, Corporate Develop-

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ment. From June 2001 to April 2002, Mr. Bartlett was an independent business consultant. From November 2000 to June 2001, Mr. Bartlett worked at Quintus Corporation from April 2000 to November 2000, serving as its chief executive officer and prior to that as its chief operating officer. In 2001, Quintis Corporation filed a petition under the Federal bankruptcy laws while Mr. Bartlett was serving as its chief executive officer. From October 1996 to March 2000, Mr. Bartlett was president and a director of Hall Kinion and Associates.

      Bernard Harguindeguy has served as our Executive Vice President and Chief Marketing Officer from January 2002 to May 2003, when he became Executive Vice President and General Manager of our Identity Management business. Before joining Critical Path, from June 2000 to January 2002, Mr. Harguindeguy was an independent consultant serving various technology companies. From December 1996 to September 1999, he served as chief executive officer of Worldtalk Communications Corporation.

      Patrick Tracy Currie has served as our Executive Vice President, Operations and General Manager, Hosted Operations since November 2002 and prior to that served as a consultant to the Company from July 2002. From December 2000 to July 2002, Mr. Currie founded and served as president of CTD, LLC, a business consulting company providing services to technology industry clients. Prior to his founding of CTD, from September 2000 to November 2000, Mr. Currie headed a start-up venture called MSP Holdings, funded by Thoma-Cressey Equity Partners. Prior to that from May 1996 to August 2000, Mr. Currie served as senior vice president of Tanning Technology Corporation, a professional services firm.

      Michael J. Zukerman has served as our Senior Vice President, General Counsel and Secretary since June 2001. From July 1999 to June 2001, he was vice president of business development for Driveway Corporation, a provider of web-based file storage services. Prior to that, Mr. Zukerman was senior vice president of business development, general counsel and secretary at Sega.com, Inc., from October 1996 to June 1999. From 1989 to October 1996, Mr. Zukerman was vice president and general counsel at Netopia, Inc. Prior to that, Mr. Zukerman was an attorney with Brobeck, Phleger & Harrison LLP.

      Menelaos (Michael) Serbinis has served as our Chief Technology Officer since February 2001. Mr. Serbinis joined Critical Path as its Chief Security Officer in March 2000 and served in this capacity until February 2001. From November 1997 to March 2000, Mr. Serbinis was the chief technology officer of The docSpace Company, which he co-founded in November 1997. From September 1996 to October 1997, Mr. Serbinis was a software engineer for Total Control, a subsidiary of General Electric. From April 1996 to August 1996, Mr. Serbinis was responsible for search engine engineering at Zip2 Corporation.

      Barry Twohig has served as our Senior Vice President, Engineering since October, 2002 and as Vice President, Messaging since November 2000, after joining us as a result of the acquisition of ISOCOR Corporation, where he held Director of Engineering and other engineering management positions, since February 1995. From August 1988 to January 1995, Mr. Twohig served in various roles at Retix Corporation.

      Peter L. S. Currie has served as a director since January 2004. Since January 2002, Mr. Currie has been a General Partner at General Atlantic Partners LLC (“GAP LLC”), a worldwide private equity firm, where he focuses on the Enterprise Software sector. May 1999 to December 2001, Mr. Currie was a partner and co-founder of The Barksdale group, an early stage venture capital firm. Before that, he was Executive Vice President and Chief Administrative Officer of Netscape Communications from April 1995 until May 1999, following the sale of the company to AOL. From April 1989 to March 1995, Mr. Currie held various management positions at McCaw Cellular Communications (predecessor company to AT&T Wireless) including Executive Vice President and Chief Financial Officer, and Executive Vice President-Corporate Development.

      Ross Dove has served as a director since April 2003. Since 1980, Mr. Dove has served as chairman and chief executive officer of DoveBid, Inc.

      William E. Ford has served as a director since December 2001. Mr. Ford is an employee of General Atlantic Service Corporation and is a managing member of GAP LLC, a private equity firm that invests in information technology, process outsourcing and communications businesses on a global basis, and has been with GAP LLC (or its predecessor) since July 1991. Mr. Ford is also a director of Computershare Limited, a leading provider of financial market services and technology to the global securities industry, and several

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private information technology companies in which entities affiliated with GAP LLC are investors. Mr. Ford received a BA in Economics from Amherst College and an MBA from the Stanford Graduate School of Business. Mr. Ford is a trustee of Amherst College and The Common Ground Community. Mr. Ford is also a director of United Hospital Fund, NYC2012, Echoing Green and Spence School. Mr. Ford previously served as a trustee of the Lown Cardiovascular Research Foundation and The Friends of Family Academy in Manhattan.

      Frost R. R. Prioleau has served as director since February 2004. From September 2003 to the present, he has served as the managing partner of Blue Bridge Capital. Since January 2004, Mr. Prioleau has served as the Chief Executive Officer of Nova Media GP, LLC. From December 2000 to August 2002, Mr. Prioleau served as the President of Intraware, Inc., an internet software/services company. From May 2000 to December 2000, Mr. Prioleau served as the Executive Vice President of eServices of Intraware, Inc. From 1989 to 1998, Mr. Prioleau served as the President and Chief Executive Officer of Plynetics Express Corporation, a company that provides rapid-response prototyping and manufacturing services. From 1984 to 1989, Mr. Prioleau served as National Sales Manager of Precision Founders, Inc., a manufacturer of investment castings to aerospace, nuclear and medical companies.

      Steven R. Springsteel has served as director since April 2003. Mr. Springsteel has been senior vice president of finance and administration and chief financial officer of Verity, Inc., a provider of enterprise software, since January 2003. From November 2001 to January 2003, Mr. Springsteel was chief operating officer and chief financial officer of Sagent Technology, Inc., an enterprise business intelligence software company. He remains a director of Sagent Technology, Inc. Prior to joining Sagent Technology, Inc., he was chief operating officer and chief financial officer of NOCpulse, a provide of operation support system technology from 2000 to 2001. From 1996 to 2000, Mr. Springsteel served as executive vice president and chief financial officer of Chordiant Software.

Communications with the Board of Directors

      The Board of Directors believes it is in the best interest of the company and our shareholders to maintain a policy of open communication between our shareholders and the Board. Accordingly, the Board of Directors has adopted the following procedures for shareholders who wish to communicate with the Board. Shareholders who wish to communicate with the Board of Directors or with specified directors should do so by sending any communication to the Board of Directors, c/o Investor Relations, Critical Path, Inc., 350 The Embarcadero, San Francisco, California 94105, or by sending an email to ir@criticalpath.net.

      Any such communication must state the number of shares beneficially owned by the shareholder making the communication. The Investor Relations department will forward such communication to the full Board or to any individual director or directors to whom the communication is directed. However, if the communication is unduly hostile, threatening, illegal or similarly inappropriate, the Investors Relations department (after consultation with our legal department, if appropriate) may discard the communication or take appropriate legal action regarding the communication.

Board Independence

      The board of directors has determined in accordance with The Nasdaq Stock Market listing standards that the following directors are independent: Ross Dove, Frost R.R. Prioleau and Steven R. Springsteel. The independent directors currently do not constitute a majority of our board of directors.

Audit Committee

      We have an audit committee that is comprised of William E. Ford, Ross Dove and Steven R. Springsteel. Messrs. Dove and Springsteel are “independent directors” as determined in accordance with The Nasdaq Stock Market listing standards. In compliance with Rule 4350A(d)(2)(B) of the Nasdaq Stock Market’s listing standards, our Board of Directors previously determined that Mr. Ford’s service on the Audit Committee is in the best interests of the company and our shareholders because of the extent of his knowledge

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and experience in financial matters. Mr. Ford will be ineligible to serve on the Audit Committee beginning on the date of our annual meeting of shareholders or October 31, 2004, whichever comes first.

      The primary functions of the audit committee are as follows:

•  Reviewing our financial results

•  Appointing, compensating and overseeing the work of our independent auditors

•  Reviewing the results of audits performed by our independent auditors

•  Reviewing the effectiveness of our accounting policies, financial reporting and internal controls

•  Reviewing the scope of independent audit coverages and the fees charged by the independent auditors

The charter for the audit committee is available on our website at www.criticalpath.net. All of the members of the Audit Committee are financially literate. Our board of directors has determined that Steven R. Springsteel is an “audit committee financial expert” within the applicable definition of the Securities and Exchange Commission (the “SEC”).

Section 16(a) Beneficial Ownership Reporting Compliance

      Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires our directors, executive officers and holders of more than 10% of our common stock to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and our other equity securities. To our knowledge, we believe that during the fiscal year ended December 31, 2003, our officers, directors and holders of more than 10% of our common stock complied with all Section 16(a) filing requirements with the exception of the following late filings: Jeffrey Webber, a former director, failed to file a Form 4 to report the transfer of an option to buy common stock which took place on February 12, 2003. In making this statement, we have relied upon the written representations of our directors and officers.

Item 11.  Executive Compensation

      The following table summarizes all compensation earned by or paid to the Named Executive Officers for services rendered in all capacities to Critical Path during the fiscal years ended December 31, 2003, 2002, and 2001.

Summary Compensation Table for Last Three Fiscal Years

										Long-Term
		Annual Compensation								Compensation
										Awards
								Securities
								Underlying		All Other
Name and Principal Position		Year		Salary ($)		Bonus ($)(1)		Options(2)		Compensation ($)
William E. McGlashan Jr.(3)			2003		392,500		—		625,000		—
	Chairman of the Board		2002		437,637		—		250,000		—
	of Directors and Chief		2001		189,000		500,000		1,003,250		—
	Executive Officer
Patrick Tracy Currie			2003		287,517		—		37,500		317,428	(4)
	General Manager,		2002		—		—		—		—
	Hosted Operations and		2001		—		—		—		—
	Executive Vice President, Services

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										Long-Term
		Annual Compensation								Compensation
										Awards
								Securities
								Underlying		All Other
Name and Principal Position		Year		Salary ($)		Bonus ($)(1)		Options(2)		Compensation ($)
Robert (Al) Shipp			2003		218,750		—		—		262,500	(5)
	Former President		2002		11,963		—		—		—
			2001		—		—		—		—
Barry Twohig			2003		221,042		—		112,500		—
	Senior Vice President,		2002		157,716		—		—		—
	Engineering		2001		152,759		—		—		—
Paul Bartlett(6)			2003		261,667		—		437,500		8,907	(6)
	Chief Operating Officer		2002		219,319		—		—		—
			2001		—		—		—		—
Bernard Harguindeguy			2003		113,637		—		—		468,790	(7)(8)
	General Manager,		2002		283,801		100,000		375,000		13,673	(8)
	Identity Management		2001		—		—		—		—

(1)	We did not pay any discretionary bonuses to our officers in 2003. In connection with certain employment agreements and commission plans, we paid commissions in fiscal 2003 as noted herein.
(2)	The number of shares in this column have been adjusted to reflect the reverse stock split effected on August 1, 2003.
(3)	Mr. McGlashan joined us in April 2001 as interim Chief Operating Officer and President. In August 2001, Mr. McGlashan accepted the position of interim Chief Executive Officer and entered into a direct employment agreement with us.
(4)	In 2003, we paid consulting fees of $317,428 to CTD, LLC, an affiliate of Mr. Currie, for services rendered.
(5)	In connection with his separation from Critical Path in December 2003, Mr. Shipp received a lump sum separation payment of $262,500.
(6)	Mr. Bartlett joined us in April 2002 as Executive Vice President, Corporate Development, and was appointed to the additional role of Chief Financial Officer in February 2003. In November 2003, Mr. Bartlett transitioned to his current role as Chief Operating Officer and relocated to Dublin, Ireland. In connection with his relocation to Ireland he was reimbursed for $8,907 in taxable relocation expenses.
(7)	Mr. Harguindeguy earned $155,563 in commissions paid in 2003. Mr. Harguindeguy also received a one-time payment of $300,000 in connection with a substantial modification of his title, duties and responsibilities at Critical Path.
(8)	Mr. Harguindeguy received $13,227 and $13,673 for use of a corporate car during 2003 and 2002, respectively.

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Stock Options

      The following table provides summary information concerning option grants to the Named Executive Officers during 2003 and the potential realizable value of the options held by each Named Executive Officer at the end of fiscal year 2003.

Option Grants in Fiscal Year 2003

											Aggregate Potential
	Individual Grants										Realized Value at
											Assumed Annual
	Number of			Percentage							Rates of Stock Price
	Securities			of Total			Exercise				Appreciation for
	Underlying			Options			of Base				Option Term
	Options			Granted to			Price				(4)(5)(6)
	Granted			Employees in			($/Share)		Expiration
Name	(#)(1)(2)			2003(3)			(4)(5)		Date		5%($)		10%($)
William E. McGlashan, Jr.		625,000	(5)		18.16	%		3.12		04/24/2013	$	3,176,345	$	5,057,798
Patrick Tracy Currie		37,500	(6)		1.09	%		3.12		04/24/2013	$	190,581	$	303,468
Robert (Al) Shipp		—			—			—		—		—		—
Barry Twohig		112,500			3.27	%		3.12		04/24/2013	$	571,742	$	910,404
Paul Bartlett		187,500			7.27	%		3.28		01/15/2013	$	1,270,538	$	2,023,119
		250,000			5.45	%		3.12		04/24/2013	$	1,001,770	$	1,595,152
Bernard Harguindeguy		—			—			—		—		—		—

(1)	Except where otherwise noted in the footnote below, these stock options have a ten-year term, vesting ratably on a monthly basis, and become fully vested on the fourth anniversary of the vesting start date.
(2)	The number of shares in this column have been adjusted to reflect the reverse stock split effected on August 1, 2003.
(3)	Based on options to purchase an aggregate of 3,441,125 shares of common stock granted during fiscal 2003 (adjusted to reflect the reverse stock split effected on August 1, 2003) and vesting over various periods of time based on continued employment and other performance metrics.
(4)	The exercise price is equal to fair market value that is the closing price of our common stock on the Nasdaq National Market on the date prior to the date of grant.
(5)	The exercise prices reflected or utilized for the calculation in this column have been adjusted to reflect the reverse stock split effected on August 1, 2003.
(6)	The 5% and 10% assumed rates of appreciation are mandated by the rules of the SEC and do not represent Critical Path’s estimate or projection of the future common stock price. There can be no assurance that any of the values reflected in the table will be achieved. Actual gains, if any, on stock option exercises will depend on future performance of our common stock, the officer’s continued employment through applicable vesting periods and the date on which the options are exercised.

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FISCAL YEAR END OPTION VALUES

      The following table provides summary information concerning stock options held as of December 31, 2003 by each of the Named Executive Officers. None of the Named Executive Officers exercised options in 2003.

Aggregated Option Exercises in Last Fiscal Year And Fiscal

Year-End Option Values(1)

					Number of Securities
					Underlying Unexercised				Value of Unexercised
					Options at Fiscal				In-the-Money
	Shares		Value		Year-End(#)				Options($)(3)
	Acquired on		Realized
Name	Exercise(#)		($)(2)		Exercisable		Unexercisable		Exercisable		Unexercisable
William E. McGlashan, Jr.		—		—		522,999		855,251		—		—
Patrick Tracy Currie		—		—		78,645		158,855		—		—
Robert (Al) Shipp		—		—		145,831		354,169		—		—
Barry Twohig		—		—		79,548		110,563		—		—
Paul Bartlett		—		—		158,850		466,149		—		—
Bernard Harguindeguy		—		—		212,239		162,761		—		—

(1)	The number of shares and the exercise prices of the options in this table have been adjusted to reflect the reverse stock split effected on August 1, 2003.
(2)	The value realized is calculated by determining the difference between the fair market value of the securities underlying the options and the exercise price of the options at the time of exercise. For purposes of this table, fair market value is deemed to be $1.33 per share, the closing price of the common stock as reported on the Nasdaq National Market on December 31, 2003. Calculations that result in a negative value are reflected as no value realized in the above table.
(3)	The value of unexercised in-the-money options at fiscal year-end is based on a price per share of $1.33, the closing price quoted on the Nasdaq National Market on December 31, 2003, minus the exercise price.

Compensation of Directors

      We reimburse each member of our Board of Directors for out-of-pocket expenses incurred in connection with attending Board meetings. Commencing with the appointment of a new chairman of the Audit Committee in April 2003, we pay $2,000 to the chairman for each Audit Committee meeting the chairman attends. No member of our Board of Directors receives any additional cash compensation for services rendered as a director. It has been the Board’s practice to grant non-employee directors a one time option to purchase 75,000 shares of our common stock at the time of joining the Board vesting over a four year period. However, where warranted and deemed to be in the best interests of the company, we may grant additional options to directors at the time of joining the Board, or from time to time thereafter in connection with committee service or otherwise.

Employment Contracts and Termination of Employment and Change-in-Control Arrangements

      In August 2001, William E. McGlashan, Jr. entered into an employment agreement with us under which he was appointed interim Chief Executive Officer. In January 2002 the agreement was amended and restated in its entirety in connection with Mr. McGlashan’s appointment as Chief Executive Officer. The employment agreement provides Mr. McGlashan, as our Chief Executive Officer, with an annual base salary of $450,000 per year. As an inducement to enter into this agreement, Mr. McGlashan received a bonus of $500,000 and a loan commitment in the amount of up to $4.0 million for the purchase of a principal residence. However, in May 2002, the Compensation Committee of the Board and Mr. McGlashan agreed to amend the employment agreement in order to reduce the amount of the loan commitment to $1.5 million, which has not

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been funded and is discussed further below. Mr. McGlashan is also eligible to receive an annual cash bonus of up to 200% of his base salary to be paid at the end of each fiscal year beginning with the fiscal year ending December 31, 2002. Mr. McGlashan did not receive any cash bonus for his services during the fiscal year ended December 31, 2003. In September 2003, we amended Mr. McGlashan’s employment agreement to reduce his base salary to $300,000 until such time as Critical Path meets specified performance targets. For the purposes of the bonus tied to Mr. McGlashan’s base salary described above and the change in control severance payment described below, will continue to be considered unchanged.

      In August 2001, Mr. McGlashan received an option to purchase 375,000 shares of our common stock at an exercise price of $1.60 per share, which was fair market value at the time of grant. The option vested one-third upon grant, one-third one year from grant and one-third on December 31, 2004 or upon the earlier achievement of positive EBITDA prior to June 30, 2002. In November 2001, Mr. McGlashan was granted an option to purchase 203,250 shares at an exercise price of $4.52 per share, which was fair market value at the time of grant, on the same terms and conditions and in the same pro rata proportions to the vesting schedule above. In December 2001, Mr. McGlashan was granted an option to purchase 425,000 shares at an exercise price of $10.24 per share, which was fair market value at the time of grant, vesting in equal monthly installments over a three-year period. In May 2002, in connection with the reduction of the loan commitment, Mr. McGlashan was also granted an option to purchase 250,000 shares of our common stock, at an exercise price of $6.96, which was fair market value at the time of grant. The option was immediately exercisable subject to our lapsing right of repurchase over a three year period. Mr. McGlashan exercised his right to early exercise and purchase the shares through a promissory note and stock pledge agreement in May 2002. As such, we now hold a promissory note in the amount of $1,740,000 secured by the shares of common stock. In April 2003, Mr. McGlashan was granted an option to purchase 625,000 shares at an exercise price of $3.12 per share, which was the fair market value on the date of grant. The terms of each of the above-referenced and summarized loans are also discussed in the section of this Form 10-K entitled “Item 13. Certain Relationships and Related Party Transactions – Loans to Officers.”

      Following a change in control of Critical Path, all of Mr. McGlashan’s unvested options to purchase shares of our common stock will become vested in certain circumstances. In addition, in the event Mr. McGlashan’s employment is terminated for any reason other than for cause or if he resigns as a result of constructive termination, we will pay Mr. McGlashan a lump sum payment equal to the sum of twelve months of salary and 50% of his prior year’s bonus. Mr. McGlashan will also be entitled to receive employee benefits, including health care coverage, for a period of twelve months following his termination and any unvested stock options will vest as to the amount that would have vested had Mr. McGlashan continued to work for us for an additional twelve months.

      In April 2002, we entered into an employment agreement with Paul Bartlett, pursuant to which Mr. Bartlett became employed as our Executive Vice President, Business Development at a base salary of $250,000 per year. In May 2002, Mr. Bartlett was granted an option to purchase 187,500 shares of our common stock at an exercise price of $6.96, which was the fair market value at the time of grant. In February 2003, Mr. Bartlett became our Chief Financial Officer and Executive Vice President, Corporate Development and was granted an option to purchase an additional 187,500 shares of our common stock at an exercise price of $3.28 per share, which was the fair market value at the time of grant. In April 2003, Mr. Bartlett was granted an additional option to purchase 250,000 shares of common stock at an exercise price of $3.12 per share, which was the fair market value on the date of grant. In August 2003, we amended Mr. Bartlett’s employment agreement, added the position of Chief Operating Officer, and relocated him to Dublin, Ireland. His base salary was also reduced to $200,000, except for the purposes of the change in control severance arrangement described below, and we agreed to reimburse him for certain relocation expenses. In addition, such amendment provides that if Mr. Bartlett’s employment is terminated for any reason other than for cause, he will be entitled to salary continuation for nine months following his termination unless he receives other employment at a specified salary. In November 2003, we further amended our arrangement with Mr. Bartlett to provide for his separation from the company no later than June 2004 and with Mr. Bartlett serving only as Chief Operating Officer on a transitional basis until his separation. We also agreed to accelerate the vesting of certain options upon his termination.

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      In January 2002, we entered into an employment agreement with Bernard Harguindeguy, pursuant to which Mr. Harguindeguy became employed as our Executive Vice President, Chief Marketing Officer at a base salary of $300,000 per year. Mr. Harguindeguy is eligible to receive an annual cash bonus of up to $300,000 upon the satisfaction of certain performance criteria. As an inducement to enter into this agreement, Mr. Harguindeguy received a bonus of $100,000. In the event Mr. Harguindeguy’s employment is terminated by us for any reason other than for cause, we will pay to Mr. Harguindeguy a lump sum payment equal to $300,000. We have also granted Mr. Harguindeguy options to purchase shares of our common stock, which options vest over time. Following a change of control of Critical Path, all of Mr. Harguindeguy’s options will become vested in certain circumstances.

      In May 2003 and in connection with a substantial modification of Mr. Harguindeguy’s title, duties and responsibilities at the Company he was paid $300,000 and transitioned to a 100% commission-based compensation plan as Executive Vice President, General Manager of Identity Management. In October 2003, we also agreed to pay Mr. Harguindeguy a bonus upon attaining specified targets in connection with the possible future sale of one of our business units. No amounts have been paid under this agreement.

      In August 2003, we entered into an Amendment to Employment Agreement and Release of claims with Robert A. Shipp in connection with the modification of his duties and responsibilities. Pursuant to the Amendment, we agreed to pay Mr. Shipp a lump sum $262,500 plus commissions for Mr. Shipp’s participation in closing transactions with specified customers in consideration of terminating Mr. Shipp’s salary and bonus eligibility and a release of any actual or potential claims by Mr. Shipp in connection with his employment with us. Under this amendment, we have paid Mr. Shipp $262,500 in severance payments and no commissions. Mr. Shipp’s employment with Critical Path ended in December 2003.

      During 2003, we entered into change of control severance agreements with certain of our key employees. These agreements provide that so long as the employee signs and does not revoke a standard release of claims with us, the employee is entitled to certain severance payments if the employee is involuntarily terminated (as defined in the agreement) within twenty-four months following a change of control (as defined in the agreement) of Critical Path or within three months on or before a change of control. Assuming the conditions under the agreements that trigger payment obligations are met, the aggregate payment under these agreements is currently estimated to be between $3.5 million and $5.0 million.

      All the employment and loan agreements summarized above are as more fully-described in the agreements themselves, filed as Exhibits to this Annual Report on Form 10-K, for the fiscal year ended December 31, 2003.

      In connection with his employment with the Company, Mr. McGlashan received a loan from the Company. Please see “Item 13. Certain Relationships and Related Party Transactions – Loans to Officers” for a description of this loan.

      For payments made to Mr. Shipp in connection with his termination, please see “Item 13. Certain Relationships and Related Party Transactions – Severance Agreements.”

Compensation Committee Interlocks and Insider Participation

      During fiscal year 2003, Raul Fernandez, William Ford, William C. Gorog and Ross Dove, all non-employee directors of the company, served at various times on the board of directors’ Compensation Committee. During fiscal year 2003, no member of our Board of Directors or Compensation Committee served as a member of the board of directors or compensation committee of any entity that had one or more executive officers serving as a member of our Board of Directors or Compensation Committee.

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Item 12.  Security Ownership of Certain Beneficial Owners and Management

      The following table sets forth certain information regarding beneficial ownership of common stock as of March 1, 2004 by:

•  Each person or entity known to Critical Path to own beneficially more than 5% of Critical Path’s common stock;

•  Each of Critical Path’s directors;

•  Our Chief Executive Officer as of December 31, 2003, each of our four other most highly compensated executive officers whose total salary and bonus exceeded $100,000 during the year ended December 31, 2003, and two former executive officers whose total salary and bonus exceeded $100,000 during the year ended December 31, 2003, one of whom, Robert (Al) Shipp, is no longer employed with us (collectively, the “Named Executive Officers”); and

•  All executive officers and directors as a group.

BENEFICIAL OWNERSHIP TABLE

	Amount and Nature of Beneficial Ownership
				Shares of		Right to Acquire
	Shares of			Series D		Ownership of									Common and
	Common			Preferred		Common Stock									Series D
	Stock			Stock		Within 60 Days			Total of				Series D		Preferred
Name and Address of	Beneficially			Beneficially		of March 1,			Common		Common		Preferred		Stock (As
Beneficial Owner(1)	Owned			Owned		2004			Stock		Stock(2)		Stock(2)		Converted)(2)
5% SHAREHOLDERS
Entities affiliated with General Atlantic Partners, LLC(3) 3 Pickwick Plaza Greenwich, CT		—			2,545,455		10,523,656			10,523,656		2.9		60.8		27.7
Scott Smith and affiliated entities(4) c/o Camelot Management Corp. 3 Pickwick Plaza Greenwich, CT		1,071,888			—		—			1,071,888		5.1		—		2.9
Peter Kellner and affiliated entities(5) c/o Richmond I, LLC 10563 Brunswick Road, Suite 7 Grass Valley, CA 95945		1,330,084			—		—			1,330,084		6.3		—		3.6
Cheung Kong (Holdings) Limited and affiliated 8th Floor, Cheung Kong Center 2 Queen’s Road Central Hong Kong(6)		—			872,727		3,393,823			3,393,823		—		20.8		9.1
Vectis Group, LLC and affiliated entities(7) c/o BPM 600 California Street, Suite 1300 San Francisco, CA 94180		—			581,818		2,378,799			2,378,799		*		13.9		6.3
DIRECTORS AND NAMED EXECUTIVE OFFICERS
William E. McGlashan, Jr.		280,288	(8)		581,818		3,146,936	(9)		3,427,224		5.3		13.9		8.9
Paul Bartlett		—			—		210,933	(10)		210,933		1.0		—		*
Patrick Currie		—			—		96,354	(11)		96,354		*		—		*
Barry Twohig		1,001			—		77,611	(12)		78,612		*		—		*
Bernard Harguindeguy		—			—		238,281	(13)		238,281		1.1		—		*
Robert Shipp		—			—		151,747	(14)		151,747		*		—		*

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	Amount and Nature of Beneficial Ownership
			Shares of		Right to Acquire
	Shares of		Series D		Ownership of									Common and
	Common		Preferred		Common Stock									Series D
	Stock		Stock		Within 60 Days			Total of				Series D		Preferred
Name and Address of	Beneficially		Beneficially		of March 1,			Common		Common		Preferred		Stock (As
Beneficial Owner(1)	Owned		Owned		2004			Stock		Stock(2)		Stock(2)		Converted)(2)
Peter Currie		—		—		4,687	(15)		4,687		*		—		*
Ross Dove		—		—		18,750	(16)		18,750		*		—		*
William E. Ford		—		2,545,455		10,593,968	(17)		10,593,968		3.2		60.8		27.8
Frost R.R. Prioleau		—		—		3,125	(18)		3,125		*		—		*
Steven R. Springsteel		—		—		18,750	(19)		18,750		*		—		*
All Named Executive Officers and current directors, nominees and executive officers as a group (13 persons)(20)		283,001		3,127,273		14,832,692			15,115,693		12.4		74.7		37.7

     * Amount represents less than 1% of the indicated class or classes of stock.

(1)	Unless otherwise indicated, the address for each of the executive officers and directors above is c/o Critical Path, Inc., 350 The Embarcadero, San Francisco, California 94105-1204.
(2)	Applicable percentage ownership of common stock is based on 21,171,399 shares of common stock issued and outstanding as of March 1, 2004 including 110,209 shares of common stock issuable upon exchange of Exchangeable Shares of Class A Non-Voting Preferred Shares of Critical Path Messaging Co., an unlimited liability company existing under the laws of the Province of Nova Scotia and a wholly-owned subsidiary of the Company. Each Exchangeable Share is exchangeable for one Common Share. Applicable percentage ownership of Series D preferred stock is based on 4,188,587 shares of Series D preferred stock issued and outstanding on March 1, 2004. Beneficial ownership is determined in accordance with the rules and regulations of the Securities and Exchange Commission (SEC). In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options or convertible or exchangeable into such shares of common stock, held by that person, that are currently exercisable or exercisable within 60 days of March 1, 2004 are deemed outstanding. These shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of another person. Except as indicated in the footnotes to this table and pursuant to applicable community property laws, each shareholder named in the table has sole voting and investment power with respect to the shares set forth opposite such shareholder’s name.
(3)	According to a Schedule 13D, dated as of December 21, 2001, filed jointly by General Atlantic Partners, LLC (GAP), General Atlantic Partners 74, L.P. (GAP 74), GapStar, LLC (GapStar) and GAP Coinvestment Partners II, L.P. (GAPCO and, collectively with GAP, GAP 74 and GapStar, the Reporting Persons), the Reporting Persons own no shares of the Company’s common stock. The Reporting Persons report collective beneficial ownership as to 2,545,455 shares of the Company’s Series D preferred stock, which were initially convertible into 8,333,333 shares of common stock, and warrants to purchase 625,000 shares of common stock that are exercisable within 60 days of March 1, 2004. GAP is the general partner of GAP 74 and the sole member of GapStar. The managing members of GAP (other than Klaus Esser) are also the general partners of GAPCO. GAP and the managing members of GAP report shared voting and dispositive power of the 2,545,455 shares of Series D preferred stock and the warrants to purchase 625,000 shares of common stock held by the Reporting Persons. GAP 74 owns 2,091,218 shares of Series D preferred stock or 6,846,249 shares of common stock on an as converted basis and owns warrants to purchase 513,468 shares of common stock. GapStar owns 159,091 shares of Series D preferred stock or 520,833 shares of common stock on an as converted basis and owns warrants to purchase 39,063 shares of common stock. GAPCO owns 295,146 shares of Series D preferred stock or 966,251 shares of common stock on an as converted basis and warrants to purchase 72,469 shares of common stock. The number of shares of common stock into which the Series D preferred stock convert as reflected in this footnote does not include the accretion of dividends

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	after the date of the applicable Schedule 13D. The number of shares of common stock as reflected in the table does include such accretion of dividends. The number of shares in this footnote have been adjusted to reflect the stock split effected on August 1, 2003.
(4)	Scott Smith filed a Schedule 13G/ A, dated as of February 11, 2003, with the SEC on behalf of himself and related parties described herein. According to the Schedule 13G/ A, shares are held for the account of Camelot Management Corporation, Camelot Offshore Fund Limited and Scott Smith. Scott Smith is an officer of Camelot Management Corporation and a director of Camelot Offshore Fund Limited. Scott Smith reported beneficial ownership of 1,071,888 shares of common stock as of December 31, 2002. The shares held consist of 268,325 shares of common stock held for the account of Camelot Management Corporation, 268,325 shares of common stock held for the account of Camelot Offshore Fund Limited and 1,071,888 shares of common stock held for the account of Scott Smith. The reporting person reported shared voting power over 1,071,888 shares and shared dispositive power over 1,071,888 shares. The number of shares in this footnote have been adjusted to reflect the stock split effected on August 1, 2003.
(5)	Peter Kellner filed a Schedule 13D, dated as of February 4, 2004, with the SEC on behalf of himself and related parties described herein. According to the Schedule 13D, shares are held for the account of Richmond I, LLC and Peter Kellner. Peter Kellner has voting and dispositive voting power over Richmond I, LLC. Peter Kellner reported beneficial ownership of 1,330,084 shares of common stock (adjusted to include 57,825 options exercisable within 60 days of February 2, 2004). The shares held consist of 696,056 shares of common stock held for the account of Richmond I, LLC and 1,330,084 shares of common stock held for the account of Peter Kellner. The reporting person reported shared voting power over 1,330,084 shares and shared dispositive power over 1,330,084 shares.
(6)	According to a Schedule 13D/ A, dated as of December 1, 2003, filed by jointly by Cheung Kong (Holdings) Limited (Cheung Kong), Campina Enterprises Limited, an indirect wholly owned subsidiary of Cheung Kong (Campina), Hutchison Whampoa Limited (HWL), an entity in which Cheung Kong holds a 49.97% interest, Cenwell Limited, an indirect wholly owned subsidiary of HWL (Cenwell), CK Life Sciences Int’l., (Holdings) Inc. (CK Life), an entity in which Cheung Kong holds a 44.0% interest, and Great Affluent Limited (GAL), an indirect wholly owned subsidiary of CK Life, Campina and Cenwell hold 436,363 and 436,364 shares of our Series D preferred stock, respectively, collectively convertible into 3,317,782 shares of our common stock. Cheung Kong and Campina report shared voting and dispositive power as to the shares held by Campina. Cheung Kong, HWL and Cenwell reported shared voting and dispositive power as to the shares held by Cenwell. Cheung Kong disclaims beneficial ownership of the 3,317,782 shares of common stock beneficially owned by Cenwell and Campina. The number of shares of common stock into which the Series D preferred stock convert as reflected in this footnote does not include the accretion of dividends after the date of the applicable Schedule 13D/ A. The number of shares as reflected in the table does include such accretion of dividends.
(7)	Vectis Group LLC, a Delaware limited liability company (Vectis), filed a Schedule 13D, dated as of August 8, 2003, with the SEC on behalf of itself and related parties. According to the Schedule 13D, shares are held for the account of Vectis, the reporting person. William E. McGlashan, Jr. and Matthew Hobart are the managing members of Vectis. The shares held consist of (i) 2,064,780 shares of common stock issuable upon the conversion of shares of Series D preferred stock, including the accretion of dividends, and (ii) 116,250 shares of common stock issuable subject to warrants currently exercisable in full. The shares exclude shares held individually by the principals of Vectis and shares beneficially owned by the principals of Vectis subject to options exercisable within 60 days of March 1, 2004. The number of shares of common stock into which the Series D preferred stock convert as reflected in this footnote does not include the accretion of dividends after the date of the applicable Schedule 13D. The number of shares as reflected in the table does include such accretion of dividends.
(8)	Includes (i) 250,000 shares of common stock purchased by Mr. McGlashan through an early option exercise pursuant to a promissory note and stock pledge agreement with us, and subject to a lapsing right

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of repurchase by us, (ii) 20,000 shares of common stock purchased by Mr. McGlashan’s spouse and (iii) 10,288 shares purchased under our employee stock purchase plan.

(9)

Includes (i) 768,137 shares subject to options exercisable within 60 days of March 1, 2004, (ii) 116,250 shares subject to warrants to purchase shares of common stock held by Vectis and exercisable within 60 days of March 1, 2004 and (iii) 2,262,549 shares of common stock issuable upon the conversion of shares of Series D preferred stock. See footnote 7 above. Mr. McGlashan disclaims beneficial ownership of the securities held by Vectis and its affiliates within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934. The shares exclude all shares subject to options issued to other Vectis principals as part of their individual employment agreements with Critical Path and all shares individually owned by other Vectis principals.

(10)	Consists of 210,933 shares subject to options exercisable within 60 days of March 1, 2004.
(11)	Consists of 96,354 shares subject to options exercisable within 60 days of March 1, 2004.
(12)	Consists of 77,611 shares subject to options exercisable within 60 days of March 1, 2004.
(13)	Consists of 283,281 shares subject to options exercisable within 60 days of March 1, 2004.
(14)	Consists of 151,747 shares subject to options exercisable within 60 days of March 1, 2004.
(15)	Consists of 4,687 shares subject to options exercisable within 60 days of March 1, 2004.
(16)	Consists of 18,750 shares subject to options exercisable within 60 days of March 1, 2004.
(17)	Includes 10,523,656 shares issuable upon the conversion of the Series D preferred stock and exercise of warrants to purchase shares of common stock. See footnote (3) above. Mr. Ford disclaims beneficial ownership of the securities described in footnote (3) above except to the extent of his pecuniary interest therein. Also includes 70,312 shares subject to options exercisable within 60 days of March 1, 2004.
(18)	Consists of 3,125 shares subject to options exercisable within 60 days of March 1, 2004.
(19)	Consists of 18,750 shares subject to options exercisable within 60 days of March 1, 2004.
(20)	Includes shares beneficially owned by the directors and executive officers as a group consisting of the named executive officers and Messrs. Zukerman and Serbinis. Includes and aggregate of 1,712 shares of common stock beneficially owned and 271,550 shares subject to options exercisable within 60 days of March 1, 2004 held by Messrs. Zukerman and Serbinis.

Equity Compensation Plan Information

      The following table sets forth certain information as to our equity compensation plans for fiscal 2003 as of December 31, 2003. The number of shares to be issued and remaining for issuance under our equity compensation plans and the exercise price of outstanding options have been adjusted to reflect the reverse stock split effected August 1, 2003.

						Number of Securities
						Remaining Available for
				Weighted-Average		Future Issuance under
	Number of Securities to			Exercise Price of		Equity Compensation
	be Issued upon Exercise			Outstanding		Plans (Excluding
	of Outstanding Options,			Options, Warrants		Securities Reflected in
	Warrants and Rights			and Rights		Column (a))
Plan Category	(a)			(b)		(c)
Equity compensation plans approved by the shareholders		8,326,836	(1)	$	23.54		1,815,712	(2)
Equity compensation plans not approved by the shareholders		6,534,972	(3)	$	26,76		2,111,734
Total		14,861,808		$	24.96		3,927,446	(4)

(1)	Includes the 1998 Stock Option Plan.
(2)	The number of shares reserved for issuance under the 1998 Stock Option Plan (the “1998 Plan”) is subject to an annual increase in the number of shares equal to 2% of the outstanding shares of common

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	stock on January 1 of such year. The aggregate number of shares of common stock which may be issued under the 1998 Plan shall at all times be subject to adjustment as a result of stock splits, dividends payable in shares, combinations or consolidations of outstanding stock, recapitalizations, mergers or reorganizations.
(3)	Includes the 1999 Nonstatutory Stock Option Plan. For a description of the material features of this plan, please see Note 16 – Shareholders’ Equity (Deficit) to the Company’s Notes to Consolidated Financial Statements contained in this Annual Report on Form 10-K . Also includes shares of common stock to be issued (subject to vesting) upon the exercise of outstanding options we assumed in connection with our acquisitions of other companies. Also includes an aggregate of 1,840,850 shares reserved for issuance pursuant to the exercise of outstanding warrants.
(4)	Includes 274,539 shares of common stock available for future issuance under our employee stock purchase plan (“ESPP”). The number of shares reserved for issuance under the ESPP is subject to an annual increase on January 1 of each year by an amount equal to 1% of our issued and outstanding common stock on such date, not to exceed 1,000,000 additional shares each year.

Item 13.  Certain Relationships and Related Party Transactions.

Severance Agreements

      In May 2002, David Hayden resigned his employment with us and from the board of directors. In connection with a separation agreement finalized in July 2002, Mr. Hayden received a lump sum separation payment of $350,000 plus applicable taxes, continuation of health and welfare benefits until May 31, 2003, an extension of time to repay the $1.95 million loan with us and to exercise his vested stock options until no later than June 30, 2005, acceleration of a portion of his unvested options if a change of control of Critical Path occurs prior to September 30, 2003 and reimbursement for $50,000 of legal fees incurred. In connection with the provision of these benefits, Mr. Hayden agreed to (i) forfeit the right under the severance provisions of his employment agreement to an additional one year extension of the $1.95 million loan until August 2006; (ii) pay all proceeds (net of taxes) from the sale of any shares held by him in Critical Path to reduce the principal balance of the $1.95 million loan; and (iii) forfeit his right to receive a $2.5 million loan from us to exercise certain of his stock options. All sales of our common stock by Mr. Hayden are to be made under a publicly filed trading plan. In addition, we executed a mutual release of claims. As a result of Mr. Hayden’s separation, we recorded aggregate one-time charges of $2.6 million, included in operating expenses, inclusive of $572,400 related to the separation payment and legal fee reimbursements made to Mr. Hayden and $2.0 million in stock-based expenses related to the extension of the exercise period on Mr. Hayden’s vested stock options.

      In connection with his employment agreement, in October 2001, we made a loan and held a note receivable from Pierre Van Beneden, our former President, totaling $350,000. Mr. Van Beneden’s loan was interest free for the first year and was forgiven in monthly installments over the first year of Van Beneden’s employment, resulting in a compensation charge to operating expense ratably over the first twelve months of his employment. As of October 8, 2002, the one-year anniversary of his employment with us, the note had been fully forgiven. In November 2002, Pierre Van Beneden terminated his employment as President, but continued through January 2003 as a consultant. In connection with a separation agreement and release, Mr. Van Beneden agreed to provide consulting services to us on a commissioned basis and we agreed to provide the benefits to which he was entitled under his employment agreement. Such employment agreement benefits, which were paid in January 2003 upon the completion of the consulting term, included a lump sum payment of $337,500, representing nine months base salary, accelerated vesting on a portion of his option grants and commissions of $50,000. These payments reflect all our cash obligations to Mr. Van Beneden and accordingly no additional payments will be made in connection with the consulting services portion of his termination agreement. As an additional benefit under the separation agreement, Mr. Van Beneden was granted an extension until January 17, 2004 to exercise his option grants. We and Mr. Van Beneden executed a mutual release of all claims.

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      In February 2003, Laureen DeBuono terminated her employment as our executive vice president and chief financial officer, but continued through June 2003 as a consultant. In connection with a separation agreement and release, Ms. DeBuono received a lump sum payment of $208,000, representing four months base salary, and a $25,000 payment intended to cover reimburseable expenses incurred during her tenure with us. Ms. DeBuono was paid $125,000 associated with the consulting work performed through June 2003. As an additional benefit under the separation agreement, Ms. DeBuono was granted an extension until December 31, 2004, to exercise her option grants, resulting in a charge of $92,000 to stock-based expenses.

      In August 2003, we entered into an Amendment to Employment Agreement and Release of claims with Robert A. Shipp in connection with the modification of his duties and responsibilities. Pursuant to the Amendment, we agreed to pay Mr. Shipp a lump sum $262,500 plus commissions for Mr. Shipp’s participation in closing transactions with specified customers in consideration of terminating Mr. Shipp’s salary and bonus eligibility and a release of any actual or potential claims by Mr. Shipp in connection with his employment with us. Under this amendment, we have paid Mr. Shipp $262,500 in severance payments and no commissions. Mr. Shipp’s employment with us ended in December 2003.

      In April 2002, we entered into an employment agreement with Paul Bartlett. The terms of our agreement are described above under Item 11. Executive Compensation – Employment Contracts and Termination of Employment and Change-in-Control Arrangements. In November 2003, we amended our arrangement with Mr. Bartlett to provide for his separation from the company no later than June 2004 and with Mr. Bartlett serving as Chief Operating Officer on a transitional basis until his separation. We also agreed to accelerate the vesting of certain options upon his termination.

Loans to Officers

      During 2001 and in connection with his employment agreement, we made a loan and held a note receivable from David C. Hayden, our former Executive Chairman, totaling $1.5 million. Mr. Hayden’s note and loan agreement were amended in February 2002 to increase the amount to $1.95 million. See the section of this Form 10-K entitled “Employment Contracts and Termination of Employment and Change-in-Control Arrangements.” As amended in 2002, Mr. Hayden’s full recourse note accrued interest at the rate of 6.75% per annum and provided that it may be forgiven upon the achievement of a performance-based milestone whereby a change of control event occurs with consideration received by the shareholders in excess of $10.00 per share. Mr. Hayden’s loan was initially due and payable on August 13, 2004; provided, however, if his employment was terminated without cause or he resigned for good reason, the due date would be extended for two years. As of $320,362 in accrued interest under Mr. Hayden’s note totaled $2,270,362. Interest payments are due and payable on August 13th of each year that the loan is outstanding. Mr. Hayden terminated his employment and resigned from the Board in May 2002. The terms of this loan are more fully discussed in the section of this Form 10-K entitled “Employment Contracts and Termination of Employment and Change-in-Control Arrangements.”

      In December 2001 and in connection with his amended and restated employment agreement, the Board approved a secured loan to Mr. McGlashan to be used for the purchase of a principal residence in the San Francisco Bay Area. In May 2002, the Compensation Committee and Mr. McGlashan agreed to amend Mr. McGlashan’s employment agreement to reduce the amount of the loan to $1.5 million from $4.0 million. The housing loan is to be secured by the residence, by the pledge of Mr. McGlashan’s personal options and shareholdings in us and other assets of Mr. McGlashan to the extent necessary such that at all times the assets securing the loan equal at least 120% of the principal and interest outstanding on the housing loan and any other loan secured by the residence. Interest on the housing loan is to be accrued at 4.75%, and is deferred until the principal is due, over a 10 year term. The housing loan provides that it shall be forgiven upon a change of control event where consideration received by the shareholders exceeds $10.00 per share. In the event Mr. McGlashan terminates his employment either by voluntary resignation or for cause, as defined in the agreement, the housing loan shall be due and payable, with interest, no later than 12 months following such termination. In the event Mr. McGlashan is terminated for any reason other than his voluntary resignation or cause, the housing loan shall remain outstanding for the remainder of its term. We have not yet funded the housing loan and, accordingly, no accrued interest is currently outstanding.

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      In May 2002, in connection with the reduction of the principal amount available under the housing loan, Mr. McGlashan received an option grant of 1,000,000 shares of our common stock and an opportunity to early exercise and purchase such shares through a full-recourse promissory note and stock pledge agreement. The purchased shares are subject to a lapsing right of repurchase with respect to the shares over a three-year period. Mr. McGlashan exercised the option by delivery of his promissory note on May 8, 2002. The terms of the note were established in consultation with our outside auditors to avoid adverse accounting treatment to the Company. Accordingly, the promissory note will begin to accrue interest at the adjustable quarterly reference rate of Fidelity Investments or similar banking entity as the shares vest with respect to that portion of the purchase price that represents the purchase price of the “vested” shares. The promissory note is full recourse and secured by the acquired shares under the stock pledge agreement. As of December 31, 2003, $23,636 in interest had accrued on the note and the amount of indebtedness outstanding under the note at December 31, 2003 was $1,763,636.

Commercial Relationships

Consulting Agreements

      In March 2001, we entered into a series of certain consulting and transactional agreements with Vectis Group, LLC (“Vectis”) to engage Vectis as our advisor with respect to various strategic alternatives and other management related services. The agreement provided Vectis with: (i) a $50,000 monthly retainer fee for consulting services during the term of the agreement, (ii) a warrant to purchase 125,000 shares of our common stock at a price of $8.00 per share, and (iii) transaction fees in connection with certain dispositions or acquisitions of assets in an amount equal to 5% of proceeds, up to a maximum of $1 million per transaction. Also effective March 2001, we entered into an agreement with Vectis to engage Vectis as a placement agent in connection with a possible private placement by Critical Path of equity securities. Under the agreement, Vectis was entitled to 5% of the gross proceeds we raised from specified purchasers, payable in cash, securities or a combination thereof at the election of Vectis. In April 2001, we and Vectis agreed to enter into an additional agreement whereby Vectis would act as an advisor with respect to a restructuring of and management of Critical Path. The agreement provided Vectis with a monthly retainer fee of $125,000 during the term of the agreement. All of the agreements with Vectis were terminated effective September 30, 2001, at which time several employees of Vectis joined us as regular full time employees. In 2001, we paid a total of fees to Vectis in the amount of $1,073,041 for aggregate monthly consulting service fees and expense reimbursements, and $3,057,928 in fees associated with the Series D preferred stock investment in November 2001 and other transactions regarding our restructuring. Although the agreements were terminated, certain obligations under the agreements survive including indemnification obligations and some obligations with respect to expense reimbursements and transactional fees. We paid Vectis a total of approximately $12,500 for expense reimbursement in February 2002. The total potential remaining fees payable aggregate between zero and $135,000.

      William E. McGlashan, Jr., who was appointed our interim President and Chief Operating Officer in April 2001, our interim Chief Executive Officer in August 2001, and our Chief Executive Officer on January 2002, formerly served as a principal and the Chief Executive Officer of Vectis, which beneficially owns more than 5% of our capital stock, and holds a significant beneficial ownership in Vectis. In September 2001, we terminated our relationship with Vectis subject to certain obligations as described herein.

      In August 2002, we retained the services of The Cohen Group, an international strategic consulting company. The chairman and chief executive officer of The Cohen Group is William S. Cohen, a former member of the Board of Critical Path. Under the agreement, The Cohen Group received a former $150,000 retainer fee to be credited against a sliding scale of earned sales and referral commissions on transactions resulting in license revenue for us. The agreement is for a one year renewable term, with reimbursement for specified expenses up to a cap of 5% of the retainer and a provision for extension in the event the retainer fee is not earned during the term. This agreement was not renewed in 2003.

      In April 2002, we retained the services of CTD, LLC (“CTD”), an operational planning consulting company. The founder and president of CTD is Patrick Tracy Currie, who subsequently became our Executive

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Vice President, Operations and General Manager of Hosted Operations following the termination of the consulting arrangement with CTD as described below. Mr. Currie and his spouse share full ownership of CTD. Under the terms of the Statement of Work entered into between us and CTD, CTD received payments for its services based on daily rates as well as reimbursement of costs associated with the work performed. In connection with this consulting arrangement, we paid CTD an aggregate of approximately $320,000 in 2003.

Investment Transactions

      In November 2001, we entered into a financing transaction with a group of investors that resulted in gross cash proceeds to us of approximately $30 million as well as the retirement of $65 million in face value of 5 3/4% Convertible Subordinated Notes. In connection with the financing, we issued and sold four million shares of our Series D preferred stock (convertible into approximately 13.1 million shares of common stock) and warrants to purchase 625,000 shares of common stock, to a group of investors that included General Atlantic Partners 74, L.P., GapStar, LLC and GAP Coinvestment Partners II, L.P. (collectively, “General Atlantic”), which entities are associated with William E. Ford and Peter L.S. Currie, two of our current directors, and Raul J. Fernandez, a former director, Vectis Group LLC and its affiliated entities (“Vectis”), which is associated with our Chief Executive Officer William E. McGlashan, Jr., and Cheung Kong (Holdings) Limited and its affiliated entities (“Cheung Kong”). The preferred stock will accrue and cumulate dividends at 8% and is convertible into shares of common stock at the option of the holder. The warrants are exercisable at any time until November 8, 2006 at an exercise price of $4.20 per share.

      As a result of the transaction, General Atlantic, Vectis and Cheung Kong are each deemed to be beneficial owners of more than 5% of our common stock. In connection with the financing, General Atlantic purchased 708,037 shares of Series D preferred stock, convertible as of December 31, 2003 into approximately 9,767,960 shares of common stock, and warrants to acquire 625,000 shares of common stock for an aggregate purchase price of $10,735,509 in cash and the exchange of an aggregate face amount of $64,630,000 of our 5 3/4% Convertible Subordinated Notes due April 1, 2005, for which General Atlantic paid $25,264,495. Vectis purchased 581,818 shares of Series D preferred stock, which as of December 31, 2003 are convertible into 2,232,675 shares of common stock for a purchase price of $7,999,997.50 and Cheung Kong purchased 872,727 shares of Series D preferred stock, which as of December 31, 2003 are convertible into 3,349,013 shares of common stock, for a purchase price of $11,999,996.25.

      As part of this transaction, we, General Atlantic, Vectis and Cheung Kong entered into a Stockholders Agreement pursuant to which we granted the investors preemptive rights for certain issuances of our capital stock and rights to designate board members as described below. The Stockholders Agreement also limited these investors’ ability to acquire additional shares of our capital stock, solicit proxies and propose business combination transactions involving us. The parties also entered into a Registration Rights Agreement pursuant to which each of General Atlantic and Cheung Kong were granted one demand registration right and all the parties were granted “piggy-back” registration rights.

      In November 2003, General Atlantic (with its affiliate GAPCO GmbH & Co. KG) and Cheung Kong (with some additional affiliates) entered into a Convertible Note Purchase and Exchange Agreement with us. Under this agreement, General Atlantic loaned us $10,000,000. We also agreed, subject to obtaining shareholder approval, to convert the $10,000,000 loan from General Atlantic and approximately $32,795,000 of 5 3/4% Subordinated Convertible Notes, due April 1, 2005, held by Cheung Kong into an aggregate of approximately 29.2 million shares of Series E preferred stock. We waived the standstill provisions of the Stockholders Agreement for these transactions. We also agreed, subject to obtaining shareholder approval, to amend the terms of the existing Series D preferred stock (which is held by General Atlantic, Vectis, Cheung Kong and MBCP PeerLogic, LLC and its affiliates) to, among others, modify the liquidation preference upon a liquidation or a change in control, to eliminate the participation feature upon a liquidation or change in control, to reduce the conversion to common stock price from $4.20 to $1.50 and to reduce the amount of dividends to which the holders of Series D preferred stock are entitled. In addition, we agreed, subject to obtaining shareholder approval, to amend the warrants to purchase 625,000 shares of common stock held by General Atlantic to reduce the exercise price from $4.20 to $1.50. Finally, we agreed to undertake to commence a rights offering for holders of our common stock, as of a record date to be determined by our

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board of directors, to purchase up to $21,000,000 of Series E preferred stock. We, our subsidiary Compass Holding Corp., and General Atlantic entered into a Guaranty and Security Agreement pursuant to which Compass guaranteed our payment and performance of all obligations under the loan documentation.

      As part of the November 2003 transaction, the parties amended the Stockholders Agreement to add the additional General Atlantic and Cheung Kong affiliates that were parties to the November 2003 agreement, to grant Cheung Kong the right to elect a director, as described below, and to grant Cheung Kong additional approval rights for certain corporate actions of the Company. The parties also amended the Registration Rights Agreement to include the additional General Atlantic and Cheung Kong affiliates that were parties to the November 2003 agreement and to include the shares of common stock issuable upon conversion of the Series E preferred stock. The Convertible Note Purchase and Exchange Agreement, the Amended and Restated Stockholders Agreement and the Amended and Restated Registration Rights Agreement were filed as exhibits to the Current Report on Form 8-K we filed on November 20, 2003.

      For so long as 500,000 shares of the Series D preferred stock is outstanding and a majority of the Series D preferred stock is owned by General Atlantic, the holders of the Series D preferred stock are entitled to elect one of the Company’s directors. In December 2001, the holders of the Series D preferred stock elected William E. Ford, a managing member of General Atlantic Partners, LLC, to serve on the Board of Directors. For so long as Cheung Kong owns 750,000 shares of Series D preferred stock, Cheung Kong is entitled to designate a non-voting observer to the Board of Directors. In connection with the November 2003 transaction, if we issue shares of Series E preferred stock, Cheung Kong is entitled to elect one of our directors.

Indemnification

      Our articles of incorporation limit the liability of our directors for monetary damages arising from a breach of their fiduciary duty as directors, except to the extent otherwise required by the California Corporations Code. Such limitation of liability does not affect the availability of equitable remedies such as injunctive relief or rescission.

      Our bylaws provide that we may indemnify our directors and officers to the fullest extent permitted by California law, including in circumstances in which indemnification is otherwise discretionary under California law. We have also entered into indemnification agreements with our officers and directors containing provisions that may require us, among other things, to indemnify such officers and directors against certain liabilities that may arise by reason of their status or service as directors or officers (other than liabilities arising from willful misconduct of a culpable nature), to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified, and to obtain directors’ and officers’ insurance if available on reasonable terms.

Item 14.  Principal Accountant Fees and Services

Audit Fees

      The aggregate fees for professional services billed by PricewaterhouseCoopers LLP, our independent auditors, in connection with their audit of our consolidated financial statements and reviews of the consolidated financial statements included in our quarterly reports on Form 10-Q were:

Fiscal year ended December 31:
2003	$	360,000
2002	$	281,000

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Audit-Related Fees

      The aggregate fees billed by PricewaterhouseCoopers for assurance and related services related to the performance of their audit and review of our financial statements that are not included in our “audit fees” above were:

Fiscal year ended December 31:
2003	$	72,900
2002	$	—

      These audit-related fees billed by PricewaterhouseCoopers related to consultation on revenue recognition related to specific license software agreements negotiated during the related annual period and consultation on accounting related to the financing transaction completed in November 2003.

Tax Fees

      The aggregate fees billed by PricewaterhouseCoopers for professional services related to tax compliance, tax advice and tax planning were:

Fiscal year ended December 31:
2003	$	768,737
2002	$	565,065

      These professional service fees billed by PricewaterhouseCoopers related to tax compliance work for domestic and international tax filings, consultation on sales, use and franchise tax filings and audits, consultation on foreign statutory compliance and consultation on tax related structures of certain vendor contracts.

     All Other Fees

      There were no fees billed by PricewaterhouseCoopers for any other products and services not included in “audit fees,” “audit-related fees,” and tax fees.

     Pre-Approval Policies and Procedures

      The Audit Committee charter requires the Audit Committee, or a committee of the Audit Committee, to pre-approve the provision of all auditing and non-audit services to us and our subsidiaries by our independent auditors and all audit and non-audit engagement fees and terms. The Audit Committee must also pre-approve the engagement of non-audit services to be performed by other certified public accounting firms that are not our independent auditors. In connection with the approval of non-audit services, the Audit Committee must consider whether the independent auditors’ performance of any non-audit services is compatible with the independence of our auditors. In fiscal year 2003, the Audit Committee pre-approved 100% of the services performed by PricewaterhouseCoopers relating to “audit-related fees,” “tax fees,” and “all other fees.”

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PART IV

Item 15.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

      (a)(1) Index to Consolidated Financial Statements

      Please see the Index to Consolidated Financial Statements that appears below.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Auditors		101
Consolidated Balance Sheets		102
Consolidated Statements of Operations		103
Consolidated Statements of Shareholders’ Equity (Deficit)		104
Consolidated Statements of Cash Flows		105
Notes to Consolidated Financial Statements		106
Schedule II – Valuation and Qualifying Accounts		147

      (a)(2) Financial Statement Schedule

      Schedule II – Valuation and Qualifying Accounts for the years ended December 31, 2001, 2002 and 2003 appears on page      of this report and should be read in conjunction with the consolidated financial statements and related notes thereto and report of independent auditors filed herewith.

      Schedules not mentioned above have been omitted because the information required to be set forth therein is not applicable or the information is otherwise included in the Financial Statements or notes thereto.

      (b) Reports on Form 8-K

      (a) A Current Report on Form 8-K was furnished by the company on November 12, 2003. In this report, Critical Path furnished a press release announcing the Company’s unaudited financial results for its third fiscal quarter ended September 30, 2003.

      (b) A Current Report on Form 8-K was filed by the Company on November 20, 2003. In this report, Critical Path issued a press released dated November 18, 2003, announcing that the company had signed a definitive agreement to issue $10 million in principal amount of 10% convertible secured notes and, upon shareholder approval, to convert the newly issued notes into shares of Series E preferred stock, to exchange approximately $32.8 million in face value of outstanding 5 3/4% convertible subordinated notes for Series E preferred stock and to amend the terms of its Series D preferred stock. The press release also announced the company’s intention to conduct a rights offering to allow the Company’s common shareholders to purchase up to $21 million of its Series E preferred stock.

      (c) A Current Report on Form 8-K was filed on December 24, 2003. In this report, the Company announced that, in connection with the filing of the registration statement, PricewaterhouseCoopers LLP has updated its report as of December 22, 2003 on the consolidated financial statements and financial statement schedule of the company for the fiscal year ended December 31, 2002 to add an explanatory paragraph regarding the Company’s ability to continue as a going concern as described in Note 22 of Notes to Consolidated Financial Statements – Subsequent Events. In this report, the company filed Consolidated Balance Sheets as of December 31, 2001 and 2002, Consolidated Statements of Operations for the years ended December 31, 2000, 2001 and 2002, Consolidated Statements of Shareholders’ Equity (Deficit) for the years ended December 31, 2000, 2001 and 2002, Consolidated Statements of Cash Flows for the years ended December 31, 2000, 2001 and 2002 and Notes to Consolidated Financial Statements. The consolidated financial statements were retroactively restated to give effect to the one-for-four reverse stock split, effected on August 1, 2003, of the Company’s authorized and outstanding common stock and of all shares of common stock subject to stock options and warrants and the updated auditors report.

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      (d) A Current Report on Form 8-K was filed by the company on January 21, 2004. In this report Critical Path announced that the company amended its Preferred Stock Rights Agreement dated as of March 19, 2001, as amended, between Critical Path and Computershare Trust Company, Inc., as rights agent. The Preferred Stock Rights Agreement was amended to exclude certain persons from the definition of “Acquiring Person” under the agreement.

      (e) A Current Report on Form 8-K was filed by the Company on January 21, 2004. In this report, Critical Path filed a press release dated January 20, 2004, announcing that on January 16, 2004 the Company issued and sold to qualified institutional buyers $15 million in 10% senior secured notes convertible into shares of the Company’s Series E preferred stock upon shareholder approval.

      (f) A Current Report on Form 8-K was furnished by the Company on February 4, 2004. In this report, Critical Path furnished a press release announcing the preliminary unaudited financial results for its fourth fiscal quarter and fiscal year ended December 31, 2003.

      (g) A Current Report on Form 8-K was filed by the Company on February 5, 2004. In this report, Critical Path filed a press release dated February 4, 2004 announcing the resignation of its chief financial officer, William Smartt, and the appointment of his successor James Clark as executive vice president and chief financial officer of the Company.

      (h) Two Current Reports on Form 8-K were filed by the Company on March 10, 2004. In one report, Critical Path filed a press release dated March 9, 2004 announcing that it had issued and sold to qualified institutional buyers $18.5 million in 10% senior secured notes convertible into shares of the Company’s Series E preferred stock upon shareholder approval. In the other report, the Company announced that it had amended its Preferred Stock Rights Agreement dated as of March 19, 2001, as amended, between Critical Path and Computershare Trust Company, Inc., as rights agent. The Preferred Stock Rights Agreement was amended to exclude certain persons from the definition of “Acquiring Person” under the agreement.

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      (c) Exhibits

      The following exhibits are filed as part of, or are incorporated by reference into, this Annual Report on Form 10-K:

3(i).1	Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3(i)(b) to the Registrant’s Registration on Form S-1 (File No. 333-71499)).
3(i).2	Amendment to the Articles of Incorporation, dated January 5, 2001 (Incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000).
3(i).3	Certificate of the Powers, Designations, Preferences and Rights of the Series D Cumulative Redeemable Convertible Participating Preferred Stock dated November 6, 2001 (Incorporated by reference to Exhibit 3(i).3 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
3(i).4	Certificate of Amendment of Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3(i) to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).
3(i).5	Certificate of Increase in Number of Shares of Series D Cumulative Redeemable Convertible Participating Preferred Stock dated November 20, 2003.
3(ii)	Amended and Restated Bylaws. (Incorporated by reference to Exhibit 3(ii)(b) to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003.
4.1	Form of Common Stock Certificate. (Incorporated by reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).
4.2	Preferred Stock Rights Agreement dated as of March 19, 2001 between Registrant and ComputerShare Trust Company, Inc., including the Certificate of Determination, the form of Rights Certificate and the Summary of Rights attached thereto as Exhibits A, B and C respectively (Incorporated by reference to Exhibit 4.5 of Registrant’s Form 8-A filed on May 7, 2001).
4.3	Indenture, dated March 31, 2000, by and between Registrant and State Street Bank and Trust Company of California, N.A., Trustee, relating to the $300 million five-year, 5.75% Convertible Subordinated Notes due April 1, 2005 (Incorporated by reference to Exhibit 4.5 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2000).
4.4	Warrant to Purchase Common Stock dated March 29, 2001 issued by the Registrant to Vectis Group LLC (Incorporated by reference to Exhibit 4.3 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001).
4.5	Warrant to Purchase Common Stock dated January 29, 1999 issued by the Registrant to America Online, Inc. (Incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form S-1 (File No. 333-71499)).
4.6	Warrant to Purchase up to 25,000 Shares of Common Stock dated as of December 29, 1999 by and between Ecker Folsom Properties, LLC (Incorporated by reference to Exhibit 4.6 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
4.7	Warrant to Purchase up to 834,000 Shares of Common Stock dated as of June 2000 by and between Worldsport Networks Europe Ltd. (Incorporated by reference to Exhibit 4.7 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
4.8	Stock and Warrant Purchase and Exchange Agreement dated as of November 8, 2001 by and among Registrant and General Atlantic Partners 74, LP, GAP Coinvestment Partners II, LP, Gapstar, LLC, Vectis CP Holdings, LLC, Cenwell Limited, Campina Enterprises Limited (Incorporated by reference to Exhibit 4.8 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).

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4.9	Stockholders Agreement dated as of November 8, 2001 by and among Registrant and General Atlantic Partners 74, L.P., GAP Coninvestment Partners II, LP, Gapstar, LLC, Vectis CP Holdings, LLC, Cenwell Limited, Campina Enterprises Limited (Incorporated by reference to Exhibit 4.9 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
4.10	Registration Rights Agreement dated as of November 8, 2001 by and among Registrant and General Atlantic Partners 74, L.P., GAP Coninvestment Partners II, LP, Gapstar, LLC, Vectis CP Holdings, LLC, Cenwell Limited, Campina Enterprises Limited (Incorporated by reference to Exhibit 4.10 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
4.11	Escrow Agreement dated as of November 8, 2001 by and among Registrant and General Atlantic Partners 74, L.P., GAP Coninvestment Partners II, LP, Gapstar, LLC, Vectis CP Holdings, LLC, Cenwell Limited, Campina Enterprises Limited (Incorporated by reference to Exhibit 4.11 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
4.12	Employee Stock Purchase Plan. (Incorporated by reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form S-8 filed on June 15, 2001 (File No. 333-63080)).
4.13	Amended and Restated 1998 Stock Plan. (Incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-8 filed on June 15, 2001 (File No. 333-63080)).
4.14	1999 Stock Option Plan and forms of agreements thereunder (Incorporated by reference to Exhibit 10.5 to the Registrant’s Registration Statement on Form S-8 filed on September 22, 1999 (File No. 333-87553)).
4.15	Amendment No. 1 to Preferred Stock Rights Agreement dated as of November 6, 2001 between the Registrant and Computershare Trust Company, Inc., as Rights Agent (Incorporated by reference to Exhibit 4.2 to the Registrant’s Amendment No. 1 to the Company’s Registration Statement on Form 8-A filed on January 21, 2004 (File No. 000-25331)).
4.16	Amendment No. 2 to Preferred Stock Rights Agreement dated as of November 18, 2003 between the Registrant and Computershare Trust Company, Inc., as Rights Agent (Incorporated by reference to Exhibit 4.3 to the Registrant’s Amendment No. 1 to the Company’s Registration Statement on Form 8-A filed on January 21, 2004 (File No. 000-25331)).
4.17	Amendment No. 3 to Preferred Stock Rights Agreement dated as of January 16, 2004 between Registrant and Computershare Trust Company, Inc., as Rights Agent (Incorporated by reference to Exhibit 4.4 to the Registrant’s Amendment No. 1 to the Company’s Registration Statement on Form 8-A filed on January 21, 2004 (File No. 000-25331)).
4.18	Amendment No. 4 to Preferred Stock Rights Agreement dated as of March 9, 2004 between Critical Path, Inc. and Computershare Trust Company, Inc., as Rights Agent (Incorporated by reference to Exhibit 4.5 to the Registrant’s Amendment No. 2 to the Company’s Registration Statement on Form 8-A filed on March 10, 2004 (File No. 000-25331)).
4.19	Amended and Restated Registration Rights Agreement, dated November 26, 2003 among Registrant, General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Cenwell Limited, Campina Enterprises Limited, Great Affluent Limited, Dragonfield Limited, Lion Cosmos Limited and Vectis CP Holdings, LLC.
4.20	Amended and Restated Stockholders Agreement, dated November 26, 2003, among Registrant, General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Cenwell Limited, Campina Enterprises Limited, Great Affluent Limited, Dragonfield Limited, Lion Cosmos Limited and Vectis CP Holdings, LLC.
4.21	Convertible Subordinated Promissory Note dated November 26, 2003 issued by Registrant to General Atlantic Partners 74, L.P.

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4.22	Convertible Subordinated Promissory Note dated November 26, 2003 issued by Registrant to GAP Coinvestment Partners II, L.P.
4.23	Convertible Subordinated Promissory Note dated November 26, 2003 issued by Registrant to GapStar, LLC.
4.24	Convertible Subordinated Promissory Note dated November 26, 2003 issued by Registrant to GAPCO GmbH & Co. KG.
4.25	Second Amended and Restated Registration Rights Agreement dated January 16, 2004, among Registrant, General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAPCO GmbH & Co. KG, Cenwell Limited, Campina Enterprises Limited, Great Affluent Limited, Dragonfield Limited, Lion Cosmos Limited, Vectis CP Holdings, LLC, Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P.
4.26	Convertible Subordinated Promissory Note dated January 16, 2004 issued by Registrant to Permal U.S. Opportunities Limited.
4.27	Convertible Subordinated Promissory Note dated January 16, 2004 issued by Registrant to Zaxis Equity Neutral, L.P.
4.28	Convertible Subordinated Promissory Note dated January 16, 2004 issued by Registrant to Zaxis Institutional Partners, L.P.
4.29	Convertible Subordinated Promissory Note dated January 16, 2004 issued by Registrant to Zaxis Offshore Limited.
4.30	Convertible Subordinated Promissory Note dated January 16, 2004 issued by Registrant to Zaxis Partners, L.P.
4.31	Convertible Subordinated Promissory Note dated January 16, 2004 issued by Registrant to Passport Master Fund, L.P.
4.32	Convertible Subordinated Promissory Note dated March 9, 2004 issued by Registrant to Permal U.S. Opportunities Limited.
4.33	Convertible Subordinated Promissory Note dated March 9, 2004 issued by Registrant to Zaxis Equity Neutral, L.P.
4.34	Convertible Subordinated Promissory Note dated March 9, 2004 issued by Registrant to Zaxis Institutional Partners, L.P.
4.35	Convertible Subordinated Promissory Note dated March 9, 2004 issued by Registrant to Zaxis Offshore Limited.
4.36	Convertible Subordinated Promissory Note dated March 9, 2004 issued by Registrant to Zaxis Partners, L.P.
4.37	Convertible Subordinated Promissory Note dated March 9, 2004 issued by Registrant to Guggenheim Portfolio Company XIII.
4.38	Convertible Subordinated Promissory Note dated March 9, 2004 issued by Registrant to Crosslink Crossover Fund IV, L.P.
4.39	Convertible Subordinated Promissory Note dated March 9, 2004 issued by Registrant to Sagamore Hill Hub Fund, Ltd.
4.40	Convertible Subordinated Promissory Note dated March 9, 2004 issued by Registrant to Criterion Capital Partners, Ltd.
4.41	Convertible Subordinated Promissory Note dated March 9, 2004 issued by Registrant to Criterion Capital Partners, Institutional.
4.42	Convertible Subordinated Promissory Note dated March 9, 2004 issued by Registrant to Criterion Capital Partners, L.P.

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4.43	Convertible Subordinated Promissory Note dated March 9, 2004 issued by Registrant to Capital Ventures International.
4.44	Third Amended and Restated Registration Rights Agreement, dated March 9, 2004, among Registrant, General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAPCO GmbH & Co. KG, Cenwell Limited, Campina Enterprises Limited, Great Affluent Limited, Dragonfield Limited, Lion Cosmos Limited, Vectis CP Holdings, LLC, Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P., Guggenheim Portfolio Company XIII, Passport Master Fund, L.P., Crosslink Crossover Fund IV, L.P., Sagamore Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures International.
4.45	Note Amendment Agreement dated March 12, 2004, by and among Registrant, Cenwell Limited, Campina Enterprises Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited.
4.46	Warrant to Purchase up to 100,000 Shares of Common Stock dated March 12, 2004 issued by the Registrant to Silicon Valley Bank.
10.1	Master Services Agreement dated December 10, 1998 by and between the Registrant and US West Communications Services, Inc. (Incorporated by reference to Exhibit 10.15 to the Registrant’s Registration Statement on Form S-1 (File No. 333-71499)).
10.2	Amendment to Email Services Agreement September 30, 1998 by and between the Registrant and E*TRADE Group, Inc. (Incorporated by reference to Exhibit 10.18 to the Registrant’s Registration Statement on Form S-1 (File No. 333-71499)).
10.3	Email Services Agreement dated January 29, 1999 by and between the Registrant and ICQ, Inc. (Incorporated by reference to Exhibit 10.22 to the Registrant’s Registration Statement on Form S-1 (File No. 333-71499)).
10.4	Hills Plaza I Office Lease dated as of November 16, 2001 by and between Registrant and SPI Hills Plaza Venture, LLC (Incorporated by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
10.5	Standard Industrial/Multitenant Lease-Gross dated June 20, 1997 by and between the Registrant and 501 Folsom Street Building. (Incorporated by reference to Exhibit 10.10 to the Registrant’s Registration Statement on Form S-1 (File No. 333-71499)).
10.6	Office lease dated December 1999 by and between Ecker-Folsom Properties, LLC and the Registrant. (Incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999).
10.7	Office lease dated December 1999 by and between Ecker-Folsom Properties, LLC and the Registrant. (Incorporated by reference to Exhibit 10.26 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999).
10.8	Agreement dated as August 13, 2001 by and between Registrant and David Hayden (Incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter and nine months ended September 30, 2001).
10.9	Nonstatutory Stock Option Agreement dated as of November 8, 2001 by and between Registrant and David Hayden (Incorporated by reference to Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
10.10	Agreement dated as of August 1, 2001 by and between Registrant and William E. McGlashan, Jr. (Incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report for the quarter and nine months ended September 30, 2001).
10.11	Nonstatutory Stock Option Agreement dated as of August 1, 2001 by and between Registrant and William E. McGlashan, Jr. (Incorporated by reference to Exhibit 10.11 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).

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10.12	Nonstatutory Stock Option Agreement dated as of November 8, 2001 by and between Registrant and William E. McGlashan, Jr. (Incorporated by reference to Exhibit 10.12 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
10.13	First Amended and Restated Employment Agreement dated as of January 7, 2002 by and between Registrant and William E. McGlashan, Jr. (Incorporated by reference to Exhibit 10.13 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
10.14	Nonstatutory Stock Option Agreement dated as of December 21, 2001 by and between Registrant and William E. McGlashan, Jr. (Incorporated by reference to Exhibit 10.14 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
10.15	Agreement dated as of October 8, 2001 by and between Registrant and Pierre Van Beneden (Incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report for the quarter and nine months ended September 30, 2001).
10.16	Nonstatutory Stock Option Agreement dated as of October 8, 2001 by and between Registrant and Pierre Van Beneden (Incorporated by reference to Exhibit 10.16 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
10.17	Nonstatutory Stock Option Agreement dated as of November 8, 2001 by and between Registrant and Pierre Van Beneden (Incorporated by reference to Exhibit 10.17 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
10.18	Consulting Agreement dated as of August 16, 2001 by and between Registrant and Laureen DeBuono (Incorporated by reference to Exhibit 10.18 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
10.19	Nonstatutory Stock Option Agreement dated as of September 5, 2001 by and between Registrant and Laureen DeBuono (Incorporated by reference to Exhibit 10.19 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
10.20	Addendum to Consulting Agreement dated as of October 31, 2001 by and between Registrant and Laureen DeBuono (Incorporated by reference to Exhibit 10.20 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
10.21	Nonstatutory Stock Option Agreement dated as of October 31, 2001 by and between Registrant and Laureen DeBuono (Incorporated by reference to Exhibit 10.21 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
10.22	Nonstatutory Stock Option Agreement dated as of November 8, 2001 by and between Registrant and Laureen DeBuono (Incorporated by reference to Exhibit 10.22 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
10.23	Employment Agreement dated as of January 14, 2002 by and between Registrant and Bernard Harguindeguy (Incorporated by reference to Exhibit 10.23 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
10.24	Agreement, dated as of May 15, 2001, by and between the Registrant and Lawrence P. Reinhold (Incorporated by reference to Exhibit 10.2 to the Registrant’s quarterly report on Form 10-Q for the quarter ended September 30, 2001).
10.25	Agreement and Release, dated February 9, 2001, by and between the Registrant and Douglas Hickey (Incorporated by reference to Exhibit 10.31 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000).
10.26	Promissory Note and Security Agreement dated November 2, 1998 by and between the Registrant and Douglas Hickey. (Incorporated by reference to Exhibit 10.12 to the Registrant’s Registration Statement on Form S-1 (File No. 333-71499)).
10.27	Nonstatutory Stock Option Agreement dated as of May 8, 2002 by and between Registrant and Paul Bartlett (Incorporated by reference to Exhibit 10.27 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002).

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10.28	Nonstatutory Stock Option Agreement dated as of January 15, 2003 by and between Registrant and Paul Bartlett (Incorporated by reference to Exhibit 10.28 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002).
10.29	Employment Agreement dated as of April 8, 2002 by and between Registrant and Paul Bartlett (Incorporated by reference to Exhibit 10.29 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002).
10.30	Nonstatutory Stock Option Agreement dated as of October 10, 2002 by and between Registrant and Robert Allen Shipp (Incorporated by reference to Exhibit 10.30 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002).
10.31	Employment Agreement dated as of October 9, 2002 by and between Registrant and Robert Allen Shipp (Incorporated by reference to Exhibit 10.31 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002).
10.32	Employment Agreement dated as of November 4, 2002 by and between Registrant and Patrick Tracy Currie (Incorporated by reference to Exhibit 10.32 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002).
10.33	Nonstatutory Stock Option Agreement dated as of November 6, 2002 by and between Registrant and Patrick Tracy Currie (Incorporated by reference to Exhibit 10.33 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002).
10.34	Separation Agreement and Release dated as of November 16, 2002 by and between Registrant and Pierre Van Beneden (Incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2002).
10.35	Separation Agreement and Release dated as of January 15, 2003 by and between Registrant and Laureen DeBuono (Incorporated by reference to Exhibit 10.35 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002).
10.36	Form of Indemnification Agreement by and between the Registrant and each of its directors and officers. (Incorporated by reference to Exhibit 10.32 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000).
10.37	Loan and Security Agreement dated as of September 30, 2002 by and between Registrant and Silicon Valley Bank (Incorporated by reference to Exhibit 10.36 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002).
10.38	Share Purchase Agreement by and among Registrant, Critical Path Japan K.K., Mitsui & Co., Ltd., Mitsui & Co. (U.S.A.), NTT Communications Corporation and NEC Corporation dated as June 6, 2002 (Incorporated by reference to Exhibit 10.38 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002).
10.39	Change of Control Severance Agreement dated May 29, 2003 by and between the Registrant and William E. McGlashan, Jr. (Incorporated by reference to Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).
10.40	Change of Control Severance Agreement dated May 29, 2003 by and between the Registrant and Paul Bartlett (Incorporated by reference to Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).
10.41	Amendment to Employment Agreement and Release of Claims dated August 16, 2003 by and between the Registrant and Robert A. Shipp (Incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended October 30, 2003).
10.42	Amendment to Employment Agreement and Release of Claims dated May 16, 2003 by and between the Registrant and Bernard Harguindeguy.
10.43	Incentive Bonus Agreement dated October 23, 2003 between the Registrant and Bernard Harguindeguy.

98

10.44	Amendment to Employment Agreement dated August 31, 2003 by and between the Registrant and Paul Bartlett.
10.45	Summary of Expense Reimbursement dated August 31, 2003 by and between the Registrant and Paul Bartlett.
10.46	Amendment to Employment Agreement and Release of Claims dated November 24, 2003 by and between the Registrant and Paul Bartlett.
10.47	Amendment No. 1 to First Amended and Restated Employment Agreement dated as of September 1, 2003 by and between the Registrant and William McGlashan, Jr.
10.48	Employment Agreement dated February 4, 2004 by and between the Registrant and James Clark.
10.49	Modification of Loan and Security Agreement dated as of March 25, 2003 by and between Registrant and Silicon Valley Bank Incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003).
10.50	Amended and Restated Loan and Security Agreement dated as of July 18, 2003 by and between Registrant and Silicon Valley Bank (Incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).
10.51	First Amendment to Amended and Restated Loan and Security Agreement dated as of November 26, 2003 by and between Registrant and Silicon Valley Bank.
10.52	Second Amendment to Amended and Restated Loan and Security Agreement dated as of January 30, 2004 by and between Registrant and Silicon Valley Bank.
10.53	Convertible Note Purchase and Exchange Agreement dated November 18, 2003 among Registrant, General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Cenwell Limited, Campina Enterprises Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on November 20, 2003).
10.54	Amendment to Convertible Note Purchase and Exchange Agreement dated January 16, 2004 among Registrant, General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAPCO GmbH & Co. KG, Cenwell Limited, Campina Enterprises Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited.
10.55	Amendment No. 2 to Convertible Note Purchase and Exchange Agreement dated March 9, 2004 among Registrant, General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAPCO GmbH & Co. KG, Cenwell Limited, Campina Enterprises Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited.
10.56	Convertible Note Purchase Agreement dated January 16, 2004 among Registrant, Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P. (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on January 21, 2004).
10.57	Amendment No. 1 to Convertible Note Purchase Agreement dated March 9, 2004 among Registrant, Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P.
10.58	Convertible Note Purchase Agreement dated March 9, 2004 among Registrant, Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P., Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures International (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on March 10, 2004).
10.59	Third Amendment to Amended and Restated Loan and Security Agreement dated as of March 12, 2004 by and between Registrant and Silicon Valley Bank.

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10.60	First Amendment to Lease dated November 17, 2003 by and between the Registrant and Sri Hills Plaza Venture, LLC.
21.1	List of Subsidiaries
23.1	Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1	Power of Attorney (see the signature page of this report).
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

100

Report of Independent Auditors

To the Board of Directors and Shareholders

of Critical Path, Inc.:

      In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(i) present fairly, in all material respects, the financial position of Critical Path, Inc. and its subsidiaries at December 31, 2002 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      As discussed in Note 1 and Note 8 of Notes to Consolidated Financial Statements, effective January 1, 2002, the Company changed its method of accounting for goodwill in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.

/s/ PRICEWATERHOUSECOOPERS LLP

San Jose, CA

March 12, 2004

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CRITICAL PATH, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

			December 31,
			2002			2003
ASSETS
Current assets
	Cash and cash equivalents		$	33,498		$	18,984
	Short-term marketable securities			5,583			—
	Accounts receivable, net			22,818			16,880
	Prepaid and other current assets			4,030			4,664
		Total current assets		65,929			40,528
Long-term marketable securities				3,990			—
Equity investments				357			—
Property and equipment, net				18,142			14,821
Goodwill				6,613			6,613
Restricted cash				2,729			—
Other assets				6,246			5,763
		Total assets	$	104,006		$	67,725
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS’ DEFICIT
Current liabilities
	Accounts payable		$	4,284		$	5,022
	Accrued liabilities			27,573			20,755
	Deferred revenue			10,272			8,856
	Line of credit facility			—			2,298
	Capital lease and other obligations, current			3,323			1,721
		Total current liabilities		45,452			38,652
Deferred revenue				516			1,343
Convertible subordinated notes payable				38,360			38,360
Convertible secured note payable				—			10,016
Capital lease and other obligations, long-term				1,332			1,295
		Total liabilities		85,660			89,666
Commitments and contingencies (Note 13)
Mandatorily redeemable Series D preferred stock, par value $0.001 (Note 15)
	Shares authorized: 5,000
	Shares issued and outstanding: 4,000
	Liquidation value at December 31, 2003: $67,494			26,900			55,301
Shareholders’ deficit
	Common Stock and paid-in-capital, par value $0.001
	Shares authorized: 125,000
	Shares issued and outstanding: 20,032 and 21,078			2,163,196			2,154,295
	Common stock warrants			5,947			5,947
	Notes receivable from shareholders			—			(870	)
	Unearned compensation			(59	)		—
	Accumulated deficit			(2,176,595	)		(2,238,728	)
	Accumulated other comprehensive income (loss)			(1,043	)		2,114
		Total shareholders’ deficit		(8,554	)		(77,242	)
		Total liabilities, mandatorily redeemable preferred stock and shareholders’ deficit	$	104,006		$	67,725

The accompanying notes are an integral part of these consolidated financial statements.

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CRITICAL PATH, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

			Year Ended December 31,
			2001			2002			2003
Net revenues
	Software license		$	30,960		$	35,176		$	22,104
	Hosted messaging			43,821			24,893			19,444
	Professional services			12,573			11,593			12,315
	Maintenance and support			16,819			15,471			18,434
		Total net revenues		104,173			87,133			72,297
Cost of net revenues
	Software license			1,533			2,682			4,068
	Hosted messaging			59,124			29,303			26,193
	Professional services			10,315			10,020			12,203
	Maintenance and support			10,081			8,670			5,803
	Amortization of purchased technology			21,284			18,522			—
	Stock-based expense — Hosted messaging			1,520			590			8
	Stock-based expense — Professional services			1,347			222			3
	Stock-based expense — Maintenance and support			1,183			413			6
	Impairment of long-lived assets			16,654			—			—
		Total cost of net revenues		123,041			70,422			48,284
Gross profit (loss)				(18,868	)		16,711			24,013
Operating expenses
	Sales and marketing			53,356			43,604			31,224
	Research and development			30,744			19,649			19,047
	General and administrative			42,260			22,128			12,603
	Amortization of goodwill and other intangible assets			32,746			24,773			—
	Acquisition-related retention bonuses			1,381			11			—
	Stock-based expense — Sales and marketing			5,174			3,877			18
	Stock-based expense — Research and development			3,691			1,214			15
	Stock-based expense — General and administrative			25,220			3,681			35
	Stock-based expense — Settlement of litigation			—			—			5,056
	Restructuring and other expenses			18,267			3,168			6,886
	Impairment of long-lived assets			9,991			—			—
		Total operating expenses		222,830			122,105			74,884
Loss from operations				(241,698	)		(105,394	)		(50,871	)
Interest and other income (expense), net				5,840			(5,852	)		(7,619	)
Interest expense				(14,714	)		(2,748	)		(3,336	)
Equity in net loss of joint venture				(1,866	)		(1,408	)		—
Gain (loss) on investments				(702	)		(1,530	)		549
Gain on retirement of subordinated notes, net				180,882			—			—
Loss before income taxes				(72,258	)		(116,932	)		(61,277	)
Provision for income taxes				(7,206	)		(979	)		(856	)
Net loss				(79,464	)		(117,911	)		(62,133	)
Accretion on mandatorily redeemable preferred stock				(356	)		(13,904	)		(12,446	)
Net loss attributable to common shares			$	(79,820	)	$	(131,815	)	$	(74,579	)
Net loss per share attributable to common shares — basic and diluted:
	Net loss per share attributable to common shares		$	(4.32	)	$	(6.78	)	$	(3.73	)
	Weighted average shares — basic and diluted			18,495			19,445			20,020

The accompanying notes are an integral part of these consolidated financial statements.

103

CRITICAL PATH, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

					Year Ended December 31,
					2001			2002			2003
					(In thousands)
Common Stock and Common Stock Warrants Balance, beginning of year					$	2,127,608		$	2,178,716		$	2,169,143
Common Stock issued under Employee Stock Purchase Plan						431			511			275
Common Stock issued to settle litigation						—			—			1,300
	Conversion feature on mandatorily redeemable preferred stock					41,600			(125	)		—
	Dividend accretion on mandatorily redeemable preferred stock					(121	)		(4,427	)		(4,935	)
	Exercise of stock options and warrants					2,139			1,268			846
	Issuance of warrants to purchase common stock					5,250			697			48
	Stock-based compensation related to stock options					3,632			1,980			206
	Lapse of early exercise repurchase rights					—			—			870
	Accretion on mandatorily redeemable preferred Stock					(235	)		(9,477	)		(7,511	)
	Repurchase of Common Stock					(67	)		—			—
	Purchase of remaining minority interest					(1,521	)		—			—
			Balance, end of year			2,178,716			2,169,143			2,160,242
Notes receivable from shareholders
	Balance, beginning of year					(1,205	)		(1,222	)		—
	Reclassification of vested portion of shareholder note					—			—			(870	)
	Interest on shareholder notes					(50	)		(8	)		—
	Repayment of shareholder notes					33			1,230			—
			Balance, end of year			(1,222	)		—			(870	)
Unearned compensation
	Balance, beginning of year					(34,005	)		(7,050	)		(59	)
	Unearned compensation related to stock options					(11,210	)		—			—
	Amortization of unearned compensation					38,165			6,991			59
			Balance, end of year			(7,050	)		(59	)		—
Accumulated deficit and other comprehensive income (loss)
	Balance, beginning of year					(1,979,294	)		(2,061,472	)		(2,177,638	)
	Net loss					(79,464	)		(117,911	)		(62,133	)
	Unrealized investment gains (losses)					(790	)		(671	)		1,461
	Foreign currency translation adjustments					(1,924	)		2,416			1,696
		Comprehensive loss				(82,178	)		(116,166	)		(58,976	)
			Balance, end of year			(2,061,472	)		(2,177,638	)		(2,236,614	)
				Total shareholders’ equity (deficit)	$	108,972		$	(8,554	)	$	(77,242	)

The accompanying notes are an integral part of these consolidated financial statements.

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CRITICAL PATH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

				Year Ended December 31,
				2001			2002			2003
				(In thousands)
Cash flow from operating activities:
	Net loss			$	(79,464	)	$	(117,911	)	$	(62,133	)
	Adjustments to reconcile net loss to net cash used in operating activities:
	Provision for doubtful accounts				5,242			673			199
	Depreciation and amortization				44,897			27,499			16,254
	Amortization of goodwill and other intangible assets				54,029			43,295			—
	Stock-based costs and expenses				38,135			9,997			85
	Impairment of long-lived assets				26,645			—			—
	Equity in net loss of joint venture				1,866			1,408			—
	Change in fair-value of preferred stock instrument				—			7,440			12,200
	Loss (gain) on investments				702			1,530			(549	)
	Gain on retirement of convertible debt				(180,882	)		—			—
	Fair value of stock issued in settlement of litigation				—			—			5,056
	Gain on release of funds held in escrow				—			—			(3,750	)
	Provision for restructured operations				7,905			461			579
	Accounts receivable				6,229			3,408			8,266
	Other assets				3,555			(132	)		(651	)
	Accounts payable				(10,957	)		(696	)		(1,079	)
	Accrued liabilities				(3,793	)		(2,528	)		(7,935	)
	Deferred revenue				(5,340	)		491			(1,427	)
		Net cash used in operating activities			(91,231	)		(25,065	)		(34,885	)
Cash flow from investing activities:
	Notes receivable from officers				(1,699	)		345			132
	Property and equipment purchases				(11,189	)		(6,770	)		(12,225	)
	Sales (purchases) of marketable securities, net				(9,702	)		172			9,573
	Investments in unconsolidated entities, net				(4,212	)		—			—
	Payments for acquisitions, net of cash acquired				(5,686	)		4,511			—
	Proceeds from sale of investments				—			—			2,373
	Proceeds from the release of funds held in escrow				—			—			3,750
	Restricted cash				(2,459	)		(55	)		2,729
		Net cash provided by (used in) investing activities			(34,947	)		(1,797	)		6,332
Cash flow from financing activities:
	Proceeds from issuance of Preferred Stock, net				26,786			—			—
	Proceeds from issuance of Common Stock				2,570			1,779			1,121
	Proceeds from issuance of convertible debt				—			—			10,000
	Retirement of convertible notes				(48,734	)		—			—
	Proceeds from line of credit				—			—			4,900
	Principal payments against line of credit facility				—			—			(2,602	)
	Proceeds from payments of shareholder notes receivable				33			1,230			—
	Purchase of common stock				(67	)		—			—
	Principal payments on note and lease obligations				(10,912	)		(3,790	)		(814	)
			Net cash provided by (used in) financing activities		(30,324	)		(781	)		12,605
Net decrease in cash and cash equivalents					(156,502	)		(27,643	)		(15,948	)
Effect of exchange rates on cash and cash equivalents					(577	)		1,678			1,434
Cash and cash equivalents at beginning of year					216,542			59,463			33,498
Cash and cash equivalents at end of year				$	59,463		$	33,498		$	18,984
Supplemental cash flow disclosure:
	Cash paid for interest			$	17,633		$	2,316		$	2,850
	Cash paid for income taxes, net of refunds			$	6,914		$	2,578		$	21
Non-cash investing and financing activities:
	Property and equipment leases			$	1,413		$	—		$	126
	Retirement of notes payable through issuance of Preferred Stock			$	64,630		$	—		$	—

The accompanying notes are an integral part of these consolidated financial statements.

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CRITICAL PATH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — The Company and Summary of Significant Accounting Policies

The Company

      Critical Path, Inc. was incorporated in California on February 19, 1997. Critical Path, along with its subsidiaries (collectively referred to herein as the “Company”), provides digital communications software and services that enable enterprises, government agencies, wireless carriers, and service providers to rapidly deploy scalable solutions for messaging and identity management. Built upon an open, extensible software platform, these solutions help organizations expand the range of digital communications services they provide, while helping to reduce overall costs. Critical Path’s messaging solutions – which are available both as licensed software or hosted services – provide integrated access to a broad range of communication and collaboration applications from wireless devices, Web browsers, desktop clients, and voice systems. This provides new revenue opportunities for carriers and service providers and helps enable them to attract new subscribers, drive more usage, and retain subscribers longer. For enterprises and governments, Critical Path’s solutions help to reduce burdens on helpdesks, simplify the deployment of key security infrastructure, enable easier compliance with new regulatory mandates, and reduce the cost and effort of deploying modern messaging services to distributed organizations, mobile users, deskless workers, suppliers and customers.

Liquidity

      Since inception, the Company has incurred aggregate consolidated net losses of approximately $2.2 billion, which includes $1.3 billion related to the impairment of long-lived assets, $444.5 million related to non-cash charges associated with the Company’s ten acquisitions and $171.9 million related to non-cash stock-based compensation expenses. With the Company’s history of losses, revenue generated from the sale of its products and services may not increase to a level that exceeds its operating expenses or could fluctuate significantly as a result of changes in customer demand or acceptance of future products. Accordingly, the Company’s cash flow from operations may continue to be negatively impacted.

      Cash and cash equivalents totaled $19.0 million at December 31, 2003. Of the Company’s cash and cash equivalents at December 31, 2003, $5.0 million is expected to support its outstanding obligations to Silicon Valley Bank (See Note 10 – Credit Facility) and $7.6 million is located in accounts outside the United States, which may not be available to the Company’s domestic operations. Accordingly, the Company’s readily available cash resources in the United States as of December 31, 2003 were $6.4 million. During 2003, the Company used an average of approximately $8.7 million of cash per quarter to fund the Company’s operating activities. Historically, the Company has suffered recurring losses from operations and negative cash flow from operations. Given this factor, in combination with the Company’s financial position in the fourth quarter of 2003, the Company has recently consummated several financing transactions in order to secure sufficient funding to meet the Company’s expected cash requirements for at least the next twelve months.

Recent Financing Transactions

      On November 18, 2003, the Company entered into a definitive agreement to issue an aggregate of $10 million in principal amount of 10% Senior Secured Convertible Notes to General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmbH & Co. K.G., (“the General Atlantic Investors”), and to convert the notes, plus $1 million in accrued interest, into approximately 7.3 million shares of the Company’s Series E Preferred Stock. In the same agreement, the Company agreed to exchange approximately $32.8 million in face value of the Company’s 5 3/4% convertible subordinated notes held by a group of investors led by Cheung Kong Group and its Whampoa Limited affiliates including Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited (“the Cheung Kong Investors”) for approximately 21.9 million shares of the Company’s

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Series E Preferred Stock. These notes and related interest are convertible into shares of Series E Preferred Stock at $1.50 per share only if the Company receives shareholder approval.

      In November 2003, the Company announced its intention to make a rights offering to public shareholders of record to purchase up to approximately $21 million of newly issued Series E convertible preferred shares at a purchase price of $1.50 per share. Existing holders of the Company’s Common Stock, as of the date of record, will have the right to purchase approximately two shares of the new Series E Preferred Stock for every three shares of Common Stock they own as of the record date. The Company intends to initiate this offering if and when the registration statement filed with the Securities and Exchange Commission relating to the rights offering is declared effective.

      In January 2004, the Company issued $15 million in principal amount of 10% Senior Secured Convertible Notes to Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P. These notes are convertible into approximately 10 million shares of Series E Preferred Stock at $1.50 per share only if the Company receives shareholder approval. As a result, interest expense of approximately $1.5 million will be recognized as of the date of conversion resulting from the beneficial conversion feature included in the Series E Preferred Stock. If the Company does not obtain shareholder approval, these notes will be convertible, at the option of each note holder, into shares of the Company’s Common Stock at $1.65 per share, provided the note holder will not be able to convert its notes into shares of Common Stock to the extent the note holder, together with its affiliates, would own 9.9% or more of the Company’s Common Stock after conversion. If these notes do not convert into Series E Preferred Stock or Common Stock, they become due and payable on the fourth anniversary of their issuance.

      In March 2004, the Company issued $18.5 million in principal amount of 10% Senior Secured Convertible Notes to investment entities affiliated with Crosslink Capital, Criterion Capital Management, Heights Capital Management and Apex Capital. These notes are convertible into approximately 12.3 million shares of Series E Preferred Stock at $1.50 per share only if the Company receives shareholder approval. If the Company does not obtain shareholder approval, these notes will be convertible, at the option of each note holder, into shares of the Company’s Common Stock at $2.18 per share, provided the note holder will not be able to convert its notes into shares of Common Stock to the extent the note holder, together with its affiliates, would own 9.9% or more of the Company’s Common Stock after conversion. As a result, interest expense of approximately $8.4 million will be recognized as of the date of conversion resulting from the beneficial conversion feature included in the Series E Preferred Stock. If these notes do not convert into Series E Preferred Stock or Common Stock, they become due and payable on the fourth anniversary of their issuance.

      Upon shareholder approval of the matters being presented at a special meeting, the $43.5 million in principal amount of 10% Senior Secured Convertible Notes, plus interest, will automatically convert into approximately 29 million shares of Series E Preferred Stock at $1.50 per share. Additionally upon such approval, the $32.8 million in face value of its 5 3/4% convertible subordinated notes due in April 2005 held by the Cheung Kong Investors will automatically be converted into approximately 21.9 million shares of its Series E Preferred Stock. The Series E Preferred Stock will be issued to these investors only if Critical Path receives shareholder approval and will rank senior in preference to all of the Company’s existing equity. These preferred shares will accrue dividends at an annual rate of 5 3/4% of the purchase price of $1.50 per share.

      In March 2004, the Company executed an amendment with a group of investors led by the Cheung Kong Investors, which would extend the maturity of the $32.8 million in face value of 5 3/4% Convertible Subordinated Notes held by the Cheung Kong Investors from April 1, 2005 to April 1, 2006. The extension will only take place in the event the Company’s shareholders do not approve the exchange of the 5 3/4% Convertible Subordinated Notes held by the Cheung Kong Investors for approximately 21.9 million shares of the Company’s Series E Preferred Stock. In addition, in the event the maturity date is extended to April 1, 2006, the interest rate on the 5 3/4% Convertible Subordinated Notes held by the Cheung Kong Investors will increase to 7 1/2% for the period beginning April 1, 2005 and ending April 1, 2006, and the Company will be required to pay fees totaling $1.5 million.

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      In a separate agreement, members of the Cheung Kong Investors have granted the Company an option, which the Company may exercise in its sole discretion, to repurchase approximately 10.9 million shares of the Series E Preferred Stock held by the Cheung Kong Investors at $1.50 per share. The Company’s option expires 10 business days after the Cheung Kong Investors acquire shares of the Series E Preferred Stock after the close of the proposed rights offering of the preferred stock.

      On January 30, 2004, the Company executed an amendment with Silicon Valley Bank, which reduced the size of the credit line to a maximum of $5.0 million and extended the maturity date to October 31, 2004. Subsequently, on March 12, 2004 the Company executed an additional amendment with Silicon Valley Bank, which increased the size of the credit line to a maximum of $6.0 million and extended the maturity date to June 30, 2005. The credit facility continues to be collateralized by certain of the Company’s assets and borrowings under the current agreement bear a variable interest rate of between Prime plus 1.5% and Prime plus 3.0%, which has historically ranged from 5.25% to 6.25%, and is subject to certain covenants. Interest is paid each month with principal due at maturity. Initial commitment fees of $20,000 and $100,000 were charged related to the January and March amendments, respectively. Additionally, the facility carries an expedite fee of $50,000, an unused facility fee of either 0.45% or 2.00%, based upon the level of cash balances held at the bank, payable at the end of each quarterly period in arrears, and an early termination fee of $50,000 if the facility is canceled prior to August 1, 2004. In connection with the March amendment to the credit facility, the Company agreed to issue warrants to purchase up to 100,000 shares of the Company’s Common Stock to Silicon Valley Bank. These warrants were fully exercisable upon grant, had an exercise price of $2.07 per share and have an expiration date of March 12, 2011.

      The 10% Senior Secured Convertible Notes and related interest become due and payable on the fourth anniversary of their issuance. In addition, the notes also become due and payable upon the consummation of a qualified asset sale, a change of control or any financing or series of financings that in the aggregate raises at least $40 million. There are also certain other circumstances that cause these notes to become due and payable which have been disclosed in Note 11 – Convertible Notes.

      With the Company’s history of operating losses, its primary sources of capital have come from both debt and equity financings that it has completed over the past several years. With the proceeds from the recent financing transactions discussed above, it believes that its cash, cash equivalents and available line of credit as of the date of this filing will be sufficient to maintain current and planned operations for at least the next twelve months.

      The Company is also seeking shareholder approval to increase the number of authorized shares of common stock from 125 million to 200 million and preferred stock from 5 million to 75 million.

Basis of Presentation

      The consolidated financial statements include the accounts of the Company, and its wholly-owned and majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The equity method is used to account for investments in unconsolidated entities if the Company has the ability to exercise significant influence over financial and operating matters, but does not have the ability to control such entities. The cost method is used to account for equity investments in unconsolidated entities where the Company does not have the ability to exercise significant influence over financial and operating matters.

Reverse stock split

      The share and per share amounts presented in these consolidated financial statements have been retroactively restated to give effect to a one-for-four reverse stock split, affected on August 1, 2003, of the Company’s authorized and outstanding common stock and for all shares of Common Stock subject to stock options and warrants. In addition, the conversion price of the Series D preferred stock presented in these consolidated financial statements has been retroactively restated as a result of the reverse stock split. As of August 1, 2003, the total number of shares of Common Stock outstanding was 81,595,042 shares and as of

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immediately following the one-for-four reverse split, Critical Path had 20,398,076 shares of Common Stock outstanding.

Reclassifications

      Certain amounts previously reported have been reclassified to conform to the current period presentation and such reclassifications did not have an effect on the prior periods’ net loss attributable to common shares.

Use of Estimates

      The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. These estimates are based on information available as of the date of the financial statements and actual results could differ from those estimates.

Acquisitions

      The Company has accounted for all business combinations using the purchase method of accounting. Results of operations of the acquired businesses are included in the Company’s financial results from the date of the acquisition. Assets and liabilities of the companies acquired are recorded at their fair value at the acquisition date. The excess of the purchase price over the fair value of separately identified tangible and intangible assets acquired and liabilities assumed are included in goodwill in the accompanying consolidated balance sheets. The fair value of separately identified intangible assets was determined by management based upon accepted valuation methodologies and in consultation with valuation advisers using various valuation methodologies.

Cash Equivalents and Restricted Cash

      The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash equivalents consist primarily of deposits in money market funds. Restricted cash is composed of amounts held on deposit that are required as collateral related to certain lease and other obligations of the Company.

Investments

      Short-term and long-term marketable securities and long-term equity investments are accounted for in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 115 “Accounting for Certain Investments in Debt and Equity Securities.” This statement requires that securities be classified as “held to maturity,” “available-for-sale” or “trading,” and the securities in each classification be accounted for at either amortized cost or fair market value, depending upon their classification. At December 31, 2003, the Company was not holding any marketable securities or equity investments. At December 31, 2002, the Company held short and long-term marketable securities in low risk government securities, agency and corporate bonds and classified these investments as available-for-sale. Available-for-sale securities are carried at fair market value, with unrealized gains and losses, net of tax, reported as a component of other comprehensive income (loss), a separate component of stockholders’ equity (deficit).

      Realized gains or losses and charges for other than temporary declines in value, if any, on available-for-sale securities are reported in other income or expense as incurred. The Company has periodically evaluated these investments for other-than-temporary impairment. See also Note 6 – Investments.

Concentration of Credit Risk

      Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents, restricted cash, investments and accounts receivable. Cash and cash equivalents, restricted cash and investments are deposited with financial institutions that management believes are

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creditworthy. While the Company’s accounts receivable are derived from product and service transactions with geographically dispersed companies that operate in a number of horizontal markets, certain customers may be negatively impacted as a result of an economic downturn or other industry or market related conditions. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses.

      No individual customer accounted for ten percent or more of the Company’s accounts receivable at December 31, 2002 and 2003 or net revenues in 2001, 2002 and 2003.

Fair Value of Financial Instruments

      The Company’s financial instruments, including cash and cash equivalents, restricted cash, investments in marketable securities, accounts and notes receivable and accounts payable, are carried at cost, which approximates fair value due to the short maturity of these instruments. The fair value of the Company’s convertible subordinated notes is disclosed in Note 11 – Convertible Notes.

Derivative Instruments

      The Company accounts for derivative instruments in accordance with the provisions of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities and its related interpretations and complies with SFAS No. 138, Accounting for Certain Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133. SFAS No. 133 and SFAS No. 138 establish accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. The Company records derivatives on the balance sheet at their fair value in compliance with the standards set forth in SFAS No. 133. Currently the Company has a non-hedged derivative, which it issued during 2001 in connection with its issuance of Series D Convertible Preferred Shares, and accordingly, changes in its fair value are adjusted through the statement of operations. See also Note 15 – Financing Transactions and Preferred Stock.

Property and Equipment

      Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the shorter of the estimated useful lives of the assets or the lease term, generally three to five years. Gains and losses on disposals are included in results of operations at amounts equal to the difference between the net book value of the disposed assets and the proceeds received upon disposal. Expenditures for replacements and improvements are capitalized, while expenditures for maintenance and repairs are charged to operations as incurred.

Software Costs for Internal Use

      The Company capitalizes costs related to software for internal use. These costs primarily include purchased software and qualifying external consulting fees and are amortized over their estimated useful lives, generally three years. The amortization expense is included in general and administrative expenses. During 2001, 2002 and 2003, approximately $1.5 million, $278,000 and $174,000, respectively, of internal use software costs were capitalized, and amortization of $1.0 million, $1.3 million and $1.1 million, respectively, was charged to expense.

Software Costs for Products

      Development costs related to software products are expensed as incurred, as research and development costs, until technological feasibility of the product has been established. The Company has defined the establishment of technological feasibility as the completion of a working model. There is typically a relatively short time period between technological feasibility and product release, and the amount of costs incurred during such period is insignificant; as a result, capitalization of software development costs has been infrequent and insignificant. During 2000, approximately $800,000 was capitalized related to software development costs.

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These costs are being amortized over three years, with amortization of approximately $267,000 recorded in 2001, 2002 and 2003, respectively. There were no amounts capitalized during 2001, 2002 and 2003.

Goodwill

      In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets, which is effective for fiscal years beginning after December 15, 2001. SFAS No. 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions upon adoption for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the testing for impairment of existing goodwill and other intangibles. The standard also requires that goodwill be allocated to the Company’s reporting units for purposes of impairment testing. The Company identified one reporting unit for the purposes of this analysis: digital communications software and services.

      As of January 1, 2002, the Company adopted SFAS No. 142 and, in accordance with paragraph 9, accordingly reclassified $3.6 million of intangible assets related to assembled workforce to goodwill. With this reclassification added to the Company’s existing goodwill balance of $2.0 million as of December 31, 2001 approximately $5.6 million of goodwill was no longer being amortized as of January 1, 2002. An additional goodwill asset of approximately $1.0 million was recorded as part of the Company’s June 2002 acquisition of Critical Path Japan (as discussed in Note 2 – Acquisitions), bringing the Company’s goodwill balance to $6.6 million as of December 31, 2002 and 2003. In lieu of amortization, the Company is required to perform an impairment review of its goodwill balance on at least an annual basis and upon the initial adoption of SFAS No. 142. This impairment review involves a two-step process as follows:

Step 1 —

The Company compares the fair value of its reporting unit to the carrying value, including goodwill, of the unit. If the carrying value, including goodwill, exceeds the unit’s fair value, the Company moves on to step 2. If the reporting unit’s fair value exceeds the carrying value, no further work is performed and no impairment charge is necessary.

Step 2 —

The Company performs an allocation of the fair value of the reporting unit to its identifiable tangible and non-goodwill intangible assets and liabilities. This derives an implied fair value for the reporting unit’s goodwill. The Company then compares the implied fair value of the reporting unit’s goodwill with the carrying amount of the reporting unit’s goodwill. If the carrying amount of the reporting unit’s goodwill is greater than the implied fair value of its goodwill, an impairment charge would be recognized for the excess. Purchased technology and other identifiable intangible assets are carried at cost less accumulated amortization. The Company amortizes other identifiable intangibles on a straight-line basis over their estimated useful lives.

Finite-lived Intangibles and Long-lived Assets

      Finite-lived intangible assets are presented at cost, net of accumulated amortization. Amortization is calculated using the straight-line method over estimated useful lives of the assets, which has historically been between 3 and 5 years. The Company will record an impairment charge on finite-lived intangibles or long-lived assets when it determines that the carrying value of intangibles and long-lived assets may not be recoverable. Factors considered important which could trigger an impairment, include, but are not limited to:

•  significant under performance relative to expected historical or projected future operating results;

•  significant changes in the manner of the Company’s use of the acquired assets or the strategy for the Company’s overall business;

•  significant negative industry or economic trends;

•  significant decline in the Company’s stock price for a sustained period; and

•  the Company’s market capitalization relative to net book value.

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      Based upon the existence of one or more of the above indicators of impairment, the Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by the Company’s management to be commensurate with the risk inherent in the Company’s current business model. See also Note 7 – Property and Equipment, Note 8 – Goodwill and Other Intangible Assets and Note 17 – Impairment of Long-Lived Assets.

Revenue Recognition

      The Company recognizes revenue related to the sale of the Company’s licensed software products, hosted messaging and communication services, professional services and post-contract customer maintenance and support services. Revenue is recognized once the related products and services have been delivered and collection of all fees is considered probable.

License Revenues

      Software license. The Company derives software license revenues from perpetual and term licenses for the Company’s messaging and identity management solutions. License revenues are recognized when persuasive evidence of an arrangement exists, delivery of the licensed software to the customer has occurred and the collection of a fixed or determinable license fee is considered probable.

      The Company’s revenue recognition policies require that revenues recognized from software arrangements be allocated to each element of the arrangement based on the fair values of the elements, such as software products, post contract customer support, installation, training or other services. License software sales that involve multiple elements, including software license and undelivered maintenance and support and professional services, are recognized such that the Company allocates revenue to the delivered elements of the arrangement using the residual value method based on evidence of the fair value of the undelivered elements. The vendor specific objective evidence of fair values for the ongoing maintenance obligations are based upon the prices paid for the separate renewal of these services by the customer or upon substantive renewal rates stated in the contractual arrangements. Vendor specific objective evidence of the fair value of other services, primarily professional services, is based upon substantive rates stated in the contractual arrangements or upon separate sales of these services at substantive rates.

      If an arrangement includes specific customization or modification services that are deemed essential to the functionality of the product, the Company recognizes the entire arrangement fee using the percentage of completion method. Under this method, individual contract revenues are recorded based on the percentage relationship of the contract costs incurred as compared to management’s estimate of the total cost to complete the contract. If fair value cannot be determined for more than one individual element of a multiple element arrangement, revenue is recognized ratably over the term of the agreement.

      License fees are also received from resellers under arrangements that do not provide product return or exchange rights. Revenues from reseller agreements may include a nonrefundable, advance royalty which is payable upon the signing of the contract and license fees based on the contracted value of the Company’s products purchased by the reseller. Guaranteed license fees from resellers, where no right of return exists, are recognized when persuasive evidence of an arrangement exists, delivery of the licensed software has occurred and the collection of a fixed or determinable license fee is considered probable. Non-guaranteed per-copy license fees from resellers are initially deferred and are recognized when they are reported as sold to end-users by the reseller.

Service Revenues

      Hosted messaging services. The Company derives hosted messaging revenues from fees for hosting services it offers related to its messaging and collaboration solutions. These are primarily based upon monthly contractual per unit rates for the services involved, which are recognized on a monthly basis over the term of the contract beginning with the month in which service delivery starts.

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      Amounts billed or received in advance of service delivery, including but not limited to branding and set-up fees, are initially deferred and subsequently recognized on a ratable basis over the expected term of the relationship beginning with the month in which service delivery starts.

      Professional services. The Company derives professional service revenues from fees primarily related to training, installation and configuration services. The associated revenues are recognized in the period in which the services are performed.

      Maintenance and support. The Company derives maintenance and support service revenues from fees for post-contract customer support agreements associated with product licenses. Such services typically include rights to future update and upgrade product releases and dial-up and on-site support services. Fees are deferred and recognized ratably over the term of the support contract, generally one year.

Advertising Expense

      Advertising and promotion costs are expensed as incurred. Costs associated with the development of print or other media campaigns are deferred until the period that includes the first commercial use of the media campaign. Costs associated with industry trade shows and customer conferences are deferred until the period that includes the applicable trade show or conference. Advertising costs totaled $648,000, $353,000 and $49,000 during 2001, 2002 and 2003, respectively.

Research and Development

      Research and development costs include expenses incurred by the Company to develop and enhance its digital communications software and services. Research and development costs, including acquired in-process research and development costs, are recognized as expense, when incurred.

Stock-Based Compensation

      The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees and its related interpretations and complies with the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Under APB No. 25, compensation expense for fixed options is based on the difference, if any, on the date of the grant, between the fair value of the Company’s stock and the exercise price of the option. The Company amortizes stock-based compensation using the straight-line method over the remaining vesting periods of the related options, which is generally four years. The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force (“EITF”) Issue No. 96-18. The shares underlying warrants or options, which are unvested, are remeasured at each reporting date until a measurement date occurs, at which time the fair value of the warrant is fixed. The related charge is amortized over the estimated term of the relationship. In the event such remeasurement results in increases or decreases from the initial fair value, which could be substantial, these increases or decreases will be recognized immediately, if the fair value of the shares underlying the milestone has been previously recognized, or over the remaining term, if not. Currently, all related amortization has been recognized as advertising expense over the term of the estimated benefit period. See also Note 8 – Intangible Assets.

      In December 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 148, “Accounting for Stock-Based Compensation, Transition and Disclosure.” SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, SFAS No. 148 requires disclosure of the pro forma effect in interim financial statements. The transition and annual disclosure requirements of SFAS No. 148 are effective for fiscal years ended after December 15, 2002. The interim disclosure requirements are effective for interim periods ending after December 15, 2002. The Company adopted the disclosure requirement of SFAS No. 148 on December 31, 2002.

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      Pro forma information regarding net loss and net loss per share is required. This information is required to be determined as if the Company had accounted for employee stock options under the fair value method of Statement of Financial Accounting Standards (“SFAS”) No. 123, as amended by SFAS No. 148.

      Had compensation cost been recognized based on the fair value at the date of grant for options granted, during 2001, 2002, and 2003, the pro forma amounts of the Company’s net loss and net loss per share would have been as follows:

		Year Ended December 31,
		2001			2002			2003
		(In thousands, except per share amounts)
Net loss attributable to common shares — as reported		$	(79,820	)	$	(131,815	)	$	(74,579	)
Add:
	Stock-based employee compensation expense included in reported net loss attributable to common shares, net of related tax effects		38,165			9,997			59
Deduct:
Total stock-based employee compensation expense determined under a fair value based method for all grants, net of related tax effects			(23,901	)		(68,658	)		(26,696	)
Net loss attributable to common shares — pro forma		$	(65,556	)	$	(190,476	)	$	(101,216	)
Basic and diluted net loss per share attributable to common shares — as reported		$	(4.32	)	$	(6.78	)	$	(3.73	)
Basic and diluted net loss per share attributable to common shares — pro forma		$	(3.54	)	$	(9.80	)	$	(5.06	)

      The weighted average fair value of options granted were $3.96, $4.41 and $2.99 during 2001, 2002 and 2003, respectively. The Company calculated the fair value of each option grant on the date of grant using the Black-Scholes option pricing model as prescribed by SFAS No. 123 using the following assumptions:

	Year Ended December 31,
	2001			2002			2003
Risk-free interest rate		4.0	%		2.6	%		2.8	%
Expected lives (in years)		4.0			4.0			4.0
Dividend yield		0.0	%		0.0	%		0.0	%
Expected volatility		250.0	%		111.0	%		138.0	%

Income Taxes

      Income taxes are computed using an asset and liability approach, which requires the recognition of taxes payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in the Company’s consolidated financial statements or tax returns. The measurement of current and deferred tax assets and liabilities are based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated. Deferred tax assets are reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are more likely than not to be realized.

Net Loss Per Share Attributed to Common Shares

      Basic net loss per share attributed to common shares is computed by dividing the net loss attributable to common shares for the period by the weighted average number of common shares outstanding during the period. Shares subject to repurchase by the Company and shares held in escrow in connection with certain acquisition agreements are excluded from the basic calculation. Diluted net loss per share attributed to common shares is computed by dividing the net loss attributable to common shares for the period by the weighted average number of common and potential common shares outstanding during the period, if the effect

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of each class of potential common shares is dilutive. Potential common shares include restricted Common Stock, shares held in escrow, Common Stock subject to repurchase rights, and incremental Common and Preferred shares issuable upon the exercise of stock options and warrants and upon conversion of Series D Cumulative Redeemable Convertible Participating Preferred Stock, the Senior Secured Convertible Notes and the Convertible Subordinated Notes. See also Note 19 – Net Loss Per Share Attributed to Common Shares.

Comprehensive Income (Loss)

      The Company accounts for and reports comprehensive income or loss and its components in its financial statements. Comprehensive income (loss), as defined, includes the Company’s net income or loss and all other changes in equity (net assets) during the period from non-owner sources.

      Changes in accumulated other comprehensive income (loss) during 2001, 2002 and 2003 were as follows (in thousands):

			Unrealized gain
			(loss) on			Cumulative
			available-for-sale			translation
			investments			adjustment			Total
Balance at December 31, 2000			$	—		$	(74	)	$	(74	)
	Unrealized investment losses			(790	)		—			(790	)
	Foreign currency translation adjustments			—			(1,924	)		(1,924	)
		Total accumulated other comprehensive loss		(790	)		(1,924	)		(2,714	)
Balance at December 31, 2001			$	(790	)	$	(1,998	)	$	(2,788	)
	Unrealized investment losses			(671	)		—			(671	)
	Foreign currency translation adjustments			—			2,416			2,416
		Total accumulated other comprehensive income (loss)		(671	)		2,416			1,745
Balance at December 31, 2002			$	(1,461	)	$	418		$	(1,043	)
	Unrealized investment gains			1,461			—			1,461
	Foreign currency translation adjustments			—			1,696			1,696
		Total accumulated other comprehensive income		1,461			1,696			3,157
Balance at December 31, 2003			$	—		$	2,114		$	2,114

      There were no tax effects allocated to any components of other comprehensive income during 2001, 2002 or 2003.

Foreign Currency

      The Company considers the local currencies of each of its foreign operations to be the functional currency in those operations. Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates of exchange prevailing during the period. Translation adjustments are charged or credited to other comprehensive income, a component of shareholders’ equity (deficit). Gains and losses on foreign currency transactions are included in non-operating income and expense. The Company recognized a net gain from foreign currency transactions in the amount of $947,000 in 2001, and net losses of $817,000 and $440,000 in 2002 and 2003, respectively.

Segment and Geographic Information

      The Company does not currently manage its business in a manner that requires it to report financial results on a segment basis. The Company currently operates in one segment: Digital communications software and services and management uses one measure of profitability. See also Note 20 – Product and Geographic Information.

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Recent accounting pronouncements

      In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments Hedging Activities. This statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed in SFAS No. 133. In addition, it clarifies when a derivative contains a financing component that warrants special reporting in the condensed consolidated statement of cash flows. The provisions of this standard are effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. In addition, except as stated below, all provisions of this statement should be applied prospectively. The provisions of this statement that relate to SFAS No. 133 implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003 should continue to be applied in accordance with their respective effective dates. In addition, certain provisions relating to forward purchases or sales of when-issued securities or other securities that do not yet exist should be applied to existing contracts as well as new contracts entered into after June 30, 2003. The adoption of SFAS No. 149 did not have a material impact on the Company’s financial position and results of operations.

      In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 addresses certain financial instruments that, under previous guidance, could be accounted for as equity, but now must be classified as liabilities in statements of financial position. These financial instruments include: 1) mandatorily redeemable financial instruments, 2) obligations to repurchase the issuer’s equity shares by transferring assets, and 3) obligations to issue a variable number of shares. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The Company adopted SFAS No. 150 in the third quarter of 2003 and such adoption did not have a material effect on its financial position and results of operations.

      In May 2003, the EITF reached a consensus on EITF Issue No. 03-05, Applicability of AICPA Statement of Position 97-2, Software Revenue Recognition, to Non-Software Deliverables in Arrangements Containing More-Than-Incidental Software. EITF No. 03-05 addresses the applicability of Statement of Position No. 97-2 regarding software and non-software deliverables in a multiple element arrangement, giving consideration to whether the deliverables are essential to the functionality of one another. EITF Issue No. 03-05 is effective for interim periods beginning after August 13, 2003. The adoption of EITF Issue No. 03-05 did not have a material impact on the Company’s financial position and results of operations.

      In January 2003, the FASB issued FASB Interpretation (“FIN”) No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. FIN No. 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN No. 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN No. 46 must be applied for the first interim or annual period beginning after June 15, 2003. In addition, FIN No. 46 requires that the Company make disclosures in its consolidated financial statements for the year ended December 31, 2002 when the Company believes it is reasonably possible that it will consolidate or disclose information about variable interest entities after FIN No. 46 becomes effective. In December 2003, FASB issued a revised FIN No. 46. The FASB deferred the effective date for VIEs that are non-special purpose entities created before February 1, 2003, to the first interim or annual reporting period that ends after March 15, 2004. At this time, the Company does not believe it is reasonably possible that the Company will consolidate or disclose information about variable interest entities. However, the Company will continue to assess the impact of FIN No. 46 on its consolidated financial statements.

      In November 2002, the EITF reached a consensus on EITF No. 00-21, Revenue Arrangements with Multiple Deliverables. EITF No. 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which the vendor will perform multiple revenue-generating activities. EITF No. 00-21 is

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effective for interim periods beginning after June 15, 2003. The Company adopted EITF No. 00-21 in the third quarter of 2003 and such adoption did not have a material effect on the Company’s financial position and results of operations.

Note 2 — Acquisition

      On June 6, 2002, the Company acquired the remaining 60% ownership interest that it did not already own in its Japanese joint venture, Critical Path Pacific, Inc., from Mitsui and Co. Ltd., NTT Communications Corporation and NEC Corporation, for $3.0 million in cash and the assumption of $2.6 million in business restructuring and capital lease obligations. The excess of the purchase price of $5.6 million over the fair value of the acquired net assets, primarily working capital and fixed assets, of $4.6 million was recorded as goodwill. In accordance with SFAS No. 142, this goodwill asset of approximately $1.0 million will not be amortized; however, the Company will test this asset for impairment on an annual basis, or more frequently if events or circumstances indicate that the asset might be impaired. The Company began including the financial results of Critical Path Pacific in its own consolidated results subsequent to the acquisition date.

Note 3 — Retention Related Bonuses

      In connection with the acquisitions of dotOne, Amplitude, Xeti, FaxNet, ISOCOR, and docSpace, during 1999 and 2000, the Company established a retention bonus program in the aggregate amount of $20.7 million to provide incentives for certain former employees of these companies to continue their employment with the Company. Payments of bonuses to designated employees occurred on the six-month, twelve-month or eighteen-month anniversary date of the related acquisition, depending on the program, unless the designated employee voluntarily terminates employment with the Company prior to the respective acquisition’s applicable anniversary. A ratable share of the adjusted eligible bonus amount has been accrued and charged to compensation expense over the respective six, twelve or eighteen month period commencing on the date the bonuses were granted. There were no acquisition-related retention bonuses granted during 2001, 2002 and 2003.

      As of December 31, 2001, the aggregate, adjusted eligible bonus totaled $1.9 million, and the ratable charge to compensation expense for the year then ended was $1.4 million. Based on the functions of the employees scheduled to receive acquisition bonuses in 2001, this amount was charged to operating expenses. During 2002, the charges to compensation related to acquisition bonuses were insignificant and there were no related charges in 2003. Additionally, as of December 31, 2002 and 2003, no acquisition bonuses remained.

Note 4 — Strategic Restructuring

      The following tables summarize strategic restructuring costs incurred by the Company during the three years ended December 31, 2003:

		Liabilities at								Cash					Liabilities at
		December 31,		Total			Noncash			Receipts					December 31,
Year ended December 31, 2001		2000		Charges			Charges			(Payments)			Adjustments		2001
Workforce reduction		$	—	$	10.3		$	(1.3	)	$	(8.9	)	$	—	$	0.1
Facility and operations consolidation and other charges			—		9.0			(5.5	)		(1.6	)		—		1.9
Non-core product and service sales and divestitures			—		(1.0	)		(1.1	)		2.3			—		0.2
	Total	$	—	$	18.3		$	(7.9	)	$	(8.2	)	$	—	$	2.2

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		Liabilities at							Cash					Liabilities at
		December 31,		Total		Noncash			Receipts					December 31,
Year ended December 31, 2002		2001		Charges		Charges			(Payments)			Adjustments		2002
Workforce reduction		$	0.1	$	2.1	$	—		$	(1.0	)	$	—	$	1.2
Facility and operations consolidation and other charges			1.9		1.1		(0.4	)		(1.5	)		—		1.1
Non-core product and service sales and divestitures			0.2		—		—			0.1			—		0.3
	Total	$	2.2	$	3.2	$	(0.4	)	$	(2.4	)	$	—	$	2.6

		Liabilities at							Cash						Liabilities at
		December 31,		Total		Noncash			Receipts						December 31,
Year ended December 31, 2003		2002		Charges		Charges			(Payments)			Adjustments			2003
Workforce reduction		$	1.2	$	6.0	$	(0.2	)	$	(6.2	)	$	(0.6	)	$	0.2
Facility and operations consolidation and other charges			1.1		1.8		(0.3	)		(1.7	)		(0.3	)		0.6
Non-core product and service sales and Divestitures			0.3		0.3		–			(0.3	)		(0.3	)		–
	Total	$	2.6	$	8.1	$	(0.5	)	$	(8.2	)	$	(1.2	)	$	0.8

      In April 2001, the Company announced a strategic restructuring plan that involved reorganizing and refocusing Critical Path’s product and service offerings, a workforce reduction, and a facilities and operations consolidation. Additionally, the Company implemented an aggressive expense management plan to further reduce operating costs while maintaining strong customer service. The Company completed its restructuring plan in 2001, including the divestiture of all products and services deemed to be non-core products and services to the continued operations of the company, a 44% reduction in headcount, a 65% reduction in the number of facilities and the implementation of other cost cutting measures, resulting in a significant reduction in overall operating expenses. The non-core products and services comprised approximately 21% of total revenues in the year ended December 31, 2001.

      During 2001, the Company sold or discontinued all of its non-core products and services and as a result of these transactions recognized a net gain of $1.0 million for the year ended December 31, 2001. The Company reduced its headcount from 1,011 employees at March 31, 2001 to 562 employees at December 31, 2001. Charges related to the headcount reduction consisted primarily of the payment of severance and fringe benefits, and aggregated approximately $10.3 million during 2001. In connection with these restructuring actions, the Company reduced the number of facilities it occupied from 77 at March 31, 2001 to 27 at December 31, 2001. Lease termination and facility consolidation related charges consisted primarily of lease termination costs, future lease payments and related fees, and aggregated approximately $9.0 million during 2001.

      The initiatives contemplated under these restructurings were completed during 2003, and during the first quarter of 2003, the Company reversed approximately $1.2 million in restructuring expenses, which were originally accrued in 2001 and 2002 associated with the restructuring initiatives discussed above, as the Company determined these amounts will not be paid in the future. The reversal of these expenses is reflected in the “Adjustments” column of the Strategic Restructuring table presented above.

      In May 2002, the Board of Directors approved a restructuring plan to further reduce the Company’s expense levels consistent with the current business climate. In connection with the plan, a restructuring charge of $1.5 million was recognized in the second quarter of 2002. This charge was comprised of approximately $1.2 million in severance and related costs associated with the elimination of approximately 39 positions and $300,000 in facilities lease termination costs. The balance of the accrual at December 31, 2003, of approximately $0.4 million is expected to be utilized by the end of 2004.

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      In January 2003, The Company announced a restructuring initiative designed to further reduce its expense levels in an effort to achieve operating profitability assuming no or moderate revenue growth. The plan includes the consolidation of some office locations and a global workforce reduction of approximately 175 positions, or approximately 30% of the workforce. The headcount reduction was partially offset by outsourcing approximately 75 positions to lower cost service providers. The Company incurred aggregate charges of approximately $8.0 million resulting from the cost reduction plan, inclusive of $7.0 million in cash and $1.0 million in non-cash expenses. Included in this plan were approximately $1.7 million in charges incurred in the fourth quarter of 2002, comprised of approximately $0.7 million in severance and related costs and $1.0 million in facilities lease termination costs. During 2003, cash payments totaling $6.5 million were made related to the restructuring. At December 31, 2003, the balance of the accrual was approximately $0.2 million and is expected to be utilized by the end of the first quarter of 2004.

      In November 2003, the Company announced that it was restructuring certain of its facility lease obligations in an effort to reduce its long-term cash obligations. In addition, the Company identified an additional 16 positions, primarily held by management-level employees, which were to be eliminated. Costs totaling $1.9 million were recognized during the fourth quarter of 2003 associated with these initiatives, including $1.4 million in lease restructuring and termination costs and $0.5 million in severance and related headcount reduction costs. During the fourth quarter of 2003, cash payments totaling $1.3 million were made associated with the facility restructuring activities and $0.4 million related to the headcount reductions. The remaining accrual of $0.2 million associated with this restructuring is expected to be utilized by the end of the first quarter of 2004. In addition, the Company expects to incur approximately $1.0 million in the first six months of 2004 related to this initiative.

Note 5 — Accounts Receivable

		December 31,
		2002			2003
		(In thousands)
Accounts receivable		$	24,404		$	18,534
Allowance for doubtful accounts			(1,586	)		(1,654	)
	Accounts receivable, net	$	22,818		$	16,880

Note 6 — Investments

      During 2003, the Company executed sales of its remaining public and private investments. As a result, as of December 31, 2003, the Company was not carrying any investments on its balance sheet. The sale of the Company’s investments during 2003 resulted in a net gain of $549,000, which was comprised of $2.4 million in aggregate cash proceeds, the recognition of $1.5 million in unrealized losses and the elimination of $357,000 in assets held as equity investments.

      Investments carried by the Company as of December 31, 2002, were as follows:

				Net			Period
December 31, 2002		Cost		Unrealized			Income		Estimated
(In thousands)		Basis		Gain (Loss)			(Expense)		Fair Value
Short-term investments
	Marketable securities	$	5,583	$	—		$	—	$	5,583
Long-term investments
	Marketable securities	$	3,985	$	5		$	—	$	3,990
	Marketable equity investments		997		(676	)		36		357
		$	4,982	$	(671	)	$	36	$	4,347

      The Company’s investments consisted of both short-term and long-term investments. Short-term investments were primarily comprised of low risk government securities and corporate bonds. Long-term

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investments were primarily comprised of strategic equity investments in corporate partners, certain of which are publicly traded and marketable and certain of which are privately held and non-marketable. The Company’s investments in marketable securities are stated at fair value, which is based on quoted market prices. Investments in non-marketable securities are stated at fair value, based on initial cost of the investment and periodic review for impairment. Adjustments to the fair value of these investments are recorded as a component of other comprehensive income. All investments are periodically evaluated for other-than-temporary impairment.

      During 2001 and 2002, the Company determined that the impairment of certain of its investments were deemed to be other-than-temporary and recorded write downs of $702,000 and $1.5 million.

      In June 2000, the Company established a joint venture, Critical Path Pacific, Inc., with Mitsui and Co., Ltd., NTT Communications Corporation and NEC Corporation to deliver advanced Internet messaging solutions to businesses in Asia. The Company invested $7.5 million, acquiring a 40% ownership interest in the joint venture. This investment was accounted for using the equity method. During 2001 and 2002, the Company recorded equity in net loss of joint venture of approximately $1.9 million and $1.4 million, respectively. On June 6, 2002, the Company acquired the remaining 60% ownership interest in the joint venture and began including the financial results of Critical Path Pacific in its own consolidated results subsequent to the acquisition date. See also Note 2 — Acquisitions.

Note 7 — Property and Equipment

	December 31,
	2002			2003
	(In thousands)
Computer equipment and software	$	104,474		$	119,336
Furniture and fixtures		9,456			9,313
Leasehold improvements		2,035			2,030
		115,965			130,679
Less: Accumulated depreciation and amortization		(97,823	)		(115,858	)
	$	18,142		$	14,821

      At December 31, 2002 and 2003 property and equipment included $5.1 million and $5.6 million of assets under capital leases, respectively, and accumulated amortization totaled $3.1 million and $4.5 million at December 31, 2002 and 2003, respectively. All assets under capital leases relate to computer equipment and software.

      Depreciation and amortization expense totaled $43.0 million, $27.2 million and $16.3 million during 2001, 2002 and 2003, respectively.

Note 8 — Goodwill and Other Intangible Assets

      At December 31, 2003, the Company was carrying goodwill of $6.6 million, which is no longer being amortized, in accordance with SFAS No. 142. All acquired intangible assets were fully amortized as of December 31, 2002. During the second quarter of 2002, the Company recorded goodwill of approximately $1.0 million associated with its acquisition of the remaining 60% ownership interest in Critical Path Pacific, Inc. See also Note 2 – Acquisitions.

      The Company performed its initial goodwill impairment test upon adoption on January 1, 2002, as required by SFAS No. 142, at which time the goodwill was not impaired. In September 2003, the Company performed its annual impairment review, at which time the goodwill was not impaired. The results of Step 1 of the goodwill impairment analysis showed that goodwill was not impaired as the market value of the Company’s one reporting unit exceeded its carrying value, including goodwill. Accordingly, Step 2 was not performed. The market value of the reporting unit was estimated by multiplying the number of shares of Company stock outstanding on the analysis date by the most recent stock market closing price. The Company

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will continue to test for impairment on an annual basis and on a more frequent basis if events occur or circumstances change that would more likely than not reduce the fair value of any of the Company’s reporting units below their carrying value. See also Note 1 – The Company and Summary of Significant Accounting Policies.

      There was no amortization expense in 2003. Amortization expense was $54.1 million and $43.3 million in 2001 and 2002, respectively. Included in amortization expense was amortization of goodwill totaling $643,000 in 2001, with the remaining amortization expense related to other intangible assets. Based on the types of other identifiable intangibles acquired, during 2001 and 2002 amortization expense of $21.3 million and $18.5 million was allocated to cost of net revenues, respectively, and amortization expense of $32.7 million and $24.8 million was allocated to operating expenses, respectively. The identifiable intangible assets which existed during 2001, 2002 and 2003 primarily related to existing technology for some of the Company’s licensed products, which were acquired in 2000, and certain amounts related to assembled workforce, which were acquired in 1999 and 2000. Intangible assets were fully amortized as of the end of 2002. See also Note 17 – Impairment of Long-Lived Assets.

      The following table presents net loss attributable to common shares and net loss per share attributable to common shares – basic and diluted, as if the goodwill, including assembled workforce which has been reclassified to goodwill, had not been amortized during the periods presented (in thousands, except per share amounts):

	Year Ended December 31,
	2001			2002			2003
Net loss attributable to common shares
Reported net loss attributable to common shares	$	(79,820	)	$	(131,815	)	$	(74,579	)
Amortization of goodwill		4,688			—			—
Net loss attributable to common shares, as adjusted	$	(75,132	)	$	(131,815	)	$	(74,579	)
Net loss per share attributable to common shares — basic and diluted
Reported net loss per share attributable to common shares	$	(4.32	)	$	(6.78	)	$	(3.73	)
Amortization of goodwill per share		0.26			—			—
Net loss per share attributable to common shares, as adjusted	$	(4.06	)	$	(6.78	)	$	(3.73	)

2003 Warrants

Equity Office Management LLC

      In November 2003, the Company entered into an agreement with one of its landlords, Equity Office Management LLC, pursuant to which the lease covering the Company’s Santa Monica facility was restructured. As part of the agreement, Equity Office Management LLC agreed to early terminate the Company’s lease obligation in exchange for $381,000 in cash and warrants to purchase 25,000 shares of Common Stock. The warrants were fully vested upon issuance and are exercisable over a five year period beginning on December 1, 2003, at a price of $2.49 per share.

      Using the Black-Scholes option pricing model and assuming a term of five years and expected volatility of 138%, the fair value of the warrants on the effective date of the agreement approximated $48,000, which was recorded in restructuring and other expenses in the fourth quarter of 2003.

1999 Warrants

ICQ

      In January 1999, the Company entered into an agreement with ICQ, Inc., a subsidiary of AOL Time Warner, pursuant to which the Company provides email hosting services that are integrated with ICQ’s

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instant messaging service provided to ICQ’s customers. As part of the agreement, ICQ agreed to provide sub-branded advertising for the Company in exchange for warrants to purchase 2,442,766 shares of Series B Preferred Stock, issuable upon attainment of each of five milestones.

      As of April 9, 2000, all five milestones had been attained and all related warrants were exercised during 2000 in two net exercises of 766,674 and 1,441,067 shares. Using the Black-Scholes option-pricing model and assuming a term of seven years and expected volatility of 90%, the final revised aggregate fair value of all vested warrants was $93.8 million, which was being amortized to advertising expense using the straight-line method over four years. Aggregate charges to stock-based expenses of $14.7 million and $14.7 million were recorded to operating expenses during 2001 and 2002, respectively, related to these warrants. The value of these warrants was fully amortized at December 31, 2002.

Qwest Communications Corporation

      In October 1999, the Company entered into an agreement with Qwest Communications Corporation, a telecommunications company, pursuant to which the Company agreed to provide email hosting services to Qwest’s customers. As part of the agreement, Qwest agreed to provide sub-branded advertising for Critical Path in exchange for warrants to purchase up to a maximum of 3,534,540 shares of Common Stock upon attainment of each of six milestones.

      The shares underlying the milestones for which achievement was considered probable were remeasured at each subsequent reporting date, beginning at December 31, 1999, until each sub-branded Qwest mailbox registration threshold was achieved and the related warrant shares vest, at which time the fair value attributable to each tranche of the warrant was fixed. In the event such remeasurement resulted in an increase or decrease from the initial fair value, these increases or decreases were recognized immediately, if the fair value of the shares underlying the milestone had been previously recognized, or over the remaining term, if not.

      In October 1999, the first of the six milestones had been attained. Using the Black-Scholes option-pricing model and assuming a term of 5 years and expected volatility of 90%, the final revised aggregate fair value of the vested warrants associated with the first milestone approximated $22.2 million, which was amortized to advertising expense using the straight-line method over three years. The Company expects that future changes in the trading price of the Company’s Common Stock at the end of each quarter, and at the time certain milestones are considered probable and achieved, may cause additional substantial changes in the ultimate amount of the related stock-based charges.

      As of December 31, 2001, only the first of the six milestones had been attained. None of the remaining milestones are considered probable and as a result, the fair value of the warrants relating to the shares underlying the second through sixth milestones has not been recognized. During 2001 and 2002, $4.6 million and $4.6 million, respectively, was charged to stock-based operating expense related to the vested warrants. The value of these warrants was fully amortized at December 31, 2002 and accordingly no expense was recognized related to these warrants during 2003.

Worldsport Network Ltd.

      In December 1999, the Company entered into an agreement with Worldsport Network Ltd., the sole and exclusive provider of Internet solutions for the General Association of International Sports Federations (“GAISF”) and a majority of the international federations it recognizes. Under the terms of the agreement, Worldsport offers the Company’s web-based email and calendaring services to the GAISF network and its members. As part of the agreement, Worldsport agreed to provide sub-branded advertising for the Company in exchange for warrants to purchase up to a 1.25% equity interest in the Company on a fully diluted basis upon attainment of each of five milestones based on the number of email boxes for which Worldsport registers and provides sub-branding. The warrants are exercisable for five years after becoming vested. Any warrants not vested within five years of the date of the agreement will be canceled. Worldsport ceased operations and filed for bankruptcy during 2000 and the Company continues to believe the warrants will ultimately expire unvested and unexercised.

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Lessor Warrants

      In December 1999, the Company entered into an agreement with one of its lessors, in connection with an office lease, pursuant to which the lessor was issued warrants to purchase up to a maximum of 25,000 shares of the Company’s Common Stock. The warrants may be exercised beginning January 1, 2000 through December 20, 2006 at a price of $90.00 per share. The warrants vest at the beginning of each month on a straight-line basis in the amount of 521 shares per month. At December 31, 2003, the warrants remained unexercised.

      Using the Black-Scholes option pricing model and assuming a term of six years and expected volatility of 90%, the fair value of the warrants on the effective date of the agreement approximated $2.0 million, which was being amortized to general and administrative expenses using the straight-line method over ten years beginning January 2000. During both 2000 and 2001, approximately $200,000 was charged to stock-based expense related to the vested warrants. In March 2002, the lease was terminated and the remaining value of $1.6 million was recognized to stock-based expense.

Telco

      In January 2000, docSpace entered into an agreement with a major telecommunications company (“Telco”) pursuant to which docSpace would provide secure messaging services to the Telco’s customers. As part of the agreement, Telco agreed to provide marketing, publicity, and promotional services to docSpace. As a result of the completion of the Company’s acquisition of docSpace, the Company assumed warrants that allowed Telco to purchase up to a maximum of 349,123 shares of the Company’s Common Stock upon attainment of each of three milestones.

      Subsequent to the acquisition, the Company entered into discussions with Telco to modify their relationship. Accordingly, the vesting provisions of the proposed agreement were modified to reflect the requirements of the new relationship. As of December 31, 2003, none of the vesting milestones of the original agreement had been attained and none of the milestones are considered probable. Accordingly no deferred compensation associated with the warrants has been recognized. The Company expects that future changes in the trading price of the Company’s Common Stock at the end of each quarter, and at the time certain milestones are achieved, may cause substantial changes in the ultimate amount of the related stock-based charges.

Note 9 — Related Party Transactions

General Atlantic Partners

      In November 2003, the Company issued $10 million in 10% Senior Secured Convertible Notes to General Atlantic Partners, which are convertible into 7.3 million shares of Series E Preferred Stock. See Note 11 – Convertible Notes.

Cheung Kong Group

      In November 2003, the Company executed an agreement to exchange approximately $32.8 million in face value of its 5 3/4% Notes, which were held by a group of investors led by Cheung Kong Group and its Whampoa Limited affiliates, for approximately 21.9 million shares of Series E Preferred Stock. The conversion of the 5 3/4% Notes and the issuance of the Series E Preferred Stock will be affected upon shareholder approval. See Note 11 – Convertible Notes.

Vectis Group, LLC

      In March 2001, the Company entered into certain agreements with Vectis Group, LLC (“Vectis Group”) to engage Vectis Group to act as an advisor to the Company with respect to various strategic alternatives the Company was exploring and to assist with other management related services. As part of the agreement, Vectis Group agreed to provide consulting services to the Company in exchange for a monthly retainer fee, potential transaction – based fees associated with certain strategic asset sales and investments in

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Critical Path and immediately exercisable warrants to purchase 500,000 shares of the Company’s Common Stock with an exercise price of $2.00 per share, issuable upon execution of the agreement. Using the Black-Scholes option-pricing model and assuming a term of three years, the term of the agreement, and expected volatility of 215%, the initial and final fair value of the warrant on the effective date of the agreement approximated $732,000, which was recognized upon the execution of the agreement in March 2001, because the relationship was terminable at any time. During the term of the agreement, the Company paid Vectis Group an aggregate of approximately $1.1 million in retainer fees and expenses, paid monthly over the life of the agreements, and approximately $3.1 million in transactional fees, which included approximately $2.75 million in connection with the preferred stock financing transaction in November 2001, in which Vectis Group participated as one of several investors in this transaction led by General Atlantic Partners and its affiliates. See also Note 15 – Financing Transactions and Preferred Stock. William McGlashan, Jr., a principal in Vectis Group, and a member of the Board of Directors of the Company, was appointed interim President and Chief Operating Officer of the Company in April 2001 and was later appointed Vice Chairman and Chief Executive Officer. Effective September 30, 2001, the Company terminated its agreements with Vectis Group for consulting and other transactional services. In connection with the termination of the agreements, certain other employees of Vectis Group became employees of Critical Path. The Company paid to Vectis a total of approximately $12,500 for expense reimbursement in February 2002. Although the agreements were terminated, certain obligations under the agreement survived, including the transaction fee paid in connection with the Company’s financing transaction in 2001 and related indemnification obligations. The total potential remaining fees payable aggregate between zero and $135,000.

Release of The docSpace Company Escrow Funds

      In June 2003, the Company entered into an agreement with the former shareholders of The docSpace Company, Inc. to release back to the Company approximately $3.8 million of approximately $4.7 million in remaining funds held in escrow related to the Company’s acquisition of The docSpace Company in 2000. The funds were remitted to the Company in June 2003, and the Company recognized a gain of $3.8 million in Other Income during the second quarter of 2003.

      The escrow account was initially established in February 2000 with $5.0 million to be used to reimburse the former shareholders of The docSpace Company for certain qualifying expenses related to the establishment, maintenance and dissolution of the various holding companies established by the sellers in connection with the structuring of The docSpace Company acquisition. The escrow fund is scheduled to terminate in February 2005, unless all related holding companies are dissolved prior to such date, at which time all remaining funds held in escrow will be remitted to Critical Path, Inc. The remaining funds held in escrow are expected to be sufficient to cover all foreseeable costs over the remaining term of the escrow agreement based on analysis performed by both the Company and the docSpace shareholders; however, in the event such funds are not sufficient Critical Path will be responsible for the reimbursement of any qualifying expenses.

Notes receivable from shareholders

      During 1998, the Company issued a full recourse note to a shareholder and former Chief Executive Officer, Douglas Hickey, equal to $1.06 million. Mr. Hickey’s full recourse note accrues interest at the rate of 4.51% per annum and is secured by shares of the Company’s Common Stock owned by Mr. Hickey. In February 2001, Mr. Hickey terminated his employment with the Company. In connection with the termination, the repayment of the $1.06 million note receivable and accrued interest was extended to May 9, 2002. Mr. Hickey repaid this note in full with interest in March 2002.

Notes receivable from officers

      During 2000, the Company issued a note receivable to a former Chief Financial Officer, Lawrence Reinhold, equal to $1.7 million. Mr. Reinhold’s full recourse note accrued interest at the rate of 6.0% per annum and both principal and interest were scheduled to be forgiven over a specified period. During Mr. Reinhold’s employment with Critical Path, approximately $270,000 of principal and interest was forgiven, consistent with the terms of the note, and charged to operating expenses. The repayment of the outstanding

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loan was subject to certain change of control and employment termination criteria. In August 2001, Mr. Reinhold terminated his employment with the Company. In connection with the termination all outstanding principal and interest totaling $1.5 million was forgiven by the Company and charged to operating expenses.

      In connection with his employment agreement, in October 2001 the Company advanced a loan to and held a note receivable from Pierre Van Beneden, President, totaling $350,000. Mr. Van Beneden’s loan was interest free for the first year and was forgiven in monthly installments over the first year of Van Beneden’s employment, resulting in a compensation charge to operating expense ratably over the first twelve months of his employment. As of October 8, 2002, the one-year anniversary of his employment with the Company, the note had been fully forgiven. Mr. Van Beneden’s employment terminated shortly thereafter.

      During 2001 and in connection with his employment agreement, the Company advanced a loan to and held a note receivable from David Hayden, Executive Chairman and a Director of the Company, in the amount of $1.5 million. The full recourse note accrues interest at the rate of 6.75% per annum and could be repaid by the achievement of performance-based milestones described in Mr. Hayden’s employment agreement and performance loan agreement. The loan was also subject to forgiveness upon certain change of control events. In February 2002, the Board approved an amendment of Mr. Hayden’s employment agreement that eliminated the original performance-based milestones in favor of a single performance-based milestone tied to a change of control event. In addition, the Board increased the amount available under the loan agreement by an additional $450,000, which was funded in March 2002. The loan amount was secured by a first priority security interest in all of Mr. Hayden’s shares and options in the Company, with all other terms of the loan and other agreements unchanged. In July 2002, in connection with the settlement of the terms and conditions of Mr. Hayden’s termination of employment with the Company, some of the terms of the loan were altered as described in this section below under “Termination Agreement.”

      In December 2001, the Board approved a fully secured loan to William McGlashan, Jr., the Company’s Chief Executive Officer, of up to $4.0 million in connection with the purchase of a principal residence in the San Francisco Bay Area. In May 2002, the Compensation Committee of the Board and Mr. McGlashan agreed to amend the agreement in order to reduce the amount of the loan commitment to $1.5 million. As of December 31, 2002, no portion of the loan commitment had yet been funded.

      In connection with the reduction of the loan commitment, in May 2002 Mr. McGlashan was granted an option to purchase 1,000,000 shares of the Company’s Common Stock, at an exercise price of $1.74 per share, which was the fair market value on the date of grant. The option was immediately exercisable subject to the Company’s lapsing right of repurchase at a price equal to the exercise price per share over a three year period. Mr. McGlashan exercised his right to early exercise purchase the shares through a promissory note and stock pledge agreement in May 2002. As such the Company now holds a promissory note in the amount of $1,740,000 secured by shares of Common Stock. The promissory note accrues interest at the adjustable quarterly reference rate of Fidelity Investments or similar banking entity as the shares vest with respect to that portion of the purchase price representing the purchase price of the “vested” shares. As of December 31, 2003, approximately $24,000 interest had accrued.

      In accordance with EITF Issue No. 00-23, the early exercise of these options is not considered a substantive exercise, for accounting purposes, until the repurchase right lapses. Accordingly, the total exercise price of these options was initially recognized as an asset, in Other assets, and as a liability, in Capital lease and other obligations. These balances have been reclassified to shareholders’ deficit, in Notes receivable from shareholders, Common Stock and Paid in Capital, as the right of repurchase lapses. One third lapsed in May 2003, and one thirty-sixth lapses monthly thereafter. As of December 31, 2003, $870,000 has been reclassified into Shareholders’ Deficit.

Termination Agreements

      In May 2002, David Hayden resigned his employment with the Company and from the Board of Directors. In connection with a separation agreement finalized in July 2002, Mr. Hayden received a lump sum separation payment of $350,000 plus applicable taxes, continuation of health and welfare benefits until

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May 31, 2003, an extension to repay the $1.95 million loan with the Company until no later than June 30, 2005, an extension of the period within which he may exercise his vested stock options until no later than June 30, 2005, acceleration of a portion of his unvested options if a change of control of the Company occurs prior to September 30, 2003 and reimbursement for $50,000 of legal fees incurred. In connection with the provision of these benefits, Mr. Hayden agreed to (i) forfeit the right under the severance provisions of his employment agreement to an additional one year extension of the $1.95 million loan until August 2006; (ii) pay all proceeds (net of taxes) from the sale of any shares held by him in the Company to reduce the principal balance of the $1.95 million loan; and (iii) forfeit his right to receive a $2.5 million loan from the Company to exercise certain of his stock options. All sales of common stock of the Company by Mr. Hayden will be made under a publicly filed trading plan. In addition, Mr. Hayden and the Company executed a mutual release of claims. As a result of Mr. Hayden’s separation, the Company recorded aggregate one-time charges of $2.6 million, included in operating expenses, inclusive of $572,000 related to the separation payment and legal fee reimbursements made to Mr. Hayden and $2.0 million in stock-based expenses related to the extension of the exercise period on Mr. Hayden’s vested stock options.

      In October 2002, Pierre Van Beneden terminated his employment as president of the Company, but continued through January 2003 as a consultant. In connection with a separation agreement and release, Mr. Van Beneden agreed to provide consulting services to the Company on a commissioned basis and shall receive the benefits to which he was entitled under his employment agreement. Such employment agreement benefits, which were paid in January 2003 upon the completion of the consulting term, included a lump sum payment of $337,500, representing nine months base salary, accelerated vesting on a portion of his option grants, triggering a charge of $17,000 to stock-based expenses, and commissions of $50,000. These payments reflect all cash obligations of the Company to Mr. Van Beneden and accordingly no additional payments will be made in connection with the consulting services portion of his termination agreement. As an additional benefit under the separation agreement, Mr. Van Beneden was granted an extension until January 17, 2004 to exercise his option grants. Mr. Van Beneden and the Company executed a mutual release of all claims.

      In February 2003, Laureen DeBuono terminated her employment as executive vice president and chief financial officer of the Company, but continued through June 2003 as a consultant. In connection with a separation agreement and release, Ms. DeBuono received a lump sum payment of $208,000, representing four months base salary, and a $25,000 payment intended to cover reimburseable expenses incurred during her tenure with the Company. Ms. DeBuono was paid $125,000 associated with the consulting work performed through June 2003. As an additional benefit under the separation agreement, Ms. DeBuono was granted an extension until December 31, 2004, to exercise her option grants, resulting in a charge of $92,000 to stock-based expenses.

      In August 2003, Robert Allen Shipp terminated his employment as president of the Company, but continued through December 2003 as a consultant. In connection with a separation agreement and release, Mr. Shipp was paid a lump sum payment of $262,500, representing nine months base salary. The consulting services to be performed by Mr. Shipp were to be performed on a commissioned basis and no amounts had been paid or remained to be earned as of December 31, 2003.

Consulting Agreements

      In April 2002, the Company retained the services of CTD, LLC (“CTD”), an operational planning consulting company. The founder and president of CTD is Patrick Tracy Currie, who subsequently became the Company’s Executive Vice President, Operations and General Manager of Hosted Operations following the termination of the consulting arrangement with CTD as described below. Mr. Currie and his spouse share full ownership of CTD. Under the terms of the Statement of Work entered into between the Company and CTD, CTD received payments for its services based on daily rates as well as reimbursement of costs associated with the work performed. In connection with this consulting arrangement, the Company paid to CTD an aggregate of approximately $320,000 in 2003.

      In August 2002, the Company retained the services of The Cohen Group, an international strategic consulting company. The chairman and chief executive officer of The Cohen Group is William S. Cohen, a

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former member of the Board of Directors of the Company. Under the agreement, The Cohen Group received a $150,000 retainer fee to be credited against a sliding scale of earned sales and referral commissions on transactions resulting in license revenue for the Company. The agreement is for a one year renewable term, with reimbursement for specified expenses up to a cap of 5% of the retainer and a provision for extension in the event the retainer fee is not earned during the term. This agreement was not renewed in 2003.

      In August 2002, the Company hired R.B. Webber & Company, strategic management consultants, to prepare an executive level research and forecast presentation on the enterprise messaging market. The agreement provided for a flat fee of $85,000 over a two month period for the services of several consultants of R.B. Webber and Company, with reimbursement for expenses capped at 5% of the fee. Jeffrey Webber, a member of the Board of Directors of the Company, is a partner of R.B. Webber and Company. Mr. Webber shall also provide consulting services under the agreement.

Note 10 — Credit Facility

      In September 2002, the Company entered into a $15.0 million one-year line of credit with Silicon Valley Bank, to be utilized for working capital and general corporate operations. The credit facility was amended on March 25, 2003 and again on July 18, 2003, as a result of non-compliance with the financial covenants of the facility. The Company regained compliance with the covenants in the credit facility upon execution of the line of credit agreement on July 18, 2003 and extended the maturity of the credit facility to January 30, 2004. In December 2003, the Company did not comply with a certain financial covenant and it subsequently received a letter from Silicon Valley Bank on December 17, 2003 waiving such covenant violation. The credit facility is collateralized by certain of the Company’s assets, and borrowings under the current agreement bear a variable interest rate of Prime plus 2.0%, which has ranged from 5.25% to 6.25%, and is subject to certain covenants. Interest is paid each month with principal due at maturity. Commitment fees related to the credit facility included an initial commitment fee of 0.50%, or $75,000, and additional commitment fees of $35,000 for each amendment. The facility carries an additional fee based on unused credit of 0.45% payable at the end of each quarterly period in arrears and an early termination fee of 1.0% of the total credit facility through maturity. During the first quarter of 2003, the Company drew $4.9 million against the line of credit and repaid $2.6 million during the fourth quarter of 2003. As of December 31, 2003 a $2.3 million balance remained outstanding. Additionally, during the year the Company reduced letters of credit held under the credit facility from $3.0 million at December 31, 2002 to $2.7 million at December 31, 2003. All associated interest and fees are included as a component of interest expense.

      On January 30, 2004, the Company executed an amendment with Silicon Valley Bank, which reduced the size of the credit line to a maximum of $5.0 million and extended the maturity date to October 31, 2004. Subsequently, on March 12, 2004 the Company executed an additional amendment with Silicon Valley Bank, which increased the size of the credit line to a maximum of $6.0 million and extended the maturity date to June 30, 2005. The credit facility continues to be collateralized by certain of the Company’s assets and borrowings under the current agreement bear a variable interest rate of between Prime plus 1.5% and Prime plus 3.0%, which has historically ranged from 5.25% to 6.25%, and is subject to certain covenants. Interest is paid each month with principal due at maturity. Initial commitment fees of $20,000 and $100,000 were charged related to the January and March amendments, respectively. Additionally, the facility carries an expedite fee of $50,000, an unused facility fee of either 0.45% or 2.00%, based upon the level of cash balances held at the bank, payable at the end of each quarterly period in arrears, and an early termination fee of $50,000 if the facility is canceled prior to August 1, 2004. In connection with the March 2004 amendment to the credit facility, the Company agreed to issue warrants to purchase up to 100,000 shares of its Common Stock to Silicon Valley Bank. These warrants were fully exercisable upon grant, had an exercise price of $2.07 per share and have an expiration date of March 12, 2011.

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Note 11 — Convertible Notes

5 3/4% Convertible Subordinated Notes

      During 2000, the Company issued $300.0 million of five-year, 5 3/4% Convertible Subordinated Notes (“5 3/4% Notes”) due April 2005, to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933. Holders may convert the 5 3/4% Notes into shares of Common Stock at any time before their maturity or the business day before their redemption or repurchase by the Company. The conversion rate is 9.8546 shares per $1,000 principal amount of 5 3/4% Notes subject to adjustment in certain circumstances. This rate is equivalent to a conversion price of approximately $101.48 per share. On or after the third business day after April 1, 2003, through March 31, 2004, the Company has the option to redeem all or a portion of the 5 3/4% Notes that have not been previously converted at the redemption price equal to 102.30% of the principal amount. During the period from April 1, 2004 through March 31, 2005, the Company has the option to redeem all or a portion of the 5 3/4% Notes that have been previously converted at the redemption price equal to 101.15% of the principal amount. Thereafter the redemption price is equal to 100% of the principal amount. The 5 3/4% Notes are non-callable for three years. In the event of a “Change in Control,” as defined in 5 3/4% Notes’ Offering Circular, the 5 3/4% Notes holders have the option of requiring the Company to repurchase any 5 3/4% Notes held at a price of 100% of the principal amount of the 5 3/4% Notes plus accrued interest to the date of repurchase.

      The Company incurred approximately $10.8 million in debt issuance costs, consisting primarily of underwriting discount and legal and other professional fees. These costs have been capitalized and will be recognized as a component of interest expense on a straight-line basis, which approximates the effective interest method, over the five-year term of the 5 3/4% Notes. During 2001, 2002 and 2003, the Company recorded interest expense related to the amortization of the debt issuance costs of $1.5 million, $275,000 and $275,000, respectively.

      Interest is payable on April 1 and October 1 of each year. As of December 31, 2001, 2002 and 2003, there was approximately $600,000, $556,000 and $556,000 in interest payable, respectively. During 2001, 2002 and 2003, the Company recorded interest expense related to the 5 3/4% Notes of $12.1 million, $2.2 million and $2.2 million, respectively. The 5 3/4% Notes are subordinated in right of payment to all senior debt of the Company and effectively subordinated to all existing and future debt and other liabilities of the Company’s subsidiaries.

      During 2001, the Company retired $261.4 million of face value of the 5 3/4% Notes, which resulted in an extraordinary gain on retirement of $179.3 million, inclusive of $6.8 million in write-downs of related debt issuance costs. The Company used cash of $53.1 million and equity in order to retire the 5 3/4% Notes, inclusive of approximately $4.4 million in accrued interest. See also Note 15 – Financing Transactions and Preferred Stock. As of December 31, 2001, 2002 and 2003 the total balance outstanding was $38.4 million. These 5 3/4% Notes are carried at cost and had an approximate fair value at December 31, 2003 of $35.8 million.

      In November 2003, the Company executed an agreement to exchange approximately $32.8 million in face value of its 5 3/4% Notes, which were held by a group of investors led by Cheung Kong Investors, for approximately 21.9 million shares of Series E Preferred Stock. Upon shareholder approval, approximately $32.8 million face value of 5 3/4% Convertible Subordinated Notes held by the Cheung Kong Investors will be exchanged for approximately 21.9 million shares of Series E Preferred Stock. As a result, a charge equal to the fair value of the Series E Preferred Stock less the carrying value of the related Notes, net of unamortized issuance costs, will be recorded to arrive at net loss and net loss attributable to common shareholders as of the date of the exchange.

      In March 2004, the Company executed an amendment with the Cheung Kong Investors, which would extend the maturity of the $32.8 million in face value of 5 3/4% Notes held by the Cheung Kong Investors from April 1, 2005 to April 1, 2006. The extension will only take place in the event the Company’s shareholders do not approve the exchange of the 5 3/4% Notes held by the Cheung Kong Investors for approximately 21.9 million shares of the Company’s Series E Preferred Stock. In addition, in the event the maturity date is extended to April 1, 2006, the interest rate on the 5 3/4% Notes held by the Cheung Kong Investors will increase

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to 7 1/2% for the period beginning April 1, 2005 and ending April 1, 2006, and the Company will be required to pay fees totaling $1.5 million.

10% Senior Secured Convertible Notes

      In November 2003, the Company issued $10 million in 10% Senior Secured Convertible Notes to the General Atlantic Investors. These notes have the following carrying value at December 31, 2003:

		December 31,
		2003
10% Senior Secured Convertible Notes		$	9,250
Amount allocated to derivative instrument			750
Accretion on 10% Senior Secured Convertible Notes			16
	Carrying value of 10% Senior Secured Convertible Notes	$	10,016

      At issuance, the senior secured convertible note issued to General Atlantic Investors was deemed to have an embedded derivative, related to the acceleration of any unearned interest upon conversion prior to the first anniversary of its issue date. The fair value of this derivative, which was fixed at $750,000 at issuance, was recorded as a reduction in the carrying amount of the convertible secured note and will be accreted over the initial year of the four year term. As a result, the Company recorded accretion of approximately $16,000 to interest expense during 2003.

      Upon shareholder approval, the $10 million in principal amount of senior secured convertible notes held by the General Atlantic Partners, plus interest, will convert into 7.3 million shares of Series E convertible preferred stock at $1.50 per share. As a result, interest expense of approximately $5.7 million will be recognized as of the date of conversion resulting from the beneficial conversion feature included in the Series E convertible preferred stock. Interest expense of $100,000 was recognized on the debt during 2003 and remained payable as of December 31, 2003. These notes, which are carried at their accreted cost of $10.0 million, had an approximate fair market value of $10.0 million as of December 31, 2003.

      In January 2004, the Company issued $15 million in principal amount of 10% Senior Secured Convertible Notes to Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P. These notes are convertible into approximately 10 million shares of Series E Preferred Stock at $1.50 per share only if the Company receives shareholder approval. As a result, interest expense of approximately $1.5 million will be recognized as of the date of conversion resulting from the beneficial conversion feature included in the Series E Preferred Stock. If the Company does not obtain shareholder approval, these notes will be convertible, at the option of each note holder, into shares of the Company’s Common Stock at $1.65 per share, provided the note holder will not be able to convert its notes into shares of Common Stock to the extent the note holder, together with its affiliates, would own 9.9% or more of the Company’s Common Stock after conversion. If these notes do not convert into Series E Preferred Stock or Common Stock, they become due and payable on the fourth anniversary of their issuance.

      In March 2004, the Company issued $18.5 million in principal amount of 10% Senior Secured Convertible Notes to investment entities affiliated with Crosslink Capital, Criterion Capital Management, Heights Capital Management and Apex Capital. These notes are convertible into approximately 12.3 million shares of Series E Preferred Stock at $1.50 per share only if the Company receives shareholder approval. If the Company does not obtain shareholder approval, these notes will be convertible, at the option of each note holder, into shares of the Company’s Common Stock at $2.18 per share, provided the note holder will not be able to convert its notes into shares of Common Stock to the extent the note holder, together with its affiliates, would own 9.9% or more of the Company’s Common Stock after conversion. As a result, interest expense of approximately $8.4 million will be recognized as of the date of conversion resulting from the beneficial conversion feature included in the Series E Preferred Stock. If these notes do not convert into Series E Preferred Stock or Common Stock, they become due and payable on the fourth anniversary of their issuance.

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      The 10% Senior Secured Convertible Notes become due and payable on the consummation of a qualified asset sale, a change of control or any financing or series of financings that in the aggregate raises at least $40 million. Additionally, the notes become due and payable when declared due and payable by a holder upon the occurrence of an event of default, which include, subject to some exceptions: (1) the Company’s failure to pay any amounts due under notes when they are due and payable, (2) the Company’s default on any indebtedness with a principal amount of at least $500,000, (3) the Company’s voluntary or involuntary bankruptcy, (4) any judgment for the payment of money of more than $500,000, (5) the attachment by its lenders of any of its assets, or (6) the occurrence of any event having a material adverse effect on the Company’s business, operations, assets, properties or condition.

      The 10% senior secured convertible notes also contain a financial covenant that requires the Company to maintain a minimum monthly average operating cash flow, over any given fiscal quarter, for its operations in the Americas of negative $3.0 million. Additionally, the Company may not incur, create or assume indebtedness or liens under the notes, with specified exceptions. Also, with some exceptions, under the notes it may not: (1) merge with another entity, (2) make any restricted payments, including dividends, distributions and the redemption any of its options or capital stock, (3) enter into any transactions with any affiliates, (4) make investments, (5) change the nature of the Company’s business, (6) permit the Company’s domestic subsidiaries to hold real or personal property in excess of specified amounts or (7) create any new subsidiaries.

      If the Company breaches any representation or warranty or fail to abide by any of its covenants, including the foregoing covenants, then the 10% Senior Secured Convertible Notes may become immediately due and payable. If these notes do not convert into Series E Preferred Stock or Common Stock, the principal and related interest will become due and payable on the fourth anniversary of their issuance.

Note 12 — Income Taxes

      The Company did not provide any deferred federal or state income tax benefit for any of the periods presented because it has experienced operating losses since inception. The Company has provided a full valuation allowance on its net deferred tax assets, consisting primarily of net operating loss carryforwards, because of uncertainty regarding its realizability.

      At December 31, 2003, the Company had approximately $337 million of federal and $165 million of state net operating loss carryforwards available to offset future taxable income. Federal and state net operating loss carryforwards expire in varying amounts through 2021 for federal and 2008 for state purposes. Under the Tax Reform Act of 1986, the amounts of and benefits from net operating loss carryforwards may be impaired or limited in certain circumstances. Events which cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50%, as defined, over a three year period. These carryforwards will begin to expire at various times starting in 2013 and 2006 for federal and state tax purposes, respectively.

      Since inception, the Company has incurred several ownership changes which have limited the Company’s ability to utilize loss carryforwards as defined in IRC Section 382. Based on the most current change, the losses are subject to a limitation of $324 million per year. The Company believes the limitation should not have a material effect on the future utilization of the losses.

      At December 31, 2003, the Company also had research and development credit carryforwards of approximately $15.9 million for federal and state purposes. The research and development credit carryforwards expire through 2021 for federal purposes, and do not expire for state purposes.

      Loss before provision for income taxes consists of the following (in thousands):

		2001			2002			2003
Domestic		$	(67,000	)	$	(114,578	)	$	(51,613	)
Foreign			(5,258	)		(2,354	)		(9,664	)
	Total	$	(72,258	)	$	(116,932	)	$	(61,277	)

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      The components of the provision for income taxes are as follows (in thousands):

	December 31,
	2001		2002			2003
Current:
Federal	$	1,600	$	(800	)	$	50
Foreign		5,606		1,779			806
	$	7,206	$	979		$	856

      Deferred tax assets (liabilities) consist of the following (in thousands):

		December 31,
		2002			2003
Deferred tax assets
	Net operating loss carryforwards	$	111,288		$	128,912
	Tax credits		15,918			15,841
	Fixed assets		7,043			4,568
	Intangible assets		—			4,283
	Accrued liabilities		1,762			1,486
Total deferred tax assets		$	136,011		$	155,090
Deferred tax liability
	Intangible assets	$	(3,492	)	$	—
		$	(3,492	)	$	—
Gross deferred tax assets		$	132,518		$	155,090
Valuation allowance		$	(132,518	)	$	(155,090	)
Net deferred tax assets		$	—		$	—

      The net increases in the valuation allowance for 2001, 2002 and 2003 were $9.5 million, $28.7 million and $22.6 million, respectively.

      Reconciliation of the statutory federal income tax rate to the Company’s effective tax rate:

	December 31,
	2001			2002			2003
Tax at federal statutory rate		(34	)%		(34	)%		(34	)%
State, net of federal benefit		(2	)%		(3	)%		(5	)%
Stock-based expenses		17	%		0	%		0	%
Research and development credits		(2	)%		(1	)%		(1	)%
Change in valuation allowance		16	%		26	%		33	%
Foreign taxes		5	%		5	%		7	%
Warrant amortization		9	%		5	%		0	%
Other		1	%		4	%		1	%
Provision for income taxes		9	%		1	%		1	%

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Note 13 — Commitments and Contingencies

Leases

      The Company leases office space and equipment under noncancelable operating and capital leases with various expiration dates through 2014. Rent expense during 2001, 2002 and 2003, totaled $5.4 million, $4.8 million and $5.3 million, respectively. Future minimum lease payments under noncancelable operating and capital leases are as follows:

		Capital			Operating
		Leases			Leases
		(In thousands)
Year Ending December 31
	2004	$	1,055		$	4,805
	2005		660			4,214
	2006		432			4,076
	2007		—			1,366
	2008 and beyond		—			5,134
Total minimum lease payments		$	2,147		$	19,595
Less: Amount representing interest			(59	)
	Present value of capital lease obligations	$	2,088
	Less: Current portion		(1,015	)
	Long-term portion of capital lease obligations	$	1,073

Equipment Lease Lines

      In 1998, the Company entered into three separate financing agreements that provided for the acquisition of up to $6.5 million in equipment and $1.5 million in software and tenant improvements. The first of these agreements provided for acquisitions of up to $2.0 million in equipment through April 30, 1999; the second agreement for acquisitions of up to $3.5 million in equipment and $1.5 million in software and tenant improvements through May 1, 1999; and the third agreement for acquisitions of up to $1.0 million in equipment through March 31, 2001. Amounts financed under these agreements were payable over three-year periods, in monthly installments of principal and interest, with interest accruing at rates between 6.30% and 7.00% per annum. Approximately $1.0 million was collateralized by the related equipment acquired. In connection with two of the agreements, the Company issued warrants to purchase a total of 339,522 shares of Series A Preferred Stock at a purchase price of $0.72 per share. The Company estimated fair value of these warrants at date of issuance of $186,000 was amortized to interest expense over the term of the related lease obligation. The obligation payable by the Company under these financing agreements of $2.4 million at December 31, 2001 was paid in full in January 2002 and the remaining unamortized balance was expensed.

      In connection with the Company’s acquisition of Critical Path Pacific in June 2002, the Company assumed a capital lease with a termination date of August 2006. The capital lease obligation totaled $1.9 million and $1.6 million at December 31, 2002 and 2003, respectively.

Other Contractual Obligations

      The Company entered into other contractual obligations which total $10.3 million at December 31, 2003. These obligations are primarily associated with the future purchase of equipment and software, the maintenance of hardware and software products being utilized within engineering and hosted operations, and the management of data center operations and network infrastructure storage for the Company’s hosted operations. These obligations are expected to be completed over the next 4 years, including $7.7 million in 2004.

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Service Level Agreements

      Net revenues are derived from contractual relationships that typically have one to three year terms. Certain agreements require minimum performance standards regarding the availability and response time of email services. If these standards are not met, such contracts are subject to termination and the Company could be subject to monetary penalties.

Litigation and Investigations

      The Company is a party to lawsuits in the normal course of its business. Litigation in general, and securities and intellectual property litigation in particular, can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. Other than as described below, the Company is not a party to any other material legal proceedings.

      Action in the Superior Court of San Diego. On December 24, 2003, the Company was named in a lawsuit filed by former shareholders of Remedy Corporation against current and former officers and directors of Peregrine Systems, Inc., Peregrine’s former accountants, some of Peregrine’s customers, including the Company, and various other unnamed defendants. The complaint alleges that the Company, as Peregrine’s customer, engaged in a series of fraudulent transactions with Peregrine that were not accounted for by Peregrine in conformity with GAAP and that this substantially inflated the value of Peregrine securities issued as consideration in Remedy’s merger with Peregrine in August 2001. The complaint alleges causes of action for fraud and deceit, negligent misrepresentation, violations of California Corporations Code provisions regarding sales of securities by means of false statements or omissions, violations of California Corporations Code provisions regarding securities sales made on the basis of undisclosed, material inside information, common law conspiracy to commit fraud, and common law aiding and abetting the commission of fraud. The complaint seeks an unspecified amount of compensatory and punitive damages, along with rescission of the Peregrine securities purchased in the Remedy merger, interest and attorneys fees. The Company believes the claims are without merit and intends to defend itself vigorously. On February 23, 2004, the Company filed a demurrer and a motion to strike the complaint, both of which are currently scheduled to be heard on April 9, 2004. Because the litigation is at an early stage, the outcome cannot be predicted with any certainty.

      Securities Action in Northern District of California. On April 30, 2002, MBCP PeerLogic LLC and other named plaintiffs filed suit in the U.S. District Court for the Southern District of New York against the Company and certain of the Company’s former officers. The plaintiff shareholders had opted out of a shareholder litigation settlement that was approved by the U.S. District Court for the Northern District of California. On November 25, 2003, the Company entered into settlement of these claims, approved by the United States District Court for the Northern District of California, pursuant to which the Company agreed to issue 553,914 shares of Common Stock and 188,587 shares of Series D Preferred Stock in exchange for a release of plaintiffs’ claims, and recorded a charge of $5.1 million related to the value of these issuances as stock-based expense – general and administrative in the fourth quarter of 2003. The Company also agreed to exchange 69,149 shares of Series D Preferred Stock for 733,333 shares of Series E Preferred Stock if the Company obtains shareholder approval of the matters being submitted to a vote of the Company’s shareholders at a special meeting. The plaintiffs’ claims against the Company were voluntarily dismissed with prejudice, and without costs or attorneys’ fees to any party. The Company’s counterclaims against plaintiffs were also dismissed with prejudice, and without costs or attorneys’ fees to any party.

      Derivative Actions in Northern District of California. Beginning on February 5, 2001, Critical Path was named as a nominal defendant in a number of derivative actions, purportedly brought on the Company’s behalf, filed in the Superior Court of the State of California and in the U.S. District Court for the Northern District of California. The derivative complaints alleged that certain of the Company’s former officers and directors breached their fiduciary duties, engaged in abuses of control, were unjustly enriched by sales of the Company’s Common Stock, engaged in insider trading in violation of California law or published false financial information in violation of California law. This case was fully and finally settled in December 2003 and approved by the Court. The settlement involved a monetary recovery by the Company of $330,000.

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      Securities Class Action in Southern District of New York. Beginning on July 18, 2001, a number of securities class action complaints were filed against the Company, and certain of the Company’s former officers and directors and underwriters connected with the Company’s initial public offering of Common Stock in the U.S. District Court for the Southern District of New York (In re Initial Public Offering Sec. Litig.). The purported class action complaints were filed by individuals who allege that they purchased the Company’s Common Stock at the initial and secondary public offerings between March 29, 1999 and December 6, 2000. The complaints allege generally that the prospectus under which such securities were sold contained false and misleading statements with respect to discounts and excess commissions received by the underwriters as well as allegations of “laddering” whereby underwriters required their customers to purchase additional shares in the aftermarket in exchange for an allocation of IPO shares. The complaints seek an unspecified amount in damages on behalf of persons who purchased the Company’s stock during the specified period. Similar complaints have been filed against 55 underwriters and more than 300 other companies and other individuals. The over 1,000 complaints have been consolidated into a single action. The Company has reached an agreement in principle with the plaintiffs to resolve the cases. The proposed settlement involves no monetary payment by the Company and no admission of liability. However, it is subject to approval by the Court, which has not yet occurred.

      Securities and Exchange Commission Investigation. In 2001, the Securities and Exchange Commission (“the SEC”) investigated the Company and certain of the Company’s former officers, employees and directors with respect to non-specified accounting matters, financial reports, other public disclosures and trading activity in the Company’s securities. The SEC concluded its investigation of the Company in January 2002 and, without admitting or denying liability, the Company consented to a cease and desist order and an administrative order as to violation of certain non-fraud provisions of the federal securities laws. The investigation has also thus far resulted in charges being filed against five former officers and employees. The Company believes that the investigation of the Company’s former officers and employees may continue. While the Company continues to fully cooperate with any requests with respect to such investigation, the Company does not know the status of such investigation.

      Lease Dispute. In July 2000, PeerLogic, Inc. signed a lease for office space in San Francisco, California. In December 2000, Critical Path acquired PeerLogic as a wholly owned subsidiary. After review, the Company determined that local zoning laws likely prohibited a business such as the Company or PeerLogic from occupying the leased premises, and promptly sought a zoning determination from the San Francisco Zoning Administrator to resolve the matter. The Zoning Administrator determined that the Company’s proposed use of the leased premises was not permitted, but the landlord appealed this determination and prevailed before the San Francisco Board of Appeals. In July 2002, the Company filed a Petition for Writ of Mandamus with the San Francisco Superior Court, seeking reversal of the San Francisco Board of Appeals’ decision. In June 2003, the Court granted the Company’s petition and subsequently entered a judgment and writ remanding the matter to the San Francisco Board of Appeals and directing the Board of Appeals to make a new determination consistent with its judgment. The landlord subsequently appealed the Superior Court’s ruling.

      In April 2002, the landlord filed suit in San Francisco Superior Court against the Company alleging, among other things, breach of the lease and tort claims related to the lease transaction. In its complaint, the landlord sought unspecified damages for back rent, attorneys’ fees, treble damages under certain statutes, and unspecified punitive damages. In August 2003, the Company filed the Company’s answer to the second amended complaint and a cross-complaint against the landlord, under which the Company seek compensatory damages and unspecified punitive damages for the landlord’s failure to disclose the zoning restrictions on the leased premises before the lease was signed. In early February 2004, the Company reached an agreement in principle with the landlord to fully and finally settle this litigation as well as the zoning dispute described above in exchange for $100,000 in cash and a warrant to purchase 100,000 shares of the Company’s Common Stock at a purchase price equal to current fair market value as of the date of settlement. However, a final written settlement agreement has not yet been executed. At December 31, 2003, the Company had accrued sufficient amounts to cover the cost of the proposed settlement.

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      Change of Control Severance Agreements. The Company has entered into change of control severance agreements with certain of its key employees. These agreements provide that so long as the employee signs and does not revoke a standard release of claims with the Company, the employee is entitled to certain severance payments if the employee is involuntarily terminated (as defined in the agreement) within twenty-four months following a change of control (as defined in the agreement) of the Company or within three months on or before a change of control. Assuming the conditions under the agreements that trigger payment obligations are met, the aggregate payment under these agreements is currently estimated to be between $3.5 million and $5.0 million.

      Indemnifications. The Company provides general indemnification provisions in its license agreements. In these agreements, the Company generally states that it will defend or settle, at its own expense, any claim against the customer by a third party asserting a patent, copyright, trademark, trade secret or proprietary right violation related to any products that the Company has licensed to the customer. The Company agrees to indemnify its customers against any loss, expense or liability, including reasonable attorney’s fees, from any damages alleged against the customer by a third party in its course of using products sold by the Company. The Company has not received any claims under this indemnification and does not know of any instances in which such a claim may be brought against the Company in the future.

      Under California law, in connection with the Company’s charter documents and indemnification agreements the Company entered into with its executive officers and directors, the Company must indemnify its current and former officers and directors to the fullest extent permitted by law. The indemnification covers any expenses and liabilities reasonably incurred in connection with the investigation, defense, settlement or appeal of legal proceedings. The Company has made payments in connection with the indemnification of officers and directors in connection with currently pending lawsuits and has reserved for any applicable amounts required in connection with legal expenses and others costs of defense of pending lawsuits.

Note 14 — Minority Interest in Subsidiary

      In connection with the Company’s acquisition of Isocor Corporation in January 2000, it acquired a 72.87% interest in CP Italia. In March 2001, the Company acquired the remaining outstanding 27.13% interest in CP Italia for approximately $4.2 million. Until March 2001, when CP Italia became a wholly-owned subsidiary of the Company, the Company consolidated the operating results of CP Italia and recorded minority interest in net income, which was insignificant in 2001.

Note 15 — Financing Transactions and Preferred Stock

      The carrying value of the Series D Preferred Stock at December 31 was determined as follows:

		2002			2003
		(In thousands)
Series D Preferred Stock — 2001 Transaction		$	55,000		$	55,000
Series D Preferred Stock — MBCP Peerlogic			—			3,755
Less: Issuance costs			(3,075	)		(3,075	)
Series D Preferred Stock, net of issuance costs			51,925			55,680
Less amounts allocated to:
	Common stock warrants		(5,250	)		(5,250	)
	Beneficial conversion feature		(41,475	)		(41,475	)
Add liquidation preference			7,440			19,640
Add amortization and accretion			14,260			26,706
Carrying value of Series D Preferred Stock and embedded change-in-control feature at December 31		$	26,900		$	55,301

      The accretion on redeemable convertible preferred stock totaled $356,000, $13.9 million and $12.4 million during 2001, 2002 and 2003, respectively. During 2001, the accretion was comprised of $121,000 in

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accrued dividends and accretion of $235,000. During 2002, the accretion on redeemable convertible preferred shares was comprised of $4.4 million in accrued dividends and accretion of $9.5 million. During 2003, the accretion on redeemable convertible preferred shares was comprised of $4.9 million in accrued dividends and accretion of $7.5 million.

Series D Preferred Stock

      In December 2001, the Company completed a financing transaction with a group of investors and their affiliated entities. In connection with this financing transaction, the Company issued 4 million shares of its Series D Cumulative Redeemable Convertible Participating Preferred Stock (“Series D Preferred Stock”), in a private offering, resulting in gross cash proceeds of approximately $30 million, and the simultaneous retirement of approximately $65 million in face value of the Company’s outstanding convertible subordinated notes. The investors were led by General Atlantic Partners LLC and affiliates and included Hutchison Whampoa Limited and affiliates and Vectis Group LLC and affiliates. In addition, General Atlantic LLC was granted warrants to purchase 625,000 shares of the Company’s Common Stock in connection with this offering.

      The Series D Preferred Stock issued in the financing transaction ranks senior to all of the Company’s Preferred and Common Stock in priority of dividends, rights of redemption and payment upon liquidation. The fair value ascribed to the preferred stock was based on actual cash paid by independent investors and the approximate fair value of the 5 3/4% Notes retired in connection with the offering. The principal terms of the preferred stock include an automatic redemption on November 8, 2006, cumulative dividends at a rate of 8% per year, compounded on a semi-annual basis and payable in cash or additional shares of Series D Preferred Stock, conversion into shares of Common Stock calculated based on the Accreted Value — that is, the purchase price plus accrued dividends — divided by $4.20, and preference in the return of equity in any liquidation or change of control.

      The Company received net cash proceeds associated with the issuance of the Series D Preferred Stock of approximately $27 million, which was net of a $2.75 million transaction fee paid to Vectis Group LLC and approximately $200,000 in related legal and accounting fees. At issuance, the total amount of these costs was recorded as a reduction of the carrying amount of the Series D Preferred Stock and will accrete over the term of the Series D Preferred Stock. Additionally, at issuance, the Series D Preferred Stock was deemed to have an embedded beneficial conversion feature which was limited to the net proceeds allocable to preferred stock of approximately $42 million. The value of the beneficial conversion feature, at issuance, was initially recorded as a reduction of the carrying amount of the Series D Preferred Stock and will accrete over the term of the Series D Preferred Stock.

      The purchase agreement provides for a preferential return of equity to the Series D Preferred Stockholders, before any return of equity to the common shareholders, and also provides for the Series D Preferred Stockholders to participate on a pro rata basis with the common shareholders, in any remaining equity, once the preferential return has been satisfied. Under the terms of this provision, the preferential return of equity is equal to the purchase price of the Series D Preferred Stock plus all dividends that would have accrued during the term of the preferred stock, even if a change in control occurs prior to the redemption date. The right to receive a preferential return lapses if either: (i) Critical Path is sold for a price per share of Series D Preferred Stock, had each such share been converted into Common Stock prior to change in control of at least four times the Accreted Value, or (ii) Critical Path’s stock trades on NASDAQ for 60 days prior to the change-in-control at an average price of not less than four times the Accreted Value. As part of the Company’s November 2003 private placement of 10% Senior Secured Convertible Notes, the Company agreed to seek shareholder approval to amend the terms of the Series D Preferred Stock to, among other things, amend the Series D Preferred Stock liquidation preference upon a liquidation and change of control, to eliminate the participation feature, to reduce the conversion price from $4.20 to $1.50 and to reduce the amount of dividends to which the holders of Series D Preferred Stock are entitled.

      At December 31, 2001, 2002 and 2003, the estimated fair value of the liquidation preference was $5.2 million, $12.6 million and $24.8 million, respectively, and was allocated to that feature and recorded as a

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separate component of the Series D Preferred Stock. In accordance with the provisions of SFAS No. 133, Accounting for Derivative Instruments, the Company is required to adjust the carrying value of the preference to its fair value at each balance sheet date and recognize any change since the prior balance sheet date as a component of operating income. Net charges to other expense during 2002 and 2003 of $7.4 million and $12.2 million, respectively, were recognized as a result of the increase in value of the liquidation preference.

      The warrants are exercisable at any time after November 8, 2002 until November 8, 2006 at an exercise price of $4.20, and convert into one share of the Company’s Common Stock. A portion of the proceeds received for the Series D Preferred Stock was allocated to the warrants and the preferred stock, based upon their relative fair market values. As a result of this allocation, approximately $5.25 million of the proceeds were allocated to the warrants, which was recorded as a reduction of the carrying value of the Series D Preferred Stock. Using the Black-Scholes option pricing model, assuming a four-year term, 200% volatility, a risk-free rate of 6.0% and no dividend yield, the fair market value of the warrants was $6.2 million. As part of the Company’s November 2003 private placement of 10% Senior Secured Convertible Notes, the Company agreed to seek shareholder approval to amend the warrants to reduce the exercise price per share from $4.20 to $1.50.

Accretion on redeemable convertible preferred shares and valuation of liquidation preference

      In connection with the financing transaction completed during December 2001, the Company received gross cash proceeds of approximately $30 million and retired approximately $65 million in face value of the Company’s outstanding convertible subordinated notes in exchange for shares of the Company’s Series D Preferred Stock.

      During 2001, 2002 and 2003, the accretion on preferred stock totaled $356,000, $13.9 million and $12.4 million, respectively. The accretion during 2001 was comprised of $121,000 in accrued dividends and accretion of $235,000. During 2002 the accretion on preferred stock was comprised of $4.4 million in accrued dividends and accretion of $9.5 million. During 2003 the accretion on preferred stock was comprised of $4.9 million in accrued dividends and accretion of $7.5 million.

MBCP Peerlogic

      In November 2003, the Company issued 188,587 shares of Series D Preferred Stock to MBCP Peerlogic (“MBCP Shares”) related to the settlement of certain litigation, resulting in a charge of $3.8 million. See also Note 13 – Commitments and Contingencies. These shares have all of the same rights and preferences as the Series D Preferred Stock issued to the 2001 Investors. Additionally, 69,149 of these shares are automatically convertible into Series E preferred stock to the extent such preferred stock is issued in the future (refer to 2003 Transaction below). Upon conversion of the Series D preferred stock issued to MBCP PeerLogic, LLC and its affiliates into Series E preferred stock, a charge will be recorded equal to the fair value of the Series E preferred stock less the carrying value of the Series D preferred stock will be recorded, as of the date of the exchange, to arrive at net loss attributable to common shareholders.

2003 Financing Transaction

      On November 18, 2003, the Company issued $10 million in principal amount 10% Senior Secured Convertible Notes to the General Atlantic Investors. These notes, plus $1 million in accrued interest, will convert, subject to shareholder approval, into approximately 7.3 million shares of its Series E Preferred Stock.

      In the same transaction, the Company agreed to exchange approximately $32.8 million in face value of its 5 3/4% Notes held by the Cheung Kong Investors for approximately 21.9 million shares of its Series E convertible Preferred Stock. The Series E Preferred Stock will be issued to these investors only if Critical Path receives shareholder approval.

      In November 2003, the Company announced its intention to make a rights offering to public shareholders of record to purchase up to approximately $21 million of newly issued Series E Preferred Stock at a purchase price of $1.50 per share. Existing holders of its Common Stock, as of the date of record, will have the right to

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purchase approximately two shares of the new Series E Preferred Stock for every three shares of Common Stock they own as of the record date. The Company intends to initiate this offering during the second quarter of 2004. Upon shareholder approval, the issuance of Series E Preferred Stock pursuant to the proposed rights offering will result in a beneficial conversion feature if the fair value of the Common Stock into which the Series E Preferred Stock is convertible upon issuance is greater than $1.50 per share. The amount of the beneficial conversion feature is recorded in additional paid-in capital and reduces the carrying value of the Series E Preferred Stock. The Series E Preferred Stock carrying value will be increased for the beneficial conversion feature amount through a charge to arrive at net loss attributable to common shareholders over a four year period from the date of issuance using the effective interest method.

      The Series E Preferred Stock will rank senior in preference to all existing equity shares of the Company. These preferred shares will accrue dividends at an annual rate of 5 3/4% of the purchase price of $1.50 per share. See Note 11 — Convertible Notes.

      In addition, the Company announced that upon shareholder approval, it will amend the terms of the Series D Preferred Stock, discussed in Series D Preferred Stock above. As a result of these amendments the Company will record a charge, as of the date of the amendment, equal to the incremental fair value of the amended Series D Preferred Stock resulting from the modifications to the terms of the Series D Preferred Stock to arrive at net loss attributable to common shareholders with the offset to the Series D Preferred Stock carrying value.

2004 Financing Transactions

      In January 2004, the Company signed definitive agreements for the sale of an additional $15 million in 10% Senior Secured Convertible Notes to a group of investors, including Apex Capital, LLC and Passport Capital, LLC. Investment entities affiliated with Apex Capital, LLC have invested $11.25 million and an entity affiliated with Passport Capital, LLC has invested $3.75 million. These notes will, subject to shareholder approval, immediately convert into approximately 10 million shares of newly issued Series E preferred shares. See Note 11 – Convertible Notes.

      In March 2004, the Company issued an additional $18.5 million in principal amount of 10% senior secured convertible notes to investment entities affiliated with Crosslink Capital, Criterion Capital Management, Heights Capital Management and Apex Capital. These notes will, subject to shareholder approval, immediately convert into approximately 12.3 million shares of newly issued Series E convertible preferred stock. See Note 11 — Convertible Notes.

Note 16 — Shareholders’ Equity (Deficit)

      Changes in shares of Common Stock outstanding were:

			Year Ended December 31,
			2001			2002		2003
			(In thousands)
Common Stock Shares outstanding, beginning of year				18,534			19,145		20,032
	Issuance of Common Stock			128			296		666
	Exercise of stock options and warrants			492			591		380
	Purchase of Common Stock			(9	)		—		—
		Shares outstanding, end of year		19,145			20,032		21,078

Incorporation and Authorized Capital

      The Company’s Articles of Incorporation, as amended, authorize the Company to issue 125 million shares of Common Stock at $0.001 par value, and 5 million shares of Preferred Stock, at $0.001 par value. The holders of Preferred Stock have various voting and dividend rights as well as preferences in the event of liquidation.

138

Stock Purchase Rights

      In February 1998, the Company entered into stock purchase agreements with three founders and sold 965,908 shares of the Company’s Common Stock at $0.08 per share. Under the terms of the stock purchase agreements, the Company had the right to purchase the shares of Common Stock at the original issue price in the event any one of the founders ceased to be an employee of the Company. These repurchase rights lapsed by 25% on the first anniversary of the vesting start date and ratably each month thereafter for 36 months. On September 1, 1999, 20,127 shares were repurchased in connection with the early termination of one of the founders. In connection with the issuance of these shares, the Company recorded unearned compensation of $1,306,000 that was being recognized over the periods in which the Company’s repurchase rights lapse. During 2001, $106,000 was recognized as compensation expense and the original unearned compensation amount was fully amortized as of March 31, 2001.

      In October 1998, an officer exercised stock options to purchase 318,671 shares of the Company’s Common Stock at a price of $3.36 per share. Under the terms of the option, the Company had the right to repurchase the unvested shares of Common Stock at the original issue price in the event the officer ceased to be an employee of the Company. The repurchase rights lapsed ratably each month for 48 months. In connection with the option grant preceding this transaction, the Company recognized unearned compensation totaling $3.8 million that is included in the aggregate unearned compensation charges discussed below. In February 2001, this officer’s employment was terminated and the unvested portion of these stock options was accelerated, and resulted in a $732,000 charge to stock-based expenses in the first quarter of 2001. At December 31, 2001, 2002 and 2003, no shares of Common Stock were subject to repurchase rights.

Employee Stock Purchase Plan

      During 1999, the Board of Directors adopted and the shareholders approved the 1999 Employee Stock Purchase Plan (“ESPP”). The Company authorized 150,000 shares for issuance at inception. The number of shares of Common Stock reserved under the ESPP increases annually on January 1 of each year beginning in 2000 by an amount equal to 1% of the Company’s issued and outstanding Common Stock. However, such increases are limited to 250,000 additional shares each year. Employees generally will be eligible to participate in the ESPP if the Company customarily employs them for more than 20 hours per week and more than five months in a calendar year and they are not 5% or greater shareholders. Under the ESPP, eligible employees may select a rate of payroll deduction up to 15% of their compensation subject to certain maximum purchase limitations per period and other statutory limitations. The ESPP was implemented in a series of overlapping twenty-four month offering periods beginning on the effective date of the Company’s initial public offering with subsequent offering periods beginning on the first trading day on or after May 1 and November 1 of each year. Purchases will occur on each April 30 and October 31 (the “Purchase Dates”) during each participation period. Under the ESPP, eligible employees have the opportunity to purchase shares of Common Stock at a purchase price equal to 85% of the fair market value per share of Common Stock on either the start date of the offering period or the Purchase Date of the related purchase period, whichever is less. Stock purchases under the ESPP in 2001, 2002 and 2003 were 122,274, 295,748 and 113,106 shares, respectively, at a price of $5.12 and $3.12 per share in 2001, $3.12 and $1.56 per share in 2002, and $3.40 and $3.21 per share in 2003. As of December 31, 2003, 274,539 shares were available under the ESPP for future issuance.

      The estimated weighted-average value of purchase rights granted under the ESPP during 2001, 2002 and 2003 was $2.24, $1.52 and $0.46 per share. The fair value of each stock purchase right granted under the ESPP is estimated using the Black-Scholes option valuation method, with the following weighted-average assumptions:

	2003			2002			2001
Expected life of option		6  months			6  months			6  months
Risk-free interest rate		1.6	%		2.60	%		3.01	%
Dividend yield		0.00	%		0.00	%		0.00	%
Volatility		138	%		250	%		128	%

139

      The aggregate fair value of purchase rights granted in 2003, 2002 and 2001 was approximately $52,000, $446,000 and $928,000, respectively.

Stock Options

      During 1998 and 1999, the Company’s Board of Directors adopted the 1998 Stock Option Plan and the 1999 Nonstatutory Stock Option Plan, respectively (together, the “Option Plans” and each a “Plan”). The 1998 Plan provides for the granting of options to purchase up to 10,197,185 shares of common stock to employees, officers, directors and consultants, with an increase annually on January 1 of each year by an amount equal to 2% of the total number of shares of the Company’s Common Stock authorized for issuance at the end of the most recently concluded fiscal year, and the 1999 Plan provides for the granting of up to 7,062,500 shares of common stock to non-executive officer employees or the initial employment grant for executive officers. In November 2001, the Board approved an increase of 2,812,500 to the number of option shares reserved for grant to non-executive officer employees under the 1999 Plan. The 1998 Plan is a shareholder approved plan and allows for options to be granted as either incentive stock options (“ISOs”) or nonqualified stock options (“NSOs”). Options granted under the 1999 Plan may only be nonqualified stock options (“NSOs”). ISOs may be granted only to Company employees, including officers and employee directors. NSOs may be granted to Company employees, non-employee directors and consultants. At December 31, 2003 the total number of shares of common stock available for option grants was 4,309,977 and 1,822,553 under the 1998 Plan and the 1999 Plan, respectively.

      The Company has, in connection with the acquisition of various companies, assumed the stock option plans of each acquired company. At December 31, 2002 and 2003, a total of 97,045 shares and 80,542 shares, respectively, of the Company’s Common Stock were reserved for issuance upon exercise of outstanding options issued under the assumed plans, and the related options are included in the table below.

      Options under the 1998 Plan may be granted at prices no less than 85% of the estimated fair market value of the shares on the date of grant as determined by the Board of Directors, provided, however, that (i) the exercise price of an ISO may not be less than 100% of the fair market value of the shares on the date of grant, and (ii) the exercise price of an ISO granted to a 10% shareholder may not be less than 110% of the fair market value of the shares on the date of grant. Option grants under the Company’s Option Plans generally vest 25% per year and are generally exercisable for a maximum period of ten years from the date of grant.

140

      Changes in stock options outstanding, granted, exercisable, canceled and available, during 2001, 2002 and 2003 under the option plans are identified below. The Company only grants new options from the 1998 Plan and 1999 Plan, accordingly the Options or Awards Available under the 1998 and 1999 Plans information provided below includes only stock option information related to these plans and no information related to any of the other acquired or assumed stock option plans (options in thousands).

			Options or Awards			Outstanding Option Grants
			Available
			Under the 1998			Number of			Weighted Average
			And 1999 Plans			Shares			Exercise Price
Outstanding December 31, 2000				3,728			5,379		$	170.56
	Additional shares reserved			6,812
		Granted and assumed		(10,567	)		10,567		$	3.96
		Exercised					(494	)	$	4.32
		Canceled		5,145			(5,381	)	$	111.36
Outstanding December 31, 2001				5,118			10,071		$	35.56
	Additional shares reserved			2,500
		Granted and assumed		(5,220	)		5,220		$	5.28
		Exercised					(595	)	$	4.88
		Canceled		1,881			(1,903	)	$	39.92
Outstanding December 31, 2002				4,279			12,793		$	23.96
	Additional shares reserved			2,500
		Granted and assumed		(3,441	)		3,441		$	2.99
		Exercised					(380	)	$	2.36
		Canceled		2,795			(2,833	)	$	32.72
Outstanding December 31, 2003				6,133			13,021		$	17.07
Outstanding Options Exercisable:
	December 31, 2001						1,990		$	74.68
	December 31, 2002						5,862		$	35.24
	December 31, 2003						6,896		$	27.01

      The following table summarizes information about stock options outstanding at December 31, 2003 (options in thousands):

		Options Outstanding
								Options Exercisable
				Weighted
				Average		Weighted				Weighted
Range of		Number		Remaining		Average		Number		Average
Exercise Prices		Outstanding		Contractual Life		Exercise Price		Exercisable		Exercise Price
$	0.00- $   1.60		1,547		7.56		1.46		1,341		1.45
$	1.72- $   2.36		1,504		8.54		2.09		641		2.19
$	2.39- $   2.88		899		9.66		2.56		53		2.83
$	2.92- $   3.12		1,877		9.31		3.12		313		3.12
$	3.15- $   3.52		1,517		8.74		3.46		443		3.49
$	3.56- $   4.36		1,400		7.25		4.00		1,169		4.04
$	4.40- $   6.32		1,563		7.89		4.85		1,121		4.78
$	6.52- $ 10.24		1,702		8.16		8.68		935		8.86
$	10.28-$342.80		1,012		6.58		172.61		880		183.89
			13,021		8.22	$	17.07		6,896	$	27.01

141

Preferred Stock Rights Agreement

      On March 19, 2001 pursuant to a Preferred Stock Rights Agreement (the “Rights Agreement”) between the Company and Computershare Trust Company, Inc., as Rights Agent (the “Rights Agent”), the Company’s Board of Directors (i) declared a dividend of one right (a “Right”) to purchase one one-thousandth share of the Company’s Series C Participating Preferred Stock (“Series C Preferred”) for each outstanding share of Common Stock, par value $0.001 per share (“Common Shares”), of the Company, and (ii) authorized the issuance to each holder of Exchangeable Shares (as defined below) of one Right for each exchangeable Share held. An “Exchangeable Share” is a share of Class A Non-Voting Preferred Shares of Critical Path Messaging Co., an unlimited liability company existing under the laws of the Province of Nova Scotia and a wholly-owned subsidiary of the Company. Each Exchangeable Share is exchangeable for one Common Share. The Rights were issued on May 15, 2001 (the “Record Date”), to shareholders of record as of the close of business on that date. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series C Preferred at an exercise price of $25.00 (the “Purchase Price”), subject to adjustment.

      The Rights will become exercisable following the tenth day after a person or group announces the acquisition of 15% or more of the Company’s common stock or announces commencement of a tender or exchange offer, the consummation of which would result in ownership by the person or group of 15% or more of the common stock of the Company. The Company will be entitled to redeem the Rights at $0.01 per Right at any time on or before the fifth day following acquisition by a person or group of 15% or more of the Company’s common stock. The Rights will expire on the earlier of May 15, 2011 or exchange or redemption of the Rights.

Unearned stock-based compensation

      In connection with certain stock option grants and Common Stock issuances to employees, directors and advisors during 1998 and 1999, the Company recognized unearned compensation totaling $19.9 million and $22.3 million, respectively, which is being amortized over the vesting periods of the related options. In March 2001, the Company granted employee stock options with exercise prices below market value on the date of grant in connection with a program designed to provide incentives for current employees of the Company to continue their employment. The Company issued stock options representing an aggregate of 12.9 million shares, vesting monthly over a 2-year period, and recognized unearned compensation related to the program totaling $21.4 million, which were subsequently reduced as a result of employee terminations throughout 2001 and 2002. Amortization expense recognized during 2001, 2002 and 2003 totaled approximately $38.2 million, $10.0 million and $59,000, respectively. Based on the functions of the employees and consultants participating in the related option grants, during 2001, 2002 and 2003, expenses of $4.1 million, $1.2 million and $17,000, respectively, were allocated to cost of net revenues and the remaining expenses were allocated to operating expenses. The Company periodically assesses unearned compensation and adjusts the remaining unamortized balance for employee terminations and resignations.

      In February 2002, the Court gave preliminary approval to the settlement of the principal class action litigation. In June 2002, the Court entered its final approval of the settlement. In connection with the settlement, the Company agreed to issue warrants to purchase up to 850,000 shares of the Company’s common stock at $10.00 per share, and recorded a charge of $697,000 to operating expense related to the fair value of these warrants. The Company is currently finalizing the terms of the settlement of the derivative litigation associated with the same period.

      During 2001, 2002 and 2003, the Company incurred stock-based charges of approximately $1.7 million, $17,000 and $181,000, respectively, in connection with certain severance agreements for terminated employees and consulting arrangements. These charges were included in operating expenses based on the functions of the related employees and consultants.

142

Note 17 — Impairment of Long-Lived Assets

      In April 2001, the Company announced a restructuring plan that involved reorganizing its product and service offerings, including eliminating various product and service lines associated with the following acquisitions: dotOne, Fabrik (Connect Service), FaxNet, and Netmosphere. As a result of the restructuring, the Company abandoned all of the technology associated with the products and services and all employees originally acquired from dotOne, Fabrik, FaxNet and Netmosphere were terminated. As a result, the Company determined that an impairment analysis was required during the second quarter of 2001.

      The Company believed that the termination of the product and service lines indicated that the carrying amount of long-lived assets may not be recoverable and therefore an impairment review was required under SFAS No. 121. When it was determined the carrying value of intangible assets may not be recoverable, the Company measured for impairment based on a projected discounted cash flow method using a discount rate commensurate with the risk inherent in the current business model. As no future revenues were to be recognized from the product and service lines that were eliminated, which represented separate asset groupings under SFAS No. 121, all of the remaining intangible assets associated with the product and service lines were written off in their entirety. As a result of its assessment, the Company recorded a $14.2 million impairment charge in the second quarter of 2001.

      In the fourth quarter of 2001, as a result of the Company’s consolidation of its facilities and asset base related to its previous restructurings, the Company performed an assessment of its property and equipment balances that related to its existing hosted messaging business line. As a result of this assessment, the Company specifically identified assets that it determined were not going to be utilized in the ongoing business and took an impairment charge related to these assets. As a result of this assessment, the Company recorded an additional impairment charge of $12.4 million in the fourth quarter of 2001.

      The following table summarizes the classification of the impairment-related charges recorded for each major asset category for the year ended December 31, 2001 (in thousands):

Asset category		2001
Existing Technology		$	4,207
Property and Equipment			12,447
	Charged to cost of net revenues		16,654
Customer Base			8,703
Workforce			1,288
	Charged to operating expense		9,991
	Total impairment charge	$	26,645

      The Company classified the impairment of existing technology and property and equipment to cost of net revenues, and the impairment of other intangible assets as other operating expense. The impairment charges were allocated to these classifications to conform to the classifications of the amortization charges associated with these assets. The amortization and impairment charges relating to existing technology and the impaired property and equipment were charged to cost of net revenues as the Company believes these were the only costs that were directly related to the generation of its revenues.

Note 18 — Defined Contribution Plan

      The Company maintains a defined contribution plan, the Critical Path 401(k) Plan, under which its employees are eligible to participate. Participants may make voluntary contributions based on a percentage of their compensation, within certain limitations. Under the plan, discretionary contributions may be made by the Company. Participants are fully vested in the Company’s contributions after a specified number of years of service, as defined under the plan. No contributions have been made by the Company since its inception.

143

Note 19 — Loss Per Share Attributed to Common Shares

      Net loss per share is calculated as follows:

		Year Ended December 31,
		2001			2002			2003
		(In thousands, except per share amounts)
Net loss attributed to common shares
	Net loss	$	(79,464	)	$	(117,911	)	$	(62,133	)
	Accretion on mandatorily redeemable preferred stock		(356	)		(13,904	)		(12,446	)
	Net loss attributable to common shares	$	(79,820	)	$	(131,815	)	$	(74,579	)
Weighted average shares outstanding
	Weighted average shares outstanding		18,787			19,664			20,239
	Weighted average shares subject to repurchase agreements		(47	)		(133	)		(133	)
	Weighted average shares held in escrow related to acquisitions		(245	)		(86	)		(86	)
	Shares used in computation of basic and diluted net loss per share		18,495			19,445			20,020
Basic and diluted net loss per share attributed to common shares
	Net loss attributable to common shares	$	(4.32	)	$	(6.78	)	$	(3.73	)

      At December 31, 2001, 2002 and 2003, there were 22,301,530, 29,107,283 and 32,514,782, respectively, potential common shares that were excluded from the determination of diluted net loss per share, as the effect of such shares on a weighted average basis is anti-dilutive.

Note 20 — Product and Geographic Information

      Revenue information on a product basis is as follows:

			Year Ended December 31,
			2001		2002		2003
			(In thousands)
Net revenues
	Software license
		Messaging solutions	$	11,822	$	16,663	$	6,932
		Identity management solutions		9,822		15,944		10,102
		Other		9,316		2,569		5,070
	Service
		Hosted messaging		37,467		24,893		19,444
		Fax messaging(1)		6,354		—		—
		Maintenance and support		16,819		15,471		18,434
		Professional services		12,573		11,593		12,315
			$	104,173	$	87,133	$	72,297

(1)  Fax messaging was discontinued in connection with the 2001 restructuring. See also Note 4 — Strategic Restructuring and Employee Severance.

144

      Information regarding revenues by location of invoicing and long-lived assets attributable to the Company’s primary geographic regions are as follows:

		Year Ended December 31,
		2001		2002		2003
		(In thousands)
Net revenues
	United States	$	62,928	$	40,461	$	27,114
	Italy		14,205		15,458		17,284
	Ireland		14,564		13,104		7,031
	Other		12,476		18,110		20,868
		$	104,173	$	87,133	$	72,297

		December 31,
		2001		2002		2003
Long-lived assets
	United States	$	77,248	$	17,366	$	14,821
	Other		5,695		776		—
		$	82,943	$	18,142	$	14,821

Note 21 — Quarterly Financial Data (Unaudited)

Quarterly Results of Operations (In thousands)

2002	First			Second(1)			Third			Fourth(1)
Net revenues	$	23,689		$	22,442		$	19,168		$	21,834
Gross profit		5,992			4,847			1,656			4,216
Loss from operations		(26,027	)		(29,876	)		(26,965	)		(22,526	)
Net loss		(26,011	)		(35,567	)		(26,012	)		(30,321	)
Net loss attributable to common shares		(29,217	)		(38,828	)		(29,612	)		(34,158	)
Net loss per share attributable to common shares — basic and diluted		(1.53	)		(2.00	)		(1.51	)		(1.74	)

2003	First			Second(3)			Third			Fourth(4)
Net revenues	$	18,034		$	18,136		$	16,165		$	19,962
Gross profit		4,578			6,014			5,431			7,990
Loss from operations(2)		(15,811	)		(10,942	)		(10,508	)		(13,610	)
Net loss		(23,201	)		(8,137	)		(15,577	)		(15,218	)
Net loss attributable to common shares		(26,866	)		(10,976	)		(18,602	)		(18,135	)
Net loss per share attributable to common shares — basic and diluted		(1.36	)		(0.55	)		(0.92	)		(0.90	)

(1)

Operating expenses for 2002, include a $3.2 million charge related to costs incurred as a result of restructuring actions taken by the Company in the second ($1.6 million) and fourth ($1.6 million) quarters of 2002. See also Note 4 — Strategic Restructuring.

(2)

Operating expenses for 2003, include an $8.1 million charge related to costs incurred as a result of restructuring actions taken by the Company in the first ($4.4 million), second ($0.9 million), third ($1.0 million) and fourth ($1.8 million) quarters of 2003. This charge was partially offset by the first quarter 2003 reversal of approximately $1.2 million in restructuring expenses, which were accrued during 2001 and 2002, as the Company does not anticipate these amounts will be paid in the future. See also Note 4 — Strategic Restructuring.

145

(3)	Non-operating expense for 2003, includes an extraordinary gain of $3.8 million associated with the early release of escrow funds related to The docSpace Company acquisition in the second quarter of 2003. See also Note 9 — Related Party Transactions.
(4)	Operating expenses for 2003, include a $5.1 million charge related to the settlement of a shareholder matter in the fourth quarter of 2003. See also Note 13 — Commitments and Contingencies.

146

SCHEDULE II

CRITICAL PATH, INC.

VALUATION AND QUALIFYING ACCOUNTS

(In thousands)

Allowance for doubtful accounts

			Additions
	Balance at		Charged to					Balance at
	Beginning of		Costs and		Deductions-			End of
Year Ended December 31,	Period		Expenses		Write-offs			Period
2003	$	1,586	$	199	$	(131	)	$	1,654
2002	$	1,182	$	673	$	(269	)	$	1,586
2001	$	3,525	$	5,242	$	(7,585	)	$	1,182

147

SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Francisco, State of California, on the 15th day of March, 2004.

Critical Path, Inc.

By:  /s/ JAMES A. CLARK

James A. Clark

Executive Vice President and

Chief Financial Officer

      Each person whose signature appears below constitutes and appoints William E. McGlashan, Jr. and Paul Bartlett and each of them, as attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendment to this Report and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting to said attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

      Pursuant to the requirements of the Securities Exchange Act of 1934, this amendment to its Annual Report on Form 10-K has been signed below by the following persons in the capacities and on the dates indicated.

Name	Title	Date
/s/ WILLIAM E. MCGLASHAN, JR. William E. McGlashan, Jr.	Chairman of the Board and Chief Executive Officer (Principal Executive Officer)	March 15, 2004
/s/ JAMES A. CLARK James Clark	Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)	March 15, 2004
/s/ PETER CURRIE Peter Currie	Director	March 15, 2004
/s/ ROSS DOVE Ross Dove	Director	March 15, 2004
/s/ WILLIAM E. FORD William E. Ford	Director	March 15, 2004
/s/ FROST R. R. PRIOLEAU Frost R. R. Prioleau	Director	March 15, 2004
/s/ STEVEN R. SPRINGSTEEL Steven R. Springsteel	Director	March 15, 2004

148 EX-3.(I).5 3 f97295exv3wxiyw5.txt EXHIBIT 3(I).5 EXHIBIT 3(i).5 CERTIFICATE OF INCREASE IN NUMBER OF SHARES OF SERIES D CUMULATIVE REDEEMABLE CONVERTIBLE PARTICIPATING PREFERRED STOCK, PAR VALUE $0.001 PER SHARE, OF CRITICAL PATH, INC., a California corporation Pursuant to Section 401 of the California Corporations Code, The undersigned, William E. McGlashan, Jr. and Michael J. Zukerman, do hereby certify that: 1. They are the duly elected and acting Chief Executive Officer and Chairman of the Board of Directors and Senior Vice President, General Counsel and Secretary, respectively, of Critical Path, Inc., a California corporation (the "Corporation"). 2. Pursuant to authority given in the Corporation's Amended and Restated Articles of Incorporation, the Corporation has duly adopted the following recitals and resolutions: WITNESSETH WHEREAS, the Amended and Restated Articles of Incorporation of the Corporation provide for a class of shares of Preferred Stock, issuable from time to time in one or more series; WHEREAS, the Board of Directors of the Corporation (the "Board") is authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and increase or decrease (but not below the number of shares of that series then outstanding) the number of shares of any series of Preferred Stock subsequent to the issue of that series; WHEREAS, the rights, preferences, privileges and restrictions relating to a series of Preferred Stock designated "Series D Cumulative Redeemable Convertible Participating Preferred Stock" were fixed by a resolution of the Board on November 6, 2001, and a Certificate of Determination of Preferences of Series D Cumulative Redeemable Convertible Participating Preferred Stock was executed by an officer of the Corporation on November 9, 2001, and filed with the Secretary of State of California on November 9, 2001; and WHEREAS, the number of shares of that series is four million (4,000,000) and the Board now desires to increase that number to four million one hundred eighty-eight thousand five hundred eighty-seven (4,188,587), within any limits or restrictions stated in the resolution of the Board originally fixing the number of shares constituting Series D Cumulative Redeemable Convertible Participating Preferred Stock: NOW, THEREFORE, BE IT: RESOLVED, that the number of shares of Preferred Stock constituting shares of Series D Cumulative Redeemable Convertible Participating Preferred Stock be and it hereby is increased to four million one hundred eighty-eight thousand five hundred eighty-seven (4,188,587); and RESOLVED FURTHER, that any one of the Chairman of the Board, the President or any Vice President, and acting together with any one of the Secretary, the Chief Financial Officer, the Treasurer or any Assistant Secretary or Assistant Treasurer of the Corporation are authorized to execute, verify and file a Certificate of Increase in the number of shares of Series D Cumulative Redeemable Convertible Participating Preferred Stock in accordance with California law. * * * * * * 3. This Certificate of Increase has been duly approved by the Board of Directors of the Corporation. The authorized number of shares of Preferred Stock of the Corporation is five million (5,000,000), and the number of shares of Preferred Stock constituting shares of Series D Cumulative Redeemable Convertible Participating Preferred Stock which are outstanding as of the date hereof is four million (4,000,000). The increase in the number of shares constituting shares of Series D Cumulative Redeemable Convertible Participating Preferred Stock is one hundred eighty-eight thousand five hundred eighty-seven (188,587). The number of shares voting in favor of this Certificate of Increase equaled or exceeded the vote required. The percentage required under the Amended and Restated Articles of Incorporation in effect at the time of this Certificate of Increase was more than 50% of the outstanding shares of Series D Cumulative Redeemable Convertible Participating Preferred Stock, voting separately as a class. [the remainder of this page intentionally left blank] 2 The undersigned, William E. McGlashan, Jr. and Michael J. Zukerman, the Chief Executive Officer and Chairman of the Board of Directors and Vice President and Secretary, respectively, of Critical Path, Inc., declare under penalty of perjury that the matters set out in the foregoing Certificate are true of their own knowledge. Executed at San Francisco, California on this 20th day of November, 2003. /s/ William E. McGlashan, Jr. ------------------------------------------- William E. McGlashan, Jr., Chief Executive Officer and Chairman of the Board of Directors /s/ Michael J. Zukerman ------------------------------------------- Michael J. Zukerman, Senior Vice President, General Counsel and Secretary EX-4.19 4 f97295exv4w19.txt EXHIBIT 4.19 EXHIBIT 4.19 ================================================================================ AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT among CRITICAL PATH, INC. GENERAL ATLANTIC PARTNERS 74, L.P., GAP COINVESTMENT PARTNERS II, L.P., GAPSTAR, LLC, GAPCO GMBH & CO. KG and THE OTHER PARTIES LISTED HEREIN ------------------------------------------------------ Dated: November 26, 2003 ------------------------------------------------------ ================================================================================ TABLE OF CONTENTS

Page ---- 1. Definitions.................................................................................... 2 2. General; Securities Subject to this Agreement.................................................. 5 (a) Grant of Rights....................................................................... 5 (b) Registrable Securities................................................................ 5 (c) Holders of Registrable Securities..................................................... 5 3. Demand Registration............................................................................ 5 (a) Request for Demand Registration....................................................... 5 (b) Incidental or "Piggy-Back" Rights with Respect to a Demand Registration............... 6 (c) Effective Demand Registration......................................................... 7 (d) Expenses.............................................................................. 7 (e) Underwriting Procedures............................................................... 7 (f) Selection of Underwriters............................................................. 8 4. Incidental or "Piggy-Back" Registration........................................................ 8 (a) Request for Incidental Registration................................................... 8 (b) Expenses.............................................................................. 9 5. Holdback Agreements............................................................................ 9 (a) Restrictions on Public Sale by Designated Holders..................................... 9 (b) Restrictions on Public Sale by the Company............................................ 9 6. Registration Procedures........................................................................ 9 (a) Obligations of the Company............................................................ 9 (b) Seller Information.................................................................... 12 (c) Notice to Discontinue................................................................. 12 (d) Registration Expenses................................................................. 13 7. Indemnification; Contribution.................................................................. 13 (a) Indemnification by the Company........................................................ 13 (b) Indemnification by Designated Holders................................................. 14 (c) Conduct of Indemnification Proceedings................................................ 14 (d) Contribution.......................................................................... 15 8. Rule 144....................................................................................... 15 9. Miscellaneous.................................................................................. 16 (a) Recapitalizations, Exchanges, etc..................................................... 16 (b) No Inconsistent Agreements............................................................ 16 (c) Remedies.............................................................................. 16 (d) Amendments and Waivers................................................................ 16 (e) Notices............................................................................... 16 (f) Successors and Assigns; Third Party Beneficiaries..................................... 18

i

Page ---- (g) Counterparts................................................................................... 19 (h) Headings....................................................................................... 19 (i) Governing Law.................................................................................. 19 (j) Severability................................................................................... 19 (k) Rules of Construction.......................................................................... 19 (l) Entire Agreement............................................................................... 19 (m) Further Assurances............................................................................. 19 (n) Other Agreements............................................................................... 19 (o) Effective Date and Termination................................................................. 20

ii AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated November __, 2003 (this "Agreement"), among Critical Path, Inc., a California corporation (the "Company"), General Atlantic Partners 74, L.P., a Delaware limited partnership ("GAP LP"), GAP Coinvestment Partners II, L.P., a Delaware limited partnership ("GAP Coinvestment"), GapStar, LLC, a Delaware limited liability company ("GapStar"), GAP-W, LLC, a Delaware limited liability company ("GAP-W"), GAPCO GmbH & Co. KG, a German limited partnership ("GmbH Coinvestment"), Cenwell Limited ("Cenwell"), Campina Enterprises Limited ("Campina"), Great Affluent Limited ("Great Affluent"), Dragonfield Limited ("Dragonfield"), Lion Cosmos Limited ("Lion Cosmos") and Vectis CP Holdings, LLC, a Delaware limited liability company ("Vectis"). WHEREAS, pursuant to the Stock and Warrant Purchase Agreement, dated November 8, 2001, as amended from time to time (the "Stock Purchase Agreement"), among the Company, GAP LP, GAP Coinvestment, GapStar, Cenwell, Campina and Vectis, the Company has (i) issued and sold to GAP LP, GAP Coinvestment, GapStar, Cenwell, Campina and Vectis, an aggregate of 2,162,582 shares of Series D Cumulative Redeemable Convertible Participating Series D Preferred Stock, par value $0.001 per share, of the Company, as amended from time to time (the "Series D Preferred Stock"), (ii) issued and delivered to GAP LP, GAP Coinvestment and GapStar an aggregate of 1,837,418 shares of Series D Preferred Stock in exchange for a certain amount of convertible subordinated notes of the Company and (iii) issued and sold to GAP LP, GAP Coinvestment and GapStar warrants to purchase shares of Common Stock (as hereinafter defined) (the "Warrants"); WHEREAS, pursuant to the Convertible Note Purchase and Exchange Agreement, dated November 18, 2003 (the "Convertible Note Purchase and Exchange Agreement"), among the Company, GAP LP, GAP Coinvestment, GapStar, Campina, Cenwell, Great Affluent, Dragonfield and Lion Cosmos, (i) the Company has issued and sold to GAP LP, GAP Coinvestment, GapStar, GAP-W and GmbH Coinvestment convertible promissory notes (the "Notes") which are convertible into shares, par value $0.001 per share, of Series E Redeemable Convertible Preferred Stock of the Company (the "Series E Preferred Stock") and (ii) Campina, Cenwell, Great Affluent, Dragonfield and Lion Cosmos agreed upon the satisfaction of certain conditions to exchange their CK Sub Notes (as hereinafter defined) for shares of Series E Preferred Stock; and WHEREAS, in order to induce (i) each of GAP LP, GAP Coinvestment, GapStar, GAP-W and GmbH Coinvestment to purchase the Notes and (ii) Campina, Cenwell, Great Affluent, Dragonfield and Lion Cosmos to exchange the CK Sub Notes for shares of Series E Preferred Stock, the Company has agreed to grant registration rights with respect to the Registrable Securities (as hereinafter defined) as set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Definitions. As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated: "Affiliate" shall mean any Person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. "Agreement" mean this Agreement as the same may be amended, supplemented or modified in accordance with the terms hereof. "Amended and Restated Stockholders Agreement" shall mean the Amended and Restated Stockholders Agreement, dated the date hereof, among the Company, GAP LP, GAP Coinvestment, GapStar, GAP-W, GmbH Coinvestment and the Persons listed therein as "Coinvestors." "Approved Underwriter" has the meaning set forth in Section 3(f) of this Agreement. "Board of Directors" means the Board of Directors of the Company. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in the State of New York are authorized or required by law or executive order to close. "Campina" has the meaning set forth in the preamble to this Agreement. "Cenwell" has the meaning set forth in the preamble to this Agreement. "Coinvestor Stockholders" means Cenwell, Campina, Great Affluent, Dragonfield, Lion Cosmos and any Affiliate thereof that, after the date hereof, acquires Registrable Securities. "CK Sub Notes" means the 5 3/4 % Convertible Subordinated Notes due April 1, 2005 issued by the Company in the principal face amount of thirty-two million seven hundred ninety-five thousand dollars ($32,795,000), pursuant to the Company's Indenture, dated March 31, 2000. "Commission" means the Securities and Exchange Commission or any similar agency then having jurisdiction to enforce the Securities Act. "Common Stock" means the Common Stock, par value $0.001 per share, of the Company or any other capital stock of the Company into which such stock is reclassified or reconstituted and any other common stock of the Company. "Company" has the meaning set forth in the preamble to this Agreement. "Company Underwriter" has the meaning set forth in Section 4(a) of this Agreement. 2 "Convertible Note Purchase and Exchange Agreement" has the meaning set forth in the recitals to this Agreement. "Demand Registration" has the meaning set forth in Section 3(a) of this Agreement. "Designated Holder" means each of the General Atlantic Stockholders, the Coinvestor Stockholders and the Vectis Stockholders and any transferee of any of them to whom Registrable Securities have been transferred in accordance with Section 9(f) of this Agreement, other than a transferee to whom Registrable Securities have been transferred pursuant to a Registration Statement under the Securities Act or Rule 144 (or any successor rule thereto). "Dragonfield" has the meaning set forth in the recitals to this Agreement. "Exchange" has the meaning set forth in the Convertible Note Purchase and Exchange Agreement. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder. "GAP Coinvestment" has the meaning set forth in the preamble to this Agreement. "GAP LLC" means General Atlantic Partners, LLC, a Delaware limited liability company and the general partner of GAP LP and the managing member of GapStar, and any successor to such entity. "GAP LP" has the meaning set forth in the preamble to this Agreement. "GAP-W" has the meaning set forth in the preamble to this Agreement. "GapStar" has the meaning set forth in the preamble to this Agreement. "General Atlantic Stockholders" means GAP LP, GAP Coinvestment, GapStar, GAP-W, GmbH Coinvestment and any Affiliate of GAP LLC that, after the date hereof, acquires Registrable Securities. "GmbH Coinvestment" means GAPCO GmbH & Co. KG, a German limited partnership. "Great Affluent" has the meaning set forth in the recitals to this Agreement. "Holders' Counsel" has the meaning set forth in Section 6(a)(i) of this Agreement. "Incidental Registration" has the meaning set forth in Section 4(a) of this Agreement. 3 "Indemnified Party" has the meaning set forth in Section 7(c) of this Agreement. "Indemnifying Party" has the meaning set forth in Section 7(c) of this Agreement. "Initiating Holders" has the meaning set forth in Section 3(a) of this Agreement. "Inspector" has the meaning set forth in Section 6(a)(vii) of this Agreement. "Liability" has the meaning set forth in Section 7(a) of this Agreement. "Lion Cosmos" has the meaning set forth in the recitals to this Agreement. "NASD" means the National Association of Securities Dealers, Inc. "Person" means any individual, firm, corporation, partnership, limited liability company, trust, incorporated or unincorporated association, joint venture, joint stock company, limited liability company, government (or an agency or political subdivision thereof) or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. "Public Offering" means any public offering of the shares of Common Stock of the Company pursuant to an effective Registration Statement filed under the Securities Act. "Records" has the meaning set forth in Section 6(a)(vii) of this Agreement. "Registrable Securities" means each of the following: (a) any and all shares of Common Stock issued or issuable upon conversion of shares of Series D Preferred Stock, Series E Preferred Stock or exercise of the Warrants, (b) any other shares of Common Stock acquired or owned by any of the Designated Holders after the date hereof if such Designated Holder is an Affiliate of the Company and (c) any shares of Common Stock issued or issuable to any of the Designated Holders with respect to the Registrable Securities by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise and any shares of Common Stock or voting common stock issuable upon conversion, exercise or exchange thereof. "Registration Expenses" has the meaning set forth in Section 6(d) of this Agreement. "Registration Statement" means a Registration Statement filed pursuant to the Securities Act. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "Series D Preferred Stock" has the meaning set forth in the recitals to this Agreement. "Series E Preferred Stock" has the meaning set forth in the recitals to this Agreement. 4 "Stock Purchase Agreement" has the meaning set forth in the recitals to this Agreement. "Stockholder Approval" has the meaning set forth in the Convertible Note Purchase and Exchange Agreement. "Valid Business Reason" has the meaning set forth in Section 3(a) of this Agreement. "Vectis" has the meaning set forth in the preamble of this Agreement. "Vectis Stockholders" means Vectis and any Affiliate thereof that, after the date hereof, acquires Registrable Securities. "Warrants" has the meaning set forth in the recitals to this Agreement. 2. General; Securities Subject to this Agreement. (a) Grant of Rights. The Company hereby grants registration rights to the Designated Holders upon the terms and conditions set forth in this Agreement. (b) Registrable Securities. For the purposes of this Agreement, Registrable Securities will cease to be Registrable Securities, when (i) a Registration Statement covering such Registrable Securities has been declared effective under the Securities Act by the Commission and such Registrable Securities have been disposed of pursuant to such effective Registration Statement, (ii) (x) the entire amount of the Registrable Securities owned by a Designated Holder may be sold in a single sale, in the opinion of counsel satisfactory to the Company and such Designated Holder, each in their reasonable judgment, without any limitation as to volume pursuant to Rule 144 (or any successor provision then in effect) under the Securities Act and (y) such Designated Holder owning such Registrable Securities owns less than one percent (1%) of the outstanding shares of Common Stock on a fully diluted basis, or (iii) the Registrable Securities are proposed to be sold or distributed by a Person not entitled to the registration rights granted by this Agreement. (c) Holders of Registrable Securities. A Person is deemed to be a holder of Registrable Securities whenever such Person owns of record Registrable Securities, or holds an option to purchase, or a security convertible into or exercisable or exchangeable for, Registrable Securities whether or not such acquisition or conversion has actually been effected. If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company may act upon the basis of the instructions, notice or election received from the registered owner of such Registrable Securities. Registrable Securities issuable upon exercise of an option or upon conversion of another security shall be deemed outstanding for the purposes of this Agreement. 3. Demand Registration. (a) Request for Demand Registration. At any time commencing one year after the date hereof, either the General Atlantic Stockholders or the Coinvestor Stockholders 5 (the "Initiating Holders"), may each make a written request to the Company to register, and the Company shall register, under the Securities Act and on an appropriate registration statement form as reasonably determined by the Company and approved by the Initiating Holders (a "Demand Registration"), the number of Registrable Securities stated in such request; provided, however, that the Company shall not be obligated to effect more than one such Demand Registration for the General Atlantic Stockholders (subject to Section 3(e)(ii) below) and more than one such Demand Registration for the Coinvestor Stockholders (subject to Section 3(e)(ii) below). If following receipt of a written request for a Demand Registration the Board of Directors, in its good faith judgment, determines that any registration of Registrable Securities should not be made or continued because it would materially interfere with any material financing, acquisition, corporate reorganization or merger or other material transaction involving the Company (a "Valid Business Reason"), the Company may (x) postpone filing a Registration Statement relating to a Demand Registration until such Valid Business Reason no longer exists, but in no event for more than ninety (90) days, and (y) in case a Registration Statement has been filed relating to a Demand Registration, if the Valid Business Reason has not resulted from actions taken by the Company, the Company, upon the approval of a majority of the Board of Directors, such majority to include at least one Director appointed by the General Atlantic Stockholders, may cause such Registration Statement to be withdrawn and its effectiveness terminated or may postpone amending or supplementing such Registration Statement. The Company shall give written notice of its determination to postpone or withdraw a Registration Statement and of the fact that the Valid Business Reason for such postponement or withdrawal no longer exists, in each case, promptly after the occurrence thereof. Notwithstanding anything to the contrary contained herein, the Company may not postpone or withdraw a filing under this Section 3(a) more than once in any twelve (12) month period. Each request for a Demand Registration by the Initiating Holders shall state the amount of the Registrable Securities proposed to be sold and the intended method of disposition thereof. (b) Incidental or "Piggy-Back" Rights with Respect to a Demand Registration. Each of the Designated Holders (other than Initiating Holders which have requested a registration under Section 3(a)) may offer its or his Registrable Securities under any Demand Registration pursuant to this Section 3(b). Within five (5) days after the receipt of a request for a Demand Registration from an Initiating Holder, the Company shall (i) give written notice thereof to all of the Designated Holders (other than Initiating Holders which have requested a registration under Section 3(a)) and (ii) subject to Section 3(e), include in such registration all of the Registrable Securities held by such Designated Holders from whom the Company has received a written request for inclusion therein within ten (10) days of the receipt by such Designated Holders of such written notice referred to in clause (i) above. Each such request by such Designated Holders shall specify the number of Registrable Securities proposed to be registered. The failure of any Designated Holder to respond within such 10 day period referred to in clause (ii) above shall be deemed to be a waiver of such Designated Holder's rights under this Section 3 with respect to such Demand Registration. Any Designated Holder may waive its rights under this Section 3 prior to the expiration of such 10-day period by giving written notice to the Company, with a copy to the Initiating Holders. If a Designated Holder sends the Company a written request for inclusion of part or all of such Designated Holder's Registrable Securities in a registration, such Designated Holder shall not be entitled to withdraw or revoke such request without the prior written consent of the Company in its sole discretion unless, as a result of facts or circumstances arising after the date on which such request was 6 made relating to the Company or to market conditions, such Designated Holder reasonably determines that participation in such registration would have a material adverse effect on such Designated Holder. (c) Effective Demand Registration. The Company shall use all commercially reasonable efforts to cause any such Demand Registration to be filed not later than thirty (30) days after it receives a request under Section 3(a) hereof and to become and remain effective as soon as practicable thereafter but, in any event, not later than ninety (90) days after such filing. A registration shall not constitute a Demand Registration until it has become effective and remains continuously effective for the lesser of (i) the period during which all Registrable Securities registered in the Demand Registration are sold and (ii) one hundred twenty (120) days; provided, however, that a registration shall not constitute a Demand Registration if (x) after such Demand Registration has become effective, such registration or the related offer, sale or distribution of Registrable Securities thereunder is interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason not attributable to the Initiating Holders and such interference is not thereafter eliminated or (y) the conditions specified in the underwriting agreement, if any, entered into in connection with such Demand Registration are not satisfied or waived, other than by reason of a failure by the Initiating Holder. (d) Expenses. The Company shall pay all Registration Expenses in connection with a Demand Registration, whether or not such Demand Registration becomes effective. (e) Underwriting Procedures. (i) If the Company or the Initiating Holders holding a majority of the Registrable Securities held by all of the Initiating Holders so elect, the Company shall use all commercially reasonable efforts to cause such Demand Registration to be in the form of a firm commitment underwritten offering and the managing underwriter or underwriters selected for such offering shall be the Approved Underwriter selected in accordance with Section 3(f). In connection with any Demand Registration under this Section 3 involving an underwritten offering, none of the Registrable Securities held by any Designated Holder making a request for inclusion of such Registrable Securities pursuant to Section 3(b) hereof shall be included in such underwritten offering unless such Designated Holder accepts the terms of the offering as agreed upon by the Company, the Initiating Holders and the Approved Underwriter, and then only in such quantity as will not, in the opinion of the Approved Underwriter, jeopardize the success of such offering by the Initiating Holders. If the Approved Underwriter advises the Company in its reasonable opinion that the aggregate amount of such Registrable Securities requested to be included in such offering is sufficiently large to have a material adverse effect on the success of such offering, then the Company shall include in such registration only the aggregate amount of Registrable Securities that the Approved Underwriter believes may be sold without any such material adverse effect and shall reduce the amount of Registrable Securities to be included in such registration by removing from such registration securities owned, first by the Company and second by the Designated Holders (including the Initiating Holders) pro rata based on the number of Registrable Securities owned by each such Designated Holder. 7 (ii) If an Initiating Holder makes a request for a Demand Registration and, pursuant to Section 3(e)(i) above, the Approved Underwriter advises the Company to reduce the aggregate amount of Registrable Securities requested to be included in such offering such that less than seventy-five percent (75%) of the Registrable Securities requested to be included by any Initiating Holder are ultimately included in and sold pursuant to such Demand Registration, the Initiating Holder shall have the right to require the Company to effect an additional Demand Registration; provided, however, that in no event shall the aggregate number of Demand Registrations to be effected by the Company for any one Initiating Holder exceed two (2). (f) Selection of Underwriters. If any Demand Registration of Registrable Securities is in the form of an underwritten offering, the Company shall select and obtain an investment banking firm of national reputation to act as the managing underwriter of the offering (the "Approved Underwriter"); provided, however, that the Approved Underwriter shall, in any case, also be approved by the Initiating Holders. 4. Incidental or "Piggy-Back" Registration. (a) Request for Incidental Registration. If at any time the Company proposes to file a Registration Statement under the Securities Act with respect to an offering by the Company for its own account (other than a Registration Statement on Form S-4 or S-8 or any successor thereto) or for the account of any stockholder of the Company other than the Designated Holders, then the Company shall give written notice of such proposed filing to each of the Designated Holders at least twenty (20) days before the anticipated filing date, and such notice shall describe the proposed registration and distribution and offer such Designated Holders the opportunity to register the number of Registrable Securities as each such Designated Holder may request (an "Incidental Registration"). The Company shall use all commercially reasonable efforts (within twenty (20) days of the notice provided for in the preceding sentence) to cause the managing underwriter or underwriters in the case of a proposed underwritten offering (the "Company Underwriter") to permit each of the Designated Holders who have requested in writing to participate in the Incidental Registration to include its or his Registrable Securities in such offering on the same terms and conditions as the securities of the Company or the account of such other stockholder, as the case may be, included therein. In connection with any Incidental Registration under this Section 4(a) involving an underwritten offering, the Company shall not be required to include any Registrable Securities in such underwritten offering unless the Designated Holders thereof accept the terms of the underwritten offering as agreed upon between the Company, such other stockholders, if any, and the Company Underwriter, and then only in such quantity as the Company Underwriter believes will not jeopardize the success of the offering by the Company. If the Company Underwriter determines that the registration of all or part of the Registrable Securities which the Designated Holders have requested to be included would materially adversely affect the success of such offering, then the Company shall be required to include in such Incidental Registration, to the extent of the amount that the Company Underwriter believes may be sold without causing such adverse effect, first, all of the securities to be offered for the account of the Company or on the account of the selling stockholder that caused the registration statement that has triggered the Incidental Registration to be filed, as the case may be; second, the Registrable Securities to be offered for the account of the Designated Holders pursuant to this Section 4, pro rata based on the number of 8 Registrable Securities owned by each such Designated Holder; and third, any other securities requested to be included in such offering. (b) Expenses. The Company shall bear all Registration Expenses in connection with any Incidental Registration pursuant to this Section 4, whether or not such Incidental Registration becomes effective. 5. Holdback Agreements. (a) Restrictions on Public Sale by Designated Holders. To the extent (i) requested (A) by the Company or the Initiating Holders, as the case may be, in the case of a non-underwritten public offering and (B) by the Approved Underwriter or the Company Underwriter, as the case may be, in the case of an underwritten public offering and (ii) all of the Company's officers, directors and holders in excess of one percent (1%) of its outstanding capital stock execute agreements identical to those referred to in this Section 5(a), each Designated Holder agrees (x) not to effect any public sale or distribution of any Registrable Securities or of any securities convertible into or exchangeable or exercisable for such Registrable Securities, including a sale pursuant to Rule 144 under the Securities Act, or offer to sell, contract to sell (including without limitation any short sale), grant any option to purchase or enter into any hedging or similar transaction with the same economic effect as a public sale any Registrable Securities and (y) not to make any request for a Demand Registration under this Agreement, during the ninety (90) day period or such shorter period, if any, mutually agreed upon by such Designated Holder and the requesting party beginning on the effective date of the Registration Statement (except as part of such registration) for such public offering. No Designated Holder of Registrable Securities subject to this Section 5(a) shall be released from any obligation under any agreement, arrangement or understanding entered into pursuant to this Section 5(a) unless all other Designated Holders of Registrable Securities subject to the same obligation are also released. All Designated Holders of Registrable Securities shall be automatically released from any obligations under any agreement, arrangement or understanding entered into pursuant to this Section 5(a) immediately upon the expiration of the 90 day period. (b) Restrictions on Public Sale by the Company. The Company agrees not to effect any public sale or distribution of any of its securities, or any securities convertible into or exchangeable or exercisable for such securities (except pursuant to registrations on Form S-4 or S-8 or any successor thereto), during the period beginning on the effective date of any Registration Statement in which the Designated Holders of Registrable Securities are participating and ending on the earlier of (i) the date on which all Registrable Securities registered on such Registration Statement are sold and (ii) 120 days after the effective date of such Registration Statement (except as part of such registration). 6. Registration Procedures. (a) Obligations of the Company. Whenever registration of Registrable Securities has been requested pursuant to Section 3 or Section 4 of this Agreement, the Company shall use all commercially reasonable efforts to effect the registration and sale of such Registrable Securities in accordance with the intended method of distribution thereof as quickly 9 as practicable, and in connection with any such request, the Company shall, as expeditiously as possible: (i) prepare and file with the Commission a Registration Statement on any form for which the Company then qualifies or which counsel for the Company shall deem appropriate and which form shall be available for the sale of such Registrable Securities in accordance with the intended method of distribution thereof, and cause such Registration Statement to become effective; provided, however, that (x) before filing a Registration Statement or prospectus or any amendments or supplements thereto, the Company shall provide counsel selected by the Designated Holders holding a majority of the Registrable Securities being registered in such registration ("Holders' Counsel") with an adequate opportunity to review and comment on such Registration Statement and each prospectus included therein (and each amendment or supplement thereto) to be filed with the Commission, subject to such documents being under the Company's control, and (y) the Company shall notify the Holders' Counsel and each seller of Registrable Securities of any stop order issued or threatened by the Commission and take all action required to prevent the entry of such stop order or to remove it if entered; (ii) prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for the lesser of (x) 120 days and (y) such shorter period which will terminate when all Registrable Securities covered by such Registration Statement have been sold, and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement; (iii) furnish to each seller of Registrable Securities, prior to filing a Registration Statement, at least one copy of such Registration Statement as is proposed to be filed, and thereafter such number of copies of such Registration Statement, each amendment and supplement thereto (in each case including all exhibits thereto), and the prospectus included in such Registration Statement (including each preliminary prospectus) and any prospectus filed under Rule 424 under the Securities Act as each such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller; (iv) register or qualify such Registrable Securities under such other securities or "blue sky" laws of such jurisdictions as any seller of Registrable Securities may request, and to continue such qualification in effect in such jurisdiction for as long as permissible pursuant to the laws of such jurisdiction, or for as long as any such seller requests or until all of such Registrable Securities are sold, whichever is shortest, and do any and all other acts and things which may be reasonably necessary or advisable to enable any such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller; provided, however, that the Company shall not be required to (x) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 6(a)(iv), (y) subject itself to taxation in any such jurisdiction or (z) consent to general service of process in any such jurisdiction; 10 (v) notify each seller of Registrable Securities at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such Registration Statement contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and the Company shall promptly prepare a supplement or amendment to such prospectus and furnish to each seller of Registrable Securities a reasonable number of copies of such supplement to or an amendment of such prospectus as may be necessary so that, after delivery to the purchasers of such Registrable Securities, such prospectus shall not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (vi) enter into and perform customary agreements (including an underwriting agreement containing representations, warranties, covenants and indemnities for securities law matters and otherwise in customary form with the Approved Underwriter or Company Underwriter, if any, selected as provided in Section 3 or Section 4, as the case may be) and take such other actions as are prudent and reasonably required in order to expedite or facilitate the disposition of such Registrable Securities, including causing its officers to participate in "road shows" and other information meetings organized by the Approved Underwriter or Company Underwriter; (vii) make available at reasonable times for inspection by any seller of Registrable Securities, any managing underwriter participating in any disposition of such Registrable Securities pursuant to a Registration Statement, Holders' Counsel and any attorney, accountant or other agent retained by any such seller or any managing underwriter (each, an "Inspector" and collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries (collectively, the "Records") as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's and its subsidiaries' officers, directors and employees, and the independent public accountants of the Company, to supply all information reasonably requested by any such Inspector in connection with such Registration Statement. Records that the Company determines, in good faith, to be confidential and which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors (and the Inspectors shall confirm their agreement in writing in advance to the Company if the Company shall so request) unless (x) the disclosure of such Records is necessary, in the Company's judgment, to avoid or correct a misstatement or omission in the Registration Statement, (y) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction after exhaustion of all appeals therefrom or (z) the information in such Records was known to the Inspectors on a non-confidential basis prior to its disclosure by the Company or has been made generally available to the public. Each seller of Registrable Securities agrees that it shall, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at the Company's expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential; (viii) if such sale is pursuant to an underwritten offering, obtain a "cold comfort" letters dated the effective date of the Registration Statement and the date of the closing 11 under the underwriting agreement from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by "cold comfort" letters as the managing underwriter reasonably requests; (ix) furnish, at the request of any seller of Registrable Securities on the date such securities are delivered to the underwriters for sale pursuant to such registration or, if such securities are not being sold through underwriters, on the date the Registration Statement with respect to such securities becomes effective, an opinion, if reasonably available, dated such date, of counsel representing the Company for the purposes of such registration, addressed to the underwriters, if any, and to the seller making such request, covering such legal matters with respect to the registration in respect of which such opinion is being given as the underwriters, if any, and such seller may reasonably request and are customarily included in such opinions; (x) comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable but no later than fifteen (15) months after the effective date of the Registration Statement, an earnings statement covering a period of twelve (12) months beginning after the effective date of the Registration Statement, in a manner which satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; (xi) cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed, provided that the applicable listing requirements are satisfied; (xii) cooperate with each seller of Registrable Securities and each underwriter participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the NASD; and (xiii) take all other steps reasonably necessary to effect the registration of the Registrable Securities contemplated hereby. (b) Seller Information. The Company may require each seller of Registrable Securities as to which any registration is being effected to furnish, and such seller shall furnish, to the Company such information regarding the distribution of such securities as the Company may from time to time reasonably request in writing. (c) Notice to Discontinue. Each Designated Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 6(a)(v), such Designated Holder shall forthwith discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Designated Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 6(a)(v) and, if so directed by the Company, such Designated Holder shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Designated Holder's possession, of the prospectus covering such Registrable Securities which is current at the time of receipt of such notice. If the Company shall give any such notice, the Company shall extend the period during which such Registration Statement shall be maintained effective pursuant to this Agreement (including, without limitation, the period 12 referred to in Section 6(a)(ii)) by the number of days during the period from and including the date of the giving of such notice pursuant to Section 6(a)(v) to and including the date when sellers of such Registrable Securities under such Registration Statement shall have received the copies of the supplemented or amended prospectus contemplated by and meeting the requirements of Section 6(a)(v). (d) Registration Expenses. The Company shall pay all expenses arising from or incident to its performance of, or compliance with, this Agreement, including, without limitation, (i) Commission, stock exchange and NASD registration and filing fees, (ii) all fees and expenses incurred in complying with securities or "blue sky" laws (including reasonable fees, charges and disbursements of counsel to any underwriter incurred in connection with "blue sky" qualifications of the Registrable Securities as may be set forth in any underwriting agreement), (iii) all printing, messenger and delivery expenses and (iv) the fees, charges and expenses of counsel to the Company and of its independent public accountants and any other accounting fees, charges and expenses incurred by the Company (including, without limitation, any expenses arising from any "cold comfort" letters or any special audits incident to or required by any registration or qualification) and any reasonable legal fees, charges and expenses incurred by one counsel for the General Atlantic Stockholders. All of the expenses described in the preceding sentence of this Section 6(d) are referred to herein as "Registration Expenses." The Designated Holders of Registrable Securities sold pursuant to a Registration Statement shall bear the expense of any underwriter's discount or commission relating to registration and sale of such Designated Holders' Registrable Securities. 7. Indemnification; Contribution. (a) Indemnification by the Company. The Company agrees to indemnify and hold harmless each Designated Holder, its partners, directors, officers, affiliates and each Person who controls (within the meaning of Section 15 of the Securities Act) such Designated Holder from and against any and all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) (each, a "Liability" and collectively, "Liabilities"), arising out of or based upon any untrue, or allegedly untrue, statement of a material fact contained in any Registration Statement, prospectus or preliminary prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which such statements were made, except insofar as such Liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission contained in such Registration Statement, preliminary prospectus or final prospectus in reliance and in conformity with information concerning such Designated Holder furnished in writing to the Company by such Designated Holder expressly for use therein, including, without limitation, the information furnished to the Company pursuant to Section 7(b). The Company shall also provide customary indemnities to any underwriters of the Registrable Securities, their officers, directors and employees and each Person who controls such underwriters (within the meaning of Section 15 of the Securities Act) to the same extent as provided above with respect to the indemnification of the Designated Holders of Registrable Securities. 13 (b) Indemnification by Designated Holders. In connection with any Registration Statement in which a Designated Holder is participating pursuant to Section 3 or Section 4 hereof, each such Designated Holder shall promptly furnish to the Company in writing such information with respect to such Designated Holder as the Company may reasonably request or as may be required by law for use in connection with any such Registration Statement or prospectus and all information required to be disclosed in order to make the information previously furnished to the Company by such Designated Holder not materially misleading or necessary to cause such Registration Statement not to omit a material fact with respect to such Designated Holder necessary in order to make the statements therein not misleading. Each Designated Holder agrees to indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the Registration Statement, any underwriter retained by the Company and each Person who controls the Company or such underwriter (within the meaning of Section 15 of the Securities Act) to the same extent as the foregoing indemnity from the Company to the Designated Holders, but only if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with information with respect to such Designated Holder furnished in writing to the Company by such Designated Holder expressly for use in such Registration Statement or prospectus, including, without limitation, the information furnished to the Company pursuant to this Section 7(b); provided, however, that the total amount to be indemnified by such Designated Holder pursuant to this Section 7(b) shall be limited to the net proceeds (after deducting the underwriters' discounts and commissions) received by such Designated Holder in the offering to which the Registration Statement or prospectus relates. (c) Conduct of Indemnification Proceedings. Any Person entitled to indemnification hereunder (the "Indemnified Party") agrees to give prompt written notice to the indemnifying party (the "Indemnifying Party") after the receipt by the Indemnified Party of any written notice of the commencement of any action, suit, proceeding or investigation or threat thereof made in writing for which the Indemnified Party intends to claim indemnification or contribution pursuant to this Agreement; provided, however, that the failure so to notify the Indemnifying Party shall not relieve the Indemnifying Party of any Liability that it may have to the Indemnified Party hereunder (except to the extent that the Indemnifying Party is materially prejudiced or otherwise forfeits substantive rights or defenses by reason of such failure). If notice of commencement of any such action is given to the Indemnifying Party as above provided, the Indemnifying Party shall be entitled to participate in and, to the extent it may wish, jointly with any other Indemnifying Party similarly notified, to assume the defense of such action at its own expense, with counsel chosen by it and reasonably satisfactory to such Indemnified Party. The Indemnified Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be paid by the Indemnified Party unless (i) the Indemnifying Party agrees to pay the same, (ii) the Indemnifying Party fails to assume the defense of such action with counsel reasonably satisfactory to the Indemnified Party or (iii) the named parties to any such action (including any impleaded parties) include both the Indemnifying Party and the Indemnified Party and such parties have been advised by such counsel that either (x) representation of such Indemnified Party and the Indemnifying Party by the same counsel would be inappropriate under applicable standards of professional conduct or (y) there may be one or more legal defenses available to the Indemnified Party which are different from or additional to those available to the Indemnifying Party. In any of such cases, the Indemnifying Party shall not have the right to assume the 14 defense of such action on behalf of such Indemnified Party, it being understood, however, that the Indemnifying Party shall not be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all Indemnified Parties. No Indemnifying Party shall be liable for any settlement entered into without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the consent of such Indemnified Party, effect any settlement of any pending or threatened proceeding in respect of which such Indemnified Party is a party and indemnity has been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability for claims that are the subject matter of such proceeding. (d) Contribution. If the indemnification provided for in this Section 7 from the Indemnifying Party is unavailable to an Indemnified Party hereunder in respect of any Liabilities referred to herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Liabilities in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions which resulted in such Liabilities, as well as any other relevant equitable considerations. The relative faults of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the Liabilities referred to above shall be deemed to include, subject to the limitations set forth in Sections 7(a), 7(b) and 7(c), any legal or other fees, charges or expenses reasonably incurred by such party in connection with any investigation or proceeding; provided that the total amount to be contributed by such Designated Holder shall be limited to the net proceeds (after deducting the underwriters' discounts and commissions) received by such Designated Holder in the offering. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 7(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. 8. Rule 144. The Company covenants that it shall (a) file any reports required to be filed by it under the Exchange Act and (b) take such further action as each Designated Holder may reasonably request (including providing any information necessary to comply with Rule 144 under the Securities Act), all to the extent required from time to time to enable such Designated Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 under the Securities Act, as such rule may be amended from time to time or (ii) any similar rules or regulations hereafter adopted by the Commission. The Company shall, upon the request of any Designated Holder, deliver to such Designated Holder a written statement as to whether it has complied with such requirements. 15 9. Miscellaneous. (a) Recapitalizations, Exchanges, etc. The provisions of this Agreement shall apply to the full extent set forth herein with respect to (i) the shares of Common Stock, (ii) any and all shares of voting common stock of the Company into which the shares of Common Stock are converted, exchanged or substituted in any recapitalization or other capital reorganization by the Company and (iii) any and all equity securities of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in conversion of, in exchange for or in substitution of, the shares of Common Stock and shall be appropriately adjusted for any stock dividends, splits, reverse splits, combinations, recapitalizations and the like occurring after the date hereof. The Company shall use all commercially reasonable efforts to cause any successor or assign (whether by merger, consolidation, sale of assets or otherwise) to enter into a new registration rights agreement with the Designated Holders on terms substantially the same as this Agreement as a condition of any such transaction. (b) No Inconsistent Agreements. The Company shall not enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Designated Holders in this Agreement or grant any additional registration rights to any Person or with respect to any securities which are not Registrable Securities which are prior in right to or inconsistent with the rights granted in this Agreement. (c) Remedies. The Designated Holders, in addition to being entitled to exercise all rights granted by law, including recovery of damages, shall be entitled to specific performance of their rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees to waive in any action for specific performance the defense that a remedy at law would be adequate. (d) Amendments and Waivers. Except as otherwise provided herein, the provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless consented to in writing by (i) the Company and (ii) the General Atlantic Stockholders, Coinvestor Stockholders and Vectis Stockholders holding Registrable Securities representing (after giving effect to any adjustments) at least a majority of the aggregate number of Registrable Securities owned by all of the General Atlantic Stockholders, Coinvestor Stockholders and Vectis Stockholders; provided, however, that to the extent any amendment or waiver shall adversely affect any of the Stockholders, such amendment or waiver shall require the prior written consent of each Stockholder so adversely affected. Any such written consent shall be binding upon the Company and all of the Designated Holders. (e) Notices. All notices, demands and other communications provided for or permitted hereunder shall be made in writing and shall be made by registered or certified first-class mail, return receipt requested, telecopier, courier service or personal delivery: 16 (i) if to the Company: Critical Path, Inc. 532 Folsom Street San Francisco, CA 94105 Telecopy: (415) 808-8898 Attention: Chief Financial Officer with a copy to: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Telecopy: (415) 983-1200 Attention: Gregg F. Vignos, Esq. (ii) if to the General Atlantic Stockholders: c/o General Atlantic Service Company 3 Pickwick Plaza Greenwich, CT 06830 Telecopy: (203) 622-8818 Attention: Matthew Nimetz Thomas J. Murphy with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison LLP 1285 Avenue of the Americas New York, NY 10019-6064 Telecopy: (212) 757-3990 Attention: Douglas A. Cifu, Esq. (iii) if to Campina, Great Affluent, Dragonfield or Lion Cosmos: c/o 7th Floor Cheung Kong Center 2 Queen's Road Central Hong Kong Telecopy: (852) 2845-2057 Attention: Mr. Edmond Ip 17 (iv) if to Cenwell: c/o 22nd Floor Hutchison House 10 Harcourt Road Hong Kong Telecopy: (852) 2128-1778 Attention: Company Secretary (v) if to Vectis: c/o Vectis Group, LLC 117 Greenwich Street San Francisco, CA 94111 Telecopy: 415-352-5310 Attention: Matthew Hobart with a copy to: Kirkland & Ellis 153 East 53rd Street New York, NY 10022-4675 Telecopy: 212-446-4900 Attention: Michael Movsovich, Esq. (vi) if to any other Designated Holder, at its address as it appears on the record books of the Company. All such notices, demands and other communications shall be deemed to have been duly given when delivered by hand, if personally delivered; when delivered by courier, if delivered by commercial courier service; five (5) Business Days after being deposited in the mail, postage prepaid, if mailed; and when receipt is mechanically acknowledged, if telecopied. Any party may by notice given in accordance with this Section 9(e) designate another address or Person for receipt of notices hereunder. (f) Successors and Assigns; Third Party Beneficiaries. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto as hereinafter provided. The Demand Registration rights and related rights of the General Atlantic Stockholders or the Coinvestor Stockholders contained in Section 3 hereof shall be (i) with respect to any Registrable Security that is transferred to an Affiliate of a General Atlantic Stockholder or a Coinvestor Stockholder, automatically transferred to such Affiliate and (ii) with respect to any Registrable Security that is transferred in all cases to a non-Affiliate, transferred only with the consent of the Company which consent shall not be unreasonably withheld, conditioned or delayed. The incidental or "piggy-back" registration rights of the Designated Holders contained in Sections 3(b) and 4 hereof and the other rights of each of the Designated Holders with respect thereto shall be, with respect to any Registrable Security, automatically transferred to any Person who is the transferee of such Registrable Security so long as such 18 transferee agrees to be bound by this Agreement. All of the obligations of the Company hereunder shall survive any such transfer. Except as provided in Section 7, no Person other than the parties hereto and their successors and permitted assigns is intended to be a beneficiary of this Agreement. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. (j) Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof. (k) Rules of Construction. Unless the context otherwise requires, references to sections or subsections refer to sections or subsections of this Agreement. (l) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto with respect to the subject matter contained herein. There are no restrictions, promises, representations, warranties or undertakings with respect to the subject matter contained herein, other than those set forth or referred to herein. Subject to Section 9(o), upon the Subsequent Closing (as defined in the Convertible Note Purchase and Exchange Agreement), this Agreement shall supersede all prior agreements and understandings among the parties with respect to such subject matter. (m) Further Assurances. Each of the parties shall execute such documents and perform such further acts as may be reasonably required or desirable to carry out or to perform the provisions of this Agreement. (n) Other Agreements. Nothing contained in this Agreement shall be deemed to be a waiver of, or release from, any obligations any party hereto may have under, or any restrictions on the transfer of Registrable Securities or other securities of the Company imposed by, any other agreement including, but not limited to, the Stock Purchase Agreement, the Convertible Note Purchase and Exchange Agreement or the Amended and Restated Stockholders Agreement. 19 (o) Effective Date and Termination. Notwithstanding anything in this Agreement to the contrary, this Agreement shall become effective immediately following the Subsequent Closing. If the Subsequent Closing does not occur and the obligation to consummate the Conversion and the Exchange (each as defined in the Convertible Note Purchase Agreement) has been terminated pursuant to Article IX of the Convertible Note Purchase and Exchange Agreement, this Agreement shall immediately terminate and be of no further force or effect. [the remainder of this page intentionally left blank] 20 IN WITNESS WHEREOF, the undersigned have executed, or have caused to be executed, this Amended and Restated Registration Rights Agreement on the date first written above. CRITICAL PATH, INC. By: /s/ Michael J. Zukerman _____________________________________ Name: Michael J. Zukerman Title: Senior Vice President and General Counsel SIGNATURE PAGE TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT GENERAL ATLANTIC PARTNERS 74, L.P. By: GENERAL ATLANTIC PARTNERS, LLC, its General Partner By: /s/ Matthew Nimetz _____________________________________ Name: Matthew Nimetz Title: A Managing Member GAP COINVESTMENT PARTNERS II, L.P. By: /s/ Matthew Nimetz _____________________________________ Name: Matthew Nimetz Title: A General Partner GAPSTAR, LLC By: GENERAL ATLANTIC PARTNERS, LLC, its Managing Member By: /s/ Matthew Nimetz _________________________________ Name: Matthew Nimetz Title: A Managing Member GAPCO GMBH & CO. KG By: GAPCO MANAGEMENT GMBH, its General Partner By: /s/ Matthew Nimetz _________________________________ Name: Matthew Nimetz Title: A Managing Director SIGNATURE PAGE TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT By: VECTIS GROUP, LLC its Managing Member By: /s/ Matthew T. Hobart _____________________________________ Name: Matthew T. Hobart Title: Managing Director SIGNATURE PAGE TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT CENWELL LIMITED By: /s/ Ip Tak Chuen, Edmond _____________________________________ Name: Ip Tak Chuen, Edmond Title: Authorised Person CAMPINA ENTERPRISES LIMITED By: /s/ Ip Tak Chuen, Edmond _____________________________________ Name: Ip Tak Chuen, Edmond Title: Director GREAT AFFLUENT LIMITED By: /s/ Ip Tak Chuen, Edmond _____________________________________ Name: Ip Tak Chuen, Edmond Title: Director DRAGONFIELD LIMITED By: /s/ Pau Yee Wan, Ezra _____________________________________ Name: Pau Yee Wan, Ezra Title: Authorised Person LION COSMOS LIMITED By: /s/ Pau Yee Wan, Ezra _____________________________________ Name: Pau Yee Wan, Ezra Title: Director SIGNATURE PAGE TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT EX-4.20 5 f97295exv4w20.txt EXHIBIT 4.20 EXHIBIT 4.20 ================================================================================ AMENDED AND RESTATED STOCKHOLDERS AGREEMENT among CRITICAL PATH, INC., GENERAL ATLANTIC PARTNERS 74, L.P., GAP COINVESTMENT PARTNERS II, L.P., GAPSTAR, LLC, GAP-W, LLC, GAPCO GMBH & CO. KG, CAMPINA ENTERPRISES LIMITED, CENWELL LIMITED, GREAT AFFLUENT LIMITED, DRAGONFIELD LIMITED, LION COSMOS LIMITED and VECTIS CP HOLDINGS, LLC Dated: November 26, 2003 ================================================================================ TABLE OF CONTENTS

Page ---- 1. Definitions.................................................................................... 2 2. Future Issuance of Shares; Preemptive Rights................................................... 6 2.1 Offering Notice....................................................................... 6 2.2 Preemptive Rights; Exercise........................................................... 7 2.3 Closing............................................................................... 8 2.4 Sale to Subject Purchaser............................................................. 8 3. Corporate Governance........................................................................... 8 3.1 Board of Directors; Number and Composition............................................ 8 3.2 Reimbursement of Expenses; D&O Insurance.............................................. 9 3.3 Meetings of the Board of Directors.................................................... 9 3.4 Annual Budget......................................................................... 9 4. Standstill; Nasdaq Matters..................................................................... 9 4.1 Standstill............................................................................ 9 4.2 Nasdaq Matters........................................................................ 11 5. Miscellaneous.................................................................................. 11 5.1 Notices............................................................................... 11 5.2 Successors and Assigns; Third Party Beneficiary....................................... 13 5.3 Amendment and Waiver.................................................................. 13 5.4 Counterparts.......................................................................... 13 5.5 Specific Performance.................................................................. 13 5.6 Headings.............................................................................. 13 5.7 Governing Law......................................................................... 13 5.8 Severability.......................................................................... 13 5.9 Rules of Construction................................................................. 14 5.10 Entire Agreement...................................................................... 14 5.11 Term of Agreement..................................................................... 14 5.12 Further Assurances.................................................................... 14

Schedule Coinvestors EXHIBITS A Articles of Incorporation B By-laws i Schedule Coinvestors Vectis CP Holdings, LLC Campina Enterprises Limited Cenwell Limited Great Affluent Limited Dragonfield Limited Lion Cosmos Limited i AMENDED AND RESTATED STOCKHOLDERS AGREEMENT AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (this "Agreement"), dated November __, 2003, among Critical Path, Inc., a California corporation (the "Company"), General Atlantic Partners 74, L.P., a Delaware limited partnership ("GAP LP"), GAP Coinvestment Partners II, L.P., a Delaware limited partnership ("GAP Coinvestment"), GapStar, LLC, a Delaware limited liability company ("GapStar"), GAP-W, LLC, a Delaware limited liability company ("GAP-W"), GAPCO GmbH & Co. KG, a German limited partnership ("GmbH Coinvestment"), and the Persons listed on the Schedule hereto (the "Coinvestors"). WHEREAS, pursuant to the Stock and Warrant Purchase and Exchange Agreement, dated November 8, 2001, as amended from time to time (the "Stock Purchase Agreement"), among the Company, GAP LP, GAP Coinvestment, GapStar and the Coinvestors, the Company has (i) issued and sold to GAP LP, GAP Coinvestment, GapStar and the Coinvestors an aggregate of 708,037 shares of Series D Cumulative Redeemable Convertible Participating Preferred Stock, par value $0.001 per share, of the Company, as amended from time to time (the "Series D Preferred Stock"), (ii) issued and delivered to GAP LP, GAP Coinvestment and GapStar an aggregate of 1,837,418 shares of Series D Preferred Stock in exchange for a certain amount of convertible subordinated notes of the Company and (iii) issued and sold to GAP LP, GAP Coinvestment and GapStar warrants (the "Warrants") to purchase shares of Common Stock; and WHEREAS, pursuant to the Convertible Note Purchase and Exchange Agreement, dated November 18, 2003 (the "Convertible Note Purchase and Exchange Agreement"), among the Company, GAP LP, GAP Coinvestment, GapStar, GAP-W, GAPCO GmbH Coinvestment, Campina Enterprises Limited ("Campina Enterprises Limited"), Cenwell Limited ("Cenwell Limited"), Great Affluent Limited ("Great Affluent Limited"), Dragonfield Limited ("Dragonfield Limited") and Lion Cosmos Limited ("Lion Cosmos Limited"), (i) the Company has issued and sold to GAP LP, GAP Coinvestment, GapStar, GAP-W and GAPCO GmbH Coinvestment convertible promissory notes in the principal amount of $10,000,000 (the "Notes"), which are convertible into shares, par value $0.001 per share, of Series E Convertible Preferred Stock of the Company (the "Series E Preferred Stock") and (ii) Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited agreed upon the satisfaction of certain conditions to exchange their CK Sub Notes (as hereinafter defined) for shares of Series E Preferred Stock; and WHEREAS, the parties hereto wish to provide for, among other things, preemptive rights, corporate governance rights and standstill obligations and certain other rights under certain conditions. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Definitions. As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated: "Affiliate" shall mean any Person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. "Agreement" means this Agreement as the same may be amended, supplemented or modified in accordance with the terms hereof. "Board of Directors" means the Board of Directors of the Company. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in the State of New York or the State of California are authorized or required by law or executive order to close. "Campina Enterprises Limited" has the meaning set forth in the recitals of this Agreement. "Cenwell Limited" has the meaning set forth in the recitals of this Agreement. "Charter Documents" means the Articles of Incorporation and the By-laws of the Company as in effect on the date hereof after giving effect to the filing of the Amended and Restated Certificate of Determination with respect to the Series D Preferred Stock and the Certificate of Determination with respect to the Series E Preferred Stock with the Secretary of State of the State of California, copies of which are attached hereto as Exhibit A and Exhibit B, respectively. "CK Sub Notes" means the 5 3/4% Convertible Subordinated Notes, due April 1, 2005, issued by the Company in the principal face amount of $32,795,000 pursuant to the Company's Indenture, dated March 31, 2000, and standing in the name of Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited or Lion Cosmos Limited on the books of the Company. "Coinvestor Stockholders" means the Coinvestors and any Affiliate of a Coinvestor that, after the date hereof, acquires Shares, and the term "Coinvestor Stockholder" shall mean any such person. "Coinvestors" has the meaning set forth in the preamble to this Agreement. "Coinvestors Sub-group" has the meaning set forth in Section 4.1(c) of this Agreement. "Commission" means the Securities and Exchange Commission or any similar agency then having jurisdiction to enforce the Securities Act. "Common Stock" means the Common Stock, par value $.001 per share, of the Company and any other capital stock of the Company into which such stock is reclassified or reconstituted and any other common stock of the Company. 2 "Common Stock Equivalents" means any security or obligation which is by its terms convertible, exchangeable or exercisable into or for shares of Common Stock, including, without limitation the Series D Preferred Stock, Series E Preferred Stock and any option, warrant or other subscription or purchase right with respect to Common Stock or any Common Stock Equivalent. "Company" has the meaning set forth in the preamble to this Agreement. "Contingent Obligation" means, as applied to any Person, any direct or indirect liability of that Person with respect to any Indebtedness, lease, dividend, guaranty, letter of credit or other obligation, contractual or otherwise (the "primary obligation") of another Person (the "primary obligor"), whether or not contingent, (a) to purchase, repurchase or otherwise acquire such primary obligations or any property constituting direct or indirect security therefor, (b) to advance or provide funds (i) for the payment or discharge or any such primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) otherwise to assure or hold harmless the owner of any such primary obligation against loss or failure or inability to perform in respect thereof. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof. "Convertible Note Purchase and Exchange Agreement" has the meaning set forth in the recitals to this Agreement. "Dragonfield Limited" has the meaning set forth in the recitals of this Agreement. "Escrow Agreement" has the meaning set forth in the recitals to this Agreement. "Excess New Securities" has the meaning set forth in Section 2.2(a) of this Agreement. "Exchange" has the meaning set forth in the Convertible Note Purchase and Exchange Agreement. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder. "Exempt Issuances" has the meaning set forth in Section 2.1 of this Agreement. "GAP Coinvestment" has the meaning set forth in the preamble to this Agreement. 3 "GAP LLC" means General Atlantic Partners, LLC, a Delaware limited liability company and the general partner of GAP LP and the managing member of GapStar, and any successor to such entity. "GAP LP" has the meaning set forth in the preamble to this Agreement. "GAP-W" has the meaning set forth in the preamble to this Agreement. "GapStar" has the meaning set forth in the preamble to this Agreement. "General Atlantic Director" has the meaning set forth in Section 3.2(a) of this Agreement. "General Atlantic Stockholders" means GAP LP, GAP Coinvestment, GapStar, GAP-W, GmbH Coinvestment and any Affiliate of GAP LLC that, after the date hereof, acquires Shares, and the term "General Atlantic Stockholder" shall mean any such Person. "GmbH Coinvestment" has the meaning set forth in the preamble to this Agreement. "Governmental Authority" means the government of any nation, state, city, locality or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "Great Affluent Limited" has the meaning set forth in the recitals of this Agreement. "Indebtedness" means, as to any Person, (a) all obligations of such Person for borrowed money (including, without limitation, reimbursement and all other obligations with respect to surety bonds, letters of credit and bankers' acceptances, whether or not matured), (b) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable and accrued commercial or trade liabilities arising in the ordinary course of business, (c) all interest rate and currency swaps, caps, collars and similar agreements or hedging devices under which payments are obligated to be made by such Person, whether periodically or upon the happening of a contingency, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all obligations of such Person under leases which have been or should be, in accordance with United States generally accepted accounting principles in effect from time to time, recorded as capital leases, (f) all indebtedness secured by any Lien (other than Liens in favor of lessors under leases other than leases included in clause (e)) on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is non-recourse to the credit of that Person and (g) any Contingent Obligation of such Person. 4 "Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment, encumbrance, lien (statutory or other) or preference, priority, right or other security interest or preferential arrangement of any kind or nature whatsoever (excluding preferred stock and equity related preferences). "Lion Cosmos Limited" has the meaning set forth in the recitals of this Agreement. "Nasdaq" means The Nasdaq Stock Market, Inc. "New Issuance Notice" has the meaning set forth in Section 2.1 of this Agreement. "New Securities" has the meaning set forth in Section 2.1 of this Agreement. "Notes" has the meaning set forth in the recitals to this Agreement. "Person" means any individual, firm, corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, limited liability company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. "Preemptive Rightholder(s)" has the meaning set forth in Section 2.1 of this Agreement. "Proportionate Percentage" has the meaning set forth in Section 2.2(a) of this Agreement. "Proposed Price" has the meaning set forth in Section 2.1 of this Agreement. "Requirement of Law" means, as to any Person, any law, statute, treaty, rule, regulation, right, privilege, qualification, license or franchise or determination of an arbitrator or a court or other governmental authority or stock exchange, in each case applicable or binding upon such Person or any of its property or to which such Person or any of its property is subject or pertaining to any or all of the transactions contemplated or referred to herein. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "Series D Preferred Stock" has the meaning set forth in the recitals to this Agreement. "Series E Preferred Stock" has the meaning set forth in the recitals to this Agreement. "Shares" means, with respect to each Stockholder, all shares, whether now owned or hereafter acquired, of Common Stock, Series D Preferred Stock and Series E Preferred Stock, and any other Common Stock Equivalents owned thereby; provided, however, for the purposes 5 of any computation of the number of Shares pursuant to Sections 2.2 and 5.3, all outstanding Common Stock Equivalents shall be deemed converted, exercised or exchanged as applicable and the shares of Common Stock issuable upon such conversion, exercise or exchange shall be deemed outstanding, whether or not such conversion, exercise or exchange has actually been effected. "Standstill Ceiling" has the meaning set forth in Section 4.1(a) of this Agreement. "Standstill Expiration Date" means November 8, 2008. "Stock Option Plans" means the Company's stock option plans and employee purchase plans pursuant to which shares of restricted stock and options to purchase shares of Common Stock are reserved and available for grant to officers, directors, employees and consultants of the Company. "Stock Purchase Agreement" has the meaning set forth in the recitals to this Agreement. "Stockholder Approval" has the meaning set forth in the Convertible Note Purchase and Exchange Agreement. "Stockholders" means the General Atlantic Stockholders and the Coinvestor Stockholders. "Stockholders Meeting" has the meaning set forth in Section 4.2 of this Agreement. "Subject Purchaser" has the meaning set forth in Section 2.1 of this Agreement. "Vectis Stockholders" has the meaning set forth in Section 4.1(c) of this Agreement. "Warrants" has the meaning set forth in the recitals to this Agreement. "Written Consent" has the meaning set forth in Section 4.2 of this Agreement. 2. Future Issuance of Shares; Preemptive Rights. 2.1 Offering Notice. Except for (a) options to purchase Series E Preferred Stock or Common Stock or restricted stock which may be issued pursuant to the Stock Option Plans, (b) a subdivision of the outstanding shares of Common Stock into a larger number of shares of Common Stock, (c) capital stock issued upon exercise, conversion or exchange of any Common Stock Equivalent either (x) previously issued or (y) issued in accordance with the terms of this Agreement or the Convertible Note Purchase and Exchange Agreement, (d) capital stock of the Company issued in consideration of an acquisition, approved by the Board of Directors, by the Company of another Person, (e) shares of Common Stock issued as a dividend on the Series D Preferred Stock or Series E Preferred Stock, (f) shares of Common Stock or Common Stock Equivalents issued in strategic transactions (which may not be private equity or venture 6 capital financing transactions) approved by the Board of Directors to Persons that are not principally engaged in financial investing and (g) up to 10,000,000 shares of Series E Preferred Stock which may be issued pursuant to Section 2.7 of the Convertible Note Purchase and Exchange Agreement ((a)-(g) being referred to collectively as "Exempt Issuances"), if the Company wishes to issue any capital stock or any other securities convertible into or exchangeable for capital stock of the Company pursuant to a private placement exempt from registration under the Securities Act, other than any such private placement that is made solely to Qualified Institutional Buyers (as defined in the Securities Act) in reliance on Rule 144A promulgated under the Securities Act (collectively, "New Securities") to any Person (the "Subject Purchaser"), then the Company shall offer such New Securities first to each of the General Atlantic Stockholders and the Coinvestor Stockholders (each, a "Preemptive Rightholder" and collectively, the "Preemptive Rightholders") by sending written notice (the "New Issuance Notice") to the Preemptive Rightholders, which New Issuance Notice shall state (x) the number of New Securities proposed to be issued and (y) the proposed purchase price per security of the New Securities (the "Proposed Price"). Upon delivery of the New Issuance Notice, such offer shall be irrevocable unless and until the rights provided for in Section 2.2 shall have been waived or shall have expired. 2.2 Preemptive Rights; Exercise. (a) For a period of twenty (20) days after the giving of the New Issuance Notice pursuant to Section 2.1, each of the Preemptive Rightholders shall have the right to purchase its Proportionate Percentage (as hereinafter defined) of the New Securities at a purchase price equal to the Proposed Price and upon the same terms and conditions set forth in the New Issuance Notice. Each Preemptive Rightholder shall have the right to purchase that percentage of the New Securities determined by dividing (x) the total number of Shares then owned by such Preemptive Rightholder by (y) the total number of Shares owned by all of the Preemptive Rightholders (the "Proportionate Percentage"). If any Preemptive Rightholder does not fully subscribe for the number or amount of New Securities that it or he is entitled to purchase pursuant to the preceding sentence, then each Preemptive Rightholder which elected to purchase New Securities shall have the right for a five (5) day period to purchase that percentage of the remaining New Securities not so subscribed for (for the purposes of this Section 2.2(a), the "Excess New Securities") determined by dividing (x) the total number of Shares then owned by such fully participating Preemptive Rightholder by (y) the total number of Shares then owned by all fully participating Preemptive Rightholders who elected to purchase Excess New Securities. Each of the Stockholders may transfer all or any portion of its rights to purchase New Securities under this Section 2 to any of its Affiliates. (b) The right of each Preemptive Rightholder to purchase the New Securities or Excess New Securities, as the case may be, under subsection (a) above shall be exercisable by delivering written notice of the exercise thereof, prior to the expiration of the 20-day period referred to in subsection (a) above with respect to New Securities or prior to the expiration of the 5-day period referred to in subsection (a) above with respect to Excess New Securities, to the Company, which notice shall state the amount of New Securities that such Preemptive Rightholder elects to purchase pursuant to Section 2.2(a). The failure of a Preemptive Rightholder to respond within such 20-day or 5-day period shall be deemed to be a 7 waiver of such Preemptive Rightholder's rights under Section 2.2(a), provided that each Preemptive Rightholder may waive its rights under Section 2.2(a) prior to the expiration of such 20-day or 5-day period by giving written notice to the Company. 2.3 Closing. The closing of the purchase of New Securities or Excess New Securities subscribed for by the Preemptive Rightholders under Section 2.2 shall be held at the executive office of the Company at 11:00 a.m., local time, on (a) the 30th day after the giving of the New Issuance Notice pursuant to Section 2.1, if the Preemptive Rightholders elect to purchase all of the New Securities under Section 2.2, (b) the date of the closing of the sale to the Subject Purchaser made pursuant to Section 2.4 if the Preemptive Rightholders elect to purchase some, but not all, of the New Securities under Section 2.2 or (c) at such other time and place as the parties to the transaction may agree. At such closing, the Company shall deliver certificates representing the New Securities, and such New Securities shall be issued free and clear of all Liens (other than those attributable to actions by the purchasers thereof) and the Company shall so represent and warrant, and further represent and warrant (in addition to other customary representations and warranties) that such New Securities shall be, upon issuance thereof to the Preemptive Rightholders and after payment therefor, duly authorized, validly issued, fully paid and non-assessable. Each Preemptive Rightholder purchasing the New Securities shall deliver at the closing payment in full in immediately available funds for the New Securities purchased by him or it. At such closing all of the parties to the transaction shall execute such additional documents as are customary for transactions of this type. 2.4 Sale to Subject Purchaser. The Company may sell to the Subject Purchaser all of the New Securities not purchased by the Preemptive Rightholders pursuant to Section 2.2 on terms and conditions that are no more favorable to the Subject Purchaser than those set forth in the New Issuance Notice; provided, however, that such sale is bona fide and made pursuant to a contract entered into within ninety (90) days following the earlier to occur of (i) the waiver by the Preemptive Rightholders of their option to purchase New Securities or Excess New Securities pursuant to Section 2.2, or (ii) the expiration of the 20-day or 5-day period referred to in Section 2.2. If such sale is not consummated within such 90-day period for any reason, then the restrictions provided for herein shall again become effective, and no issuance and sale of New Securities may be made thereafter by the Company without again offering the same in accordance with this Section 2. The closing of any issuance and sale pursuant to this Section 2.4 shall be held at a time and place as the parties to the transaction may agree within such 90-day period. 3. Corporate Governance. 3.1 Board of Directors; Number and Composition. (a) The Company shall take all actions reasonably necessary to cause the nomination to the Board of Directors of one (1) individual designated by the General Atlantic Stockholders but only if the General Atlantic Stockholders are not entitled to elect one director of the Company by virtue of their rights as the holders of a majority of the shares of Series D Preferred Stock (the "General Atlantic Director"). 8 (b) If so requested by the Coinvestor Sub-group, the Company shall cause the nomination to the Board of Directors of one (1) individual designated by the Coinvestor Sub-group but only if the Coinvestor Sub-group is not entitled to elect one director of the Company by virtue of their rights as the holders of a majority of the shares of Series E Preferred Stock (the "Sub-group Director"). 3.2 Reimbursement of Expenses; D&O Insurance. The Company shall reimburse the General Atlantic Director for all reasonable travel and accommodation expenses incurred by him in connection with the performance of his duties as director of the Company upon presentation of appropriate documentation therefor. The Company shall use reasonable commercial efforts to maintain a directors' liability insurance policy that is reasonably acceptable to the Board of Directors. 3.3 Meetings of the Board of Directors. The Company agrees to take such actions as are necessary to cause the Board of Directors to meet in person or telephonically not less frequently than once during each calendar month. 3.4 Annual Budget. Not less than thirty (30) days prior to the end of each fiscal year, the Company shall prepare and submit to the Board of Directors for its approval an annual operating budget of the Company for the next succeeding fiscal year in reasonable detail. 3.5 Coinvestor Sub-group Rights. Notwithstanding anything to the contrary set forth in the Charter Documents, so long as the Coinvestor Sub-group owns at least 7,000,000 shares of Series E Preferred Stock (subject to anti-dilution adjustment for stock splits of, combinations of and capital reorganizations with respect to the Series E Preferred Stock) the consent and approval of the Coinvestor Sub-group, voting separately as a class, shall be a prerequisite to: (a) any action that would result in a deemed dividend to the shares of Series E Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as amended; or (b) the issuance, incurrence, assumption or guarantee by the Corporation or any Subsidiary of the Corporation of any funded Indebtedness (excluding capital leases incurred in the ordinary course of business but including the incurrence of any debt in connection with any borrowing arrangements with Silicon Valley Bank, provided that, with respect to the incurrence of any debt in connection with any borrowing arrangements with Silicon Valley Bank, if the members of the Coinvestor Sub-group do not respond to a written request for consent by the Company within two Business Days of receiving such request, such members shall be deemed to have consented). 4. Standstill; Nasdaq Matters. 4.1 Standstill. Without the approval or written consent of the Board of Directors, none of the General Atlantic Stockholders or any of their Affiliates, and none of the Coinvestor Stockholders or any of their respective Affiliates shall, severally and not jointly, at any time prior to the Standstill Expiration Date: 9 (a) purchase or otherwise acquire, or propose or offer to purchase or acquire, any shares of the Company's capital stock, whether by tender offer, market purchase, privately negotiated purchase, merger or otherwise, any shares of the Company's capital stock or any Common Stock Equivalents in excess of the number of shares of the Company's capital stock and Common Stock Equivalents purchased pursuant to the Stock Purchase Agreement (subject to adjustments and issuances of additional Common Stock Equivalents pursuant to the Amended and Restated Certificate of Determination with respect to the Series D Preferred Stock) and the Convertible Note Purchase and Exchange Agreement (subject to adjustments and issuances of additional Common Stock Equivalents pursuant to the Certificate of Determination with respect to the Series E Stock) with respect to each such Stockholder and its Affiliates considered severally and not jointly with any other Stockholder and its Affiliates (the "Standstill Ceiling"); provided, however, that in no event shall any such Stockholder acquire any Shares in a transaction in such an amount that when aggregated with the shares of the Company's capital stock already owned by such Stockholder, the acquisition of such shares of the Company's capital stock would require stockholder approval under applicable Nasdaq rules and policies; and provided, further, that the dividends that accrue on the shares of Series D Preferred Stock and Series E Preferred Stock pursuant to the terms thereof shall be excluded for purposes of calculating whether or not a Stockholder and its Affiliates have exceeded the Standstill Ceiling; (b) except as specified in this Agreement, make, or in any way participate, directly or indirectly, in any "solicitation" of "proxy" (as such terms are defined or used in Regulation 14A of the Exchange Act) to vote, or seek to advise or influence any Person with respect to the voting of, any shares of the Company's capital stock, or become a "participant" in any "election contest" (as such terms are used or defined in Regulation 14A of the Exchange Act) relating to the election of directors of the Company; provided, however, that none of the General Atlantic Stockholders, the Coinvestor Stockholders or any of their respective Affiliates shall be deemed to have engaged in a "solicitation" or to have become a "participant" by reason of the membership of designees of the General Atlantic Stockholders, the Coinvestor Stockholders or any of their respective Affiliates on the Board of Directors; (c) form, join or in any way participate in a "group" (within the meaning of Section 13(d)(3) of the Exchange Act) or otherwise act in concert with any Person for the purpose of acquiring, holding, voting or disposing of any shares of the Company's capital stock; provided, however, that (i) the General Atlantic Stockholders may act as a group for the purpose of acquiring, holding, voting or disposing of any shares of the Company's capital stock, (ii) Vectis CP Holdings, LLC and any Affiliate thereof that acquires shares of the Company's capital stock (the "Vectis Stockholders") may act as a group for the purpose of acquiring, holding, voting or disposing of any shares of the Company's capital stock, (iii) Cenwell Limited, Campina Enterprises Limited, Great Affluent Limited, Dragonfield Limited, or Lion Cosmos Limited or any Affiliate thereof that acquires shares of the Company's capital stock (the "Coinvestor Sub-group") may act as a group for the purpose of acquiring, holding, voting or disposing of any shares of the Company's capital stock; and provided further, that, for the avoidance of doubt, the General Atlantic Stockholders, the Vectis Stockholders and the Coinvestor Sub-group may not together act as a group for the purpose of acquiring, holding, voting or disposing of any shares of the Company's capital stock; or 10 (d) request the Company (or its directors, officers, employees or agents), to take any action which would reasonably be expected to require pursuant to law the Company to make a public announcement or proposal or offer with respect to (i) any form of business combination or transaction involving the Company including, without limitation, a merger, consolidation, tender or exchange offer, sale or purchase of assets, or dissolution or liquidation of the Company or (ii) instigate, encourage or assist any Person to do any of the foregoing. 4.2 Nasdaq Matters. The Company shall use all commercially reasonable efforts to maintain the quotation and listing on Nasdaq of all of the shares of Common Stock issuable upon conversion of the Series D Preferred Stock and Series E Preferred Stock and all of the shares of Common Stock issuable upon exercise of the Warrants. 5. Miscellaneous. 5.1 Notices. All notices, demands or other communications provided for or permitted hereunder shall be made in writing and shall be by registered or certified first class mail, return receipt requested, telecopier, courier service or personal delivery: (a) if to the Company: Critical Path, Inc. 532 Folsom Street San Francisco, CA 94105 Telecopy: (415) 808-8898 Attention: Chief Financial Officer with a copy to, which shall not constitute notice: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Telecopy: (415) 983-1200 Attention: Gregg F. Vignos, Esq. (b) if to any of the General Atlantic Stockholders: c/o General Atlantic Service Corporation 3 Pickwick Plaza Greenwich, CT 06830 Telecopy: (203) 622-8818 Attention: Matthew Nimetz Thomas J. Murphy with a copy to, which shall not constitute notice: Paul, Weiss, Rifkind, Wharton & Garrison LLP 1285 Avenue of the Americas 11 New York, NY 10019-6064 Telecopy: (212) 757-3990 Attention: Douglas A. Cifu, Esq. (c) if to the Coinvestor Stockholders: (i) if to Vectis CP Holdings, LLC: c/o Vectis Group, LLC 117 Greenwich Street San Francisco, CA 94111 Telecopy: (415) 352-5310 Attention: Matthew Hobart with a copy to, which shall not constitute notice: Kirkland & Ellis 153 East 53rd Street New York, NY 10022-4675 Telecopy: (212) 446-4900 Attention: Michael Movsovich, Esq. (ii) if to Campina Enterprises Limited, Great Affluent Limited, Dragonfield Limited or Lion Cosmos Limited: c/o 7th Floor Cheung Kong Center 2 Queen's Road Central Hong Kong Telecopy: (852) 2845-2057 Attention: Mr. Edmond Ip (iii) if to Cenwell Limited: c/o 22nd Floor Hutchison House 10 Harcourt Road Hong Kong Telecopy: (852) 2128-1778 Attention: Company Secretary All such notices, demands and other communications shall be deemed to have been duly given when delivered by hand, if personally delivered; when delivered by courier, if delivered by commercial courier service; five (5) Business Days after being deposited in the mail, postage prepaid, if mailed; and when receipt is mechanically acknowledged, if telecopied. Any party may by notice given in accordance with this Section 5.1 designate another address or Person for receipt of notices hereunder. 12 5.2 Successors and Assigns; Third Party Beneficiary. This Agreement shall inure to the benefit of and be binding upon successors and permitted assigns of the parties hereto. No person other than the parties hereto and their successors and permitted assigns is intended to be a beneficiary of this Agreement. 5.3 Amendment and Waiver. (a) No failure or delay on the part of any party hereto in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to the parties hereto at law, in equity or otherwise. (b) Any amendment, supplement or modification of or to any provision of this Agreement, any waiver of any provision of this Agreement, and any consent to any departure by any party from the terms of any provision of this Agreement, shall be effective only if it is made or given in writing and signed by (i) the Company, (ii) the General Atlantic Stockholders and (iii) the Coinvestor Stockholders holding a majority of the voting power of the Shares held by the Coinvestor Stockholders; provided, however, that to the extent that any such amendment or waiver adversely affects any of the Stockholders, such amendment or waiver shall require the prior written consent of each Stockholder so adversely affected; provided further, that any Stockholder may waive in writing any right that inures to such Stockholder. Any such amendment, supplement, modification, waiver or consent shall be binding upon the Company and all of the Stockholders. 5.4 Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 5.5 Specific Performance. The parties hereto intend that each of the parties have the right to seek damages or specific performance in the event that any other party hereto fails to perform such party's obligations hereunder. Therefore, if any party shall institute any action or proceeding to enforce the provisions hereof, any party against whom such action or proceeding is brought hereby waives any claim or defense therein that the plaintiff party has an adequate remedy at law. 5.6 Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 5.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. 5.8 Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect 13 for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof. 5.9 Rules of Construction. Unless the context otherwise requires, references to sections or subsections refer to sections or subsections of this Agreement. 5.10 Entire Agreement. This Agreement, together with the exhibits hereto, is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. There are no restrictions, promises, representations, warranties or undertakings, other than those set forth herein or therein or set forth in the Stock Purchase Agreement or the Convertible Note Purchase and Exchange Agreement. Subject to Section 5.11, upon the Subsequent Closing (as defined in the Convertible Note Purchase and Exchange Agreement), this Agreement, together with the exhibits hereto, shall supersede all prior agreements and understandings among the parties with respect to such subject matter. 5.11 Term of Agreement. Notwithstanding anything in this Agreement to the contrary, this Agreement shall become effective immediately following the Subsequent Closing. If the Subsequent Closing does not occur and the obligation to consummate the Conversion and the Exchange (each as defined in the Convertible Note Purchase and Exchange Agreement) is terminated pursuant to Article IX of the Convertible Note Purchase and Exchange Agreement, this Agreement shall immediately terminate and be of no further force or effect. If the Subsequent Closing does occur, this Agreement shall terminate upon the earlier of (a) with respect to a particular Stockholder, on the date that such Stockholder and its Affiliates beneficially own less than 5% of the actual outstanding shares of Common Stock (assuming conversion of the shares of Series D Preferred Stock and Series E Preferred Stock) or (b) the twentieth anniversary of the date hereof. 5.12 Further Assurances. Each of the parties shall, and shall cause their respective Affiliates to, execute such documents and perform such further acts as may be reasonably required or desirable to carry out or to perform the provisions of this Agreement. [the remainder of this page intentionally left blank] IN WITNESS WHEREOF, the undersigned have executed, or have caused to be executed, this Amended and Restated Stockholders Agreement on the date first written above. CRITICAL PATH, INC. By: /s/ Michael J. Zukerman ___________________________ Name: Michael J. Zukerman Title: Senior Vice President and General Counsel SIGNATURE PAGE TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT GENERAL ATLANTIC PARTNERS 74, L.P. By: GENERAL ATLANTIC PARTNERS, LLC, its General Partner By: /s/ Matthew Nimetz ___________________________ Name: Matthew Nimetz Title: A Managing Member GAP COINVESTMENT PARTNERS II, L.P. By: /s/ Matthew Nimetz ___________________________ Name: Matthew Nimetz Title: A General Partner GAPSTAR, LLC By: GENERAL ATLANTIC PARTNERS, LLC, its Managing Member By: /s/ Matthew Nimetz ___________________________ Name: Matthew Nimetz Title: A Managing Member GAP-W, LLC By: GENERAL ATLANTIC PARTNERS, LLC, its Manager By: /s/ Matthew Nimetz ___________________________ Name: Matthew Nimetz Title: A Managing Member GAPCO GMBH & CO. KG By: GAPCO MANAGEMENT GMBH, its General Partner By: /s/ Matthew Nimetz ___________________________ Name: Matthew Nimetz Title: A Managing Director SIGNATURE PAGE TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT VECTIS CP HOLDINGS, LLC, a Delaware limited liability company By: VECTIS GROUP, LLC, its Managing Member By: /s/ Matthew T. Hobart ___________________________ Name: Matthew T. Hobart Title: Managing Director SIGNATURE PAGE TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT CENWELL LIMITED By: /s/ Ip Tak Chuen, Edmond ___________________________ Name: Ip Tak Chuen, Edmond Title: Authorised Person CAMPINA ENTERPRISES LIMITED By: /s/ Ip Tak Chuen, Edmond ___________________________ Name: Ip Tak Chuen, Edmond Title: Director GREAT AFFLUENT LIMITED By: /s/ Ip Tak Chuen, Edmond ___________________________ Name: Ip Tak Chuen, Edmond Title: Director DRAGONFIELD LIMITED By: /s/ Pau Yee Wan, Ezra ___________________________ Name: Pau Yee Wan, Ezra Title: Authorized Person LION COSMOS LIMITED By: /s/ Pau Yee Wan, Ezra ___________________________ Name: Pau Yee Wan, Ezra Title: Director SIGNATURE PAGE TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT EX-4.21 6 f97295exv4w21.txt EXHIBIT 4.21 EXHIBIT 4.21 NOTE THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS. CRITICAL PATH, INC. CONVERTIBLE SUBORDINATED PROMISSORY NOTE $8,277,526.00 San Francisco, California November 26, 2003 Critical Path, Inc., a California corporation (the "Company"), the principal office of which is located in San Francisco, California, for value received hereby promises to pay to the order of General Atlantic Partners 74, L.P., or its registered assigns ("Holder"), the sum of eight million two hundred seventy-seven thousand five hundred twenty-six and 0/100 dollars ($8,277,526.00), or such lesser amount as shall then equal the outstanding principal amount hereof on the terms and conditions set forth hereinafter. The outstanding principal amount hereof and all accrued and unpaid interest hereon, as set forth below, shall be due and payable on the earlier to occur of (i) November 26, 2007, (ii) when declared due and payable by Holder upon the occurrence of an Event of Default (as defined below), (iii) consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock or Stock Equivalents by the Company, any cash capital contribution from any third person or any other debt or equity financing consummated by the Company after the date of issuance of this Note which, in the case of (v), individually or in the aggregate raises proceeds of at least forty million dollars ($40,000,000) in cash or cash equivalents (the earliest of the events set forth in items (i)-(v) immediately above, the "Maturity Date"); provided, however, that in the event that the Maturity Date is on or before November 26, 2004, the Company shall also make an additional payment to Holder equal to the amount of interest which would have otherwise accrued on the outstanding principal amount of the Note on the Maturity Date between the Maturity Date and November 26, 2004. The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 2 1. Definitions. Except as otherwise defined herein, each capitalized term used herein shall have the meaning assigned to it in the Purchase Agreement, as in effect on the date hereof, and without regard to any subsequent termination of the Purchase Agreement. All other references to the Purchase Agreement in this Note refer to the Purchase Agreement as in effect on the date hereof, and without regard to any subsequent termination of the Purchase Agreement. As used in this Note, the following terms, unless the context otherwise requires, have the following meanings: 1.1 "Affiliate" means any Person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended. 1.2 "Capitalized Lease Obligations" means, with respect to any Person, all rental obligations of such Person which, under GAAP, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with such principles. 1.3 "Change of Control" shall mean (i) any merger, consolidation or other business combination transaction (or series of related transactions) in which the stockholders owning a majority of the voting securities of the Company prior to such transaction do not own a majority of the voting securities of the surviving entity, (ii) any tender offer, exchange offer or other transaction whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended) (other than General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and the Affiliates of the foregoing, provided that Affiliates shall be deemed not to include any portfolio companies of any of the foregoing) obtains a majority of the outstanding shares of capital stock entitled to vote in the election of directors, (iii) any proxy contest in which a majority of the Board of Directors of the Company (or persons appointed by such Board of Directors) prior to such contest do not constitute a majority of the Company's Board of Directors after such contest or (iv) any other transaction described in any stockholder rights agreement or "poison pill," if any, to which the Company is party, which may permit the holders of any rights or similar certificates to exercise the rights evidenced thereby. 1.4 "Company" shall have the meaning set forth in the recitals hereto, and includes any corporation that shall succeed to or assume the obligations of the Company under this Note. 1.5 "Conversion Date" shall mean the Subsequent Closing Date. 1.6 "Designated Preferred Stock" shall mean the Series D Preferred Stock, par value $0.001, of the Company and the Series E Preferred Stock. 3 1.7 "Domestic Subsidiary" shall have the meaning set forth in Section 5.10 hereof. 1.8 "Event of Default" shall have the meaning set forth in Section 6 hereof. 1.9 "Guaranteed Interest" shall mean the total amount of interest that would accrue on this Note, at the Interest Rate specified in Section 2, from the date of this Note until the one year anniversary of the date of this Note. 1.10 "Guarantor" shall have the meaning set forth in the Security Agreement. 1.11 "Holder" shall mean the registered holder of this Note from time to time, and in the plural, shall mean all registered holders of Notes from time to time issued by the Company pursuant to the Purchase Agreement. 1.12 "Interest Amount" shall have the meaning set forth in Section 3.1 hereof. 1.13 "Investment" means (i) the acquisition (whether for cash, property, services, assumption of Indebtedness, securities or otherwise) of assets (other than equipment, inventory, supplies or other assets acquired in the ordinary course of business of the Company), capital stock, bonds, notes, debentures, partnership, joint venture or other ownership interests or other securities of any Person, (ii) any deposit with, or advance, loan or other extension of credit to, or on behalf of, any Person (other than deposits made in connection with the purchase of equipment, inventory, services, leases, supplies or other assets in the ordinary course of business of the Company), (iii) any other capital contribution to or investment in such Person, including, without limitation, any guaranty obligation incurred for the benefit of such Person. For the sake of clarity, Investments shall include any transfer of property or assets by the Company to any of its Subsidiaries or by any Subsidiary of the Company to any other Subsidiary. 1.14 "Loan Documents" shall have the meaning set forth in the Security Agreement. 1.15 "Note" shall mean this note, and in the plural, shall mean all notes issued to the Lenders pursuant to the terms of the Purchase Agreement, including this Note, and all amendments, modifications and extensions thereto. 1.16 "Permitted Investments" means (i) Investments in cash or cash equivalents, (ii) accounts receivable created, acquired or made in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (iii) Investments existing on the closing date, and listed on Schedule 3.27 to the Purchase Agreement, (iv) guaranty obligations permitted by Section 5.3 of this Agreement, (v) loans to employees, directors or officers of the Company in connection with the award of convertible bonds or capital stock under a stock incentive plan, stock option plan or other equity-based compensation plan or arrangement, (vi) other advances or loans to 4 employees, directors, officers or agents of the Company in the ordinary course of business not to exceed $500,000 in the aggregate at any time outstanding; (vii) loans, advances and investments in foreign Subsidiaries (that are not incorporated or otherwise organized under the laws of the United States of America or any state thereof) in an amount not to exceed $1,000,000 in the aggregate at any time outstanding; (viii) any acquisition for which the prior written consent of the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Purchase Agreement has been obtained, (ix) other loans, advances and investments of a nature not contemplated by the foregoing sections in an amount not to exceed $500,000 in the aggregate at any time outstanding or (x) Investments by the Company in the Guarantor. 1.17 "Permitted Liens" shall have the meaning set forth in Section 5.4. 1.18 "Person" means any individual, firm, corporation, partnership, trust, joint venture, joint stock company, limited liability company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. 1.19 "Price Per Share" shall have the meaning attributed to such term in the Series E Certificate of Determination, as filed with the Secretary of State of the State of California. 1.20 "Purchase Agreement" means that certain Convertible Note Purchase and Exchange Agreement, dated November 18, 2003, among the Company, the Holder and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.21 "Qualified Asset Sale" means the sale, transfer or other disposition of any of the assets of the Company or any of its Subsidiaries, other than (a) sales of assets in the ordinary course of business, (b) sales of assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the sale, transfer or other disposition of assets of the Company where the proceeds are applied to the purchase price or traded in for credit against the purchase price of other assets, provided that any such purchase is made, or credit issued, within 90 days of the sale, transfer or other disposition, and (d) one or more sales of the Company's assets (other than sales otherwise included in clauses (a), (b), and (c) immediately above) which collectively yield up to an aggregate of one million dollars ($1,000,000) in gross proceeds to the Company while this Note is outstanding. 1.22 "Restricted Payment" means (a) any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Company or any of its Subsidiaries or (b) any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any shares of any class of capital stock of the Company or any Subsidiary 5 or any option, warrant or other right to acquire any such shares of capital stock of the Company or any Subsidiary. 1.23 "Security Agreement" means that certain Guaranty and Security Agreement, of even date herewith between the Company, Compass Holding Corp., the Lenders and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.24 "Series E Conversion Price" shall have the meaning set forth in the Series E Certificate of Determination. 1.25 "Series E Preferred Stock" means the Series E Preferred Stock, par value $0.001, of the Company. 1.26 "Subordination Agreement" shall have the meaning set forth in Section 5.3. 1.27 "SVB" means Silicon Valley Bank, a California chartered bank, or any Affiliates thereof. 1.28 "UCC" shall have the meaning set forth in Section 5.4. 2. Interest. Simple interest shall accrue at the rate of ten percent (10%) per annum (or such lesser amount as shall equal the highest rate of interest allowable under applicable law) (the "Interest Rate"), on the outstanding principal of this Note from the date of this Note until the Maturity Date or the date this Note is otherwise repaid. The Company shall not be obligated to make any payments of interest which shall have accrued under this Note prior to the Maturity Date. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. In the event that the principal amount of this Note, any interest, or any amount payable hereunder is not paid in full when such amount becomes due and payable, or upon the occurrence of an Event of Default, interest shall accrue at the lesser of (a) the initial Interest Rate plus five percent (5%) per annum or (b) the highest rate of interest allowable under applicable law, on the balance of all amounts outstanding until such overdue amounts are paid or the Event of Default is cured, and such interest shall be payable on demand. 3. Conversion. 3.1 Conversion. On the Conversion Date, the principal amount of this Note plus the greater of (i) the accrued and unpaid interest thereon and (ii) the Guaranteed Interest (the greater of clause (i) and (ii), the "Interest Amount"), shall be automatically converted into the number of fully paid and nonassessable shares of Series E Preferred Stock equal to the quotient obtained by dividing (a) the entire principal amount of this Note plus the Interest Amount by (b) the Price Per Share. 3.2 Notice of Conversion. Upon conversion of this Note as provided in Section 3.1, Holder shall surrender this Note to the Company and shall state the name or names in which the certificate or certificates for such shares of Series E 6 Preferred Stock are to be issued. The Person or Persons entitled to receive the shares of Series E Preferred Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Series E Preferred Stock as of the Conversion Date. 3.3 Delivery of Stock Certificates. On the Conversion Date, the Company at its expense will issue and deliver to Holder of this Note a certificate or certificates (bearing such legends as are required by applicable state and federal securities laws in the opinion of counsel to the Company) for the number of full shares of Series E Preferred Stock issuable upon such conversion. 3.4 Mechanics and Effect of Conversion. No fractional shares of Series E Preferred Stock shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to Holder upon the conversion of this Note, the Company shall pay to Holder the amount of outstanding principal and interest that is not so converted. Upon conversion of all amounts due under this Note, the Company shall be released from all of its obligations under this Note. 4. Adjustments. The number of shares of Series E Preferred Stock convertible hereunder are subject to adjustment from time to time as follows: 4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at any time while this Note remains outstanding and unexpired there shall be (a) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (b) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise or (c) a sale or transfer of the Company's stock, properties or assets as, or substantially as, an entirety to any other Person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that Holder shall thereafter be entitled to receive by converting this Note the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon conversion of this Note would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Note had been converted immediately before such reorganization, merger, consolidation, sale or transfer (notwithstanding that the Stockholder Approval may not yet have been obtained), all subject to further adjustment as provided in this Section 4. The foregoing provisions of this Section 4.1 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation. If the per share consideration payable to Holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors based on the amount the Holder would have otherwise been entitled to receive had the transaction or transactions not occurred. In all events, appropriate adjustment (as determined in good faith by the Company's 7 Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of Holder after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon conversion of this Note. The Company shall be obligated to retain and set aside, or otherwise make fair provision for exercise of the right of the Holder to receive, the shares of stock and/or other securities, cash or other property provided for in this Section 4.1. 4.2 Election of Holder upon Merger or Sale of Assets. Notwithstanding anything to the contrary contained herein, if an event shall occur as provided in Section 4.1 hereof that would otherwise result in the occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first paragraph of this Note, then the Holder may, in its sole discretion, by written notice to the Company elect to convert the principal amount of this Note plus the Interest Amount into the number of shares of stock or other securities or property described in Section 4.1, in lieu of receiving payment in full of all amounts outstanding under this Note. The number of shares of stock or other securities or property to be issued upon such conversion shall be determined in accordance with Section 4.1 hereof, taking into account the occurrence of such event. 4.3 Reclassification, Etc. If the Company shall, at any time while this Note, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, change any of the securities as to which conversion rights under this Note exist into the same or a different number of securities of any other class or classes, this Note shall thereafter represent the right to acquire such number and kind of securities as would have been issuable with respect to the securities that were subject to the conversion rights under this Note immediately prior to such reclassification or other change, and the Price Per Share shall be appropriately adjusted, all subject to further adjustment as provided in this Section 4. 4.4 Split, Subdivision or Combination of Shares. If the Company at any time while this Note, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the shares of Series E Preferred Stock into a different number of securities of the same class, the Price Per Share shall be proportionately adjusted. 4.5 Series E Adjustments. The initial Series E Conversion Price of the shares of Series E Preferred Stock issued upon conversion of this Note pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on the Conversion Date, subject to the adjustment of such Series E Conversion Price from time to time thereafter as provided in the Series E Certificate of Determination. 4.6 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 4, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. 8 4.7 No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 5. Covenants. The Company covenants and agrees that until the earlier of (i) the date on which all Obligations (as defined in the Security Agreement) have been paid in full or (ii) the Conversion Date: 5.1 Financial Statements and Other Information. The Company shall deliver to the Holder of this Note the financial statements and other information required to be delivered under Section 8.1 of the Purchase Agreement. 5.2 Financial Covenants. The Company shall at all times comply with the financial and other covenants set forth in Schedule 8.5 to the Purchase Agreement as if such covenants were set forth herein. 5.3 Indebtedness. The Company shall not, and shall not permit any Subsidiary to, issue, incur, assume, create or have outstanding any Indebtedness, provided, however, that the foregoing shall not restrict nor operate to prevent: (a) Indebtedness in favor of the Holders under the Loan Documents; (b) Indebtedness existing on the date hereof, and as set forth on Schedule 3.22 to the Purchase Agreement; (c) Indebtedness for accounts payable incurred in the ordinary course of business by the Company; (d) Indebtedness incurred solely for the purpose of financing the acquisition of any equipment, machinery, software, improvements or any other similar property, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, that the aggregate outstanding principal amount of all Indebtedness permitted pursuant to this clause (d) outstanding for more than sixty (60) days after the incurrence of such Indebtedness shall not at any time exceed $500,000; (e) Indebtedness of the Company evidenced by Capitalized Lease Obligations, provided, that in no event shall the aggregate principal amount of Capitalized Lease Obligations permitted by this clause (e) exceed $500,000 at any time outstanding; and (f) Any extension renewal, refinancing, refunding, or replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and (e) 9 above, on such terms and conditions as are, on the whole, not materially more onerous to the Company than the terms and conditions of such original Indebtedness on the date of such refinancing (including that the principal amount of such refinancing Indebtedness does not exceed the principal amount of, plus the amount of accrued and unpaid interest on, the Indebtedness so refinanced (plus the amount of reasonable premium and fees and expenses incurred in connection therewith)), provided that, in the case of a refinancing of Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall only apply to the extent consistent with the Subordination Agreement, dated as of the date hereof, by and among SVB, the Holders and the Company (the "Subordination Agreement"). 5.4 Liens. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of the Company or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable), or assign any right to receive income or permit the filing of any financing statement under the Uniform Commercial Code, as from time to time in effect in the relevant jurisdiction (the "UCC"), or any other similar notice of Lien under any similar recording or notice statute; provided, that the provisions of this Section 5.4 shall not prevent the creation, incurrence, assumption or existence of the following: (a) Liens arising in the ordinary course of business by statute in connection with worker's compensation, unemployment insurance, old age benefits, social security obligations, statutory obligations or other similar charges (other then Liens arising under ERISA), good faith cash deposits in connection with tenders, contracts or leases to which the Company or any Subsidiary is a party or other cash deposits required to be made in the ordinary course of business, provided, that such Liens do not have a material adverse effect on the ability of the Company to repay amounts due under the Notes; (b) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (c) Liens in respect of property or assets of the Company or its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (i) which do not in the aggregate materially detract from the value of the Company's and its Subsidiaries' property or assets taken as a whole or result in a material adverse effect on the Condition of the Company or (ii) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; 10 (d) the pledge of assets for the purpose of securing an appeal, stay or discharge in the course of any legal proceeding, provided that the aggregate amount of liabilities of the Company and its Subsidiaries secured by a pledge of assets permitted under this subsection, including interest and penalties thereon, if any, shall not be in excess of $500,000 at any one time outstanding; (e) any interest or title of a lesser under any operating lease; (f) easements, rights-of-way, restrictions and other similar encumbrances against real property incurred in the ordinary course of business; (g) the Liens existing on the date hereof identified on Schedule 3.22 to the Purchase Agreement; (h) Liens on cash deposited with account debtors to secure performance by the Company or any Subsidiary in the ordinary course of business subject to customary and reasonable terms; (i) Liens upon assets of the Company or its Subsidiaries subject to Capitalized Lease Obligations, provided, that (A) such Liens only serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising under such Capitalized Lease Obligation and (B) the Lien encumbering the asset giving rise to the Capitalized Lease Obligation does not encumber any other asset of the Company or its Subsidiaries; (j) Liens placed upon equipment, machinery, software, improvements or any other similar property, used in the ordinary course of business of the Company or any of its Subsidiaries at the time of the acquisition thereof by the Company or any of its Subsidiaries or within ninety (90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above; provided, that the Liens encumbering the equipment, machinery software, improvements or any other similar property so acquired do not encumber any other asset of the Company or its Subsidiaries; (k) set-off rights of depository institutions; and (l) Liens created by the Security Agreement (collectively with clauses (a) through (k) hereof, the "Permitted Liens"). 5.5 Fundamental Changes. The Company will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or a series of transactions) all or substantially all of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time and immediately after giving effect thereto no Event of Default shall have occurred and be continuing (i) the Company or any of its Subsidiaries may, with the prior written consent of the Holders, merge with or into any other Person; (ii) any wholly-owned 11 Subsidiary of the Company (other than the Guarantor) may merge with or into the Company or any other wholly-owned Subsidiary of the Company; (iii) any Subsidiary (other than the Guarantor, and except as otherwise prohibited by this Note) may sell, transfer, lease or otherwise dispose of its assets to the Company or to another wholly-owned Subsidiary of the Company; and (iv) any Subsidiary may liquidate or dissolve if the board of directors of the Company determine in good faith that such liquidation or dissolution is in its best interests and is not disadvantageous to the Holders. 5.6 Restricted Payments. The Company will not, and the Company will not permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that (i) any Subsidiary may make a Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any Restricted Payment required by the terms of the Purchase Agreement and the other documents executed in connection therewith. 5.7 Transactions with Affiliates. The Company will not, and the Company will not permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions that are at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arm's length basis from unrelated third parties, (b) transactions exclusively between the Company and the Guarantor and (c) transactions under the agreements listed on Schedule 3.17 to the Purchase Agreement. 5.8 Investments. The Company will not, and the Company will not permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment in any Person, except for Permitted Investments. 5.9 Nature of Business. The Company will not, and the Company will not permit any Subsidiary to, engage in any business other than that conducted on the date hereof and any businesses reasonably related thereto. 5.10 Property of Existing Domestic Subsidiaries. The Company will not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise organized under the laws of the United States of America or any state thereof (a "Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease, license, purchase or otherwise acquire any personal or real property (excluding any material intellectual property) in excess of $50,000 for all property held by such Subsidiary, or $250,000 in the aggregate for all property held by all Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own or otherwise hold any rights to any material intellectual property or (iv) otherwise conduct any business or maintain operations. 5.11 Formation of Subsidiaries. The Company will not, and will not cause or permit any of its Subsidiaries to, form, acquire or permit the existence of any new domestic Subsidiary, without causing such domestic Subsidiary to execute and 12 deliver to the Holders a secured guaranty of the Notes and related security document, in form and substance satisfactory to the Holders. 5.12 Books and Records. The Company shall keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Company and its Subsidiaries in accordance with GAAP consistently applied. 5.13 Inspection. The Company shall, and shall cause each of its Subsidiaries to, permit representatives of the Holders to visit and inspect any of its properties, to examine its corporate, financial and operating records and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with their respective directors, officers and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably requested upon notice to the Company. 5.14 Maintenance of Business. The Company shall, and shall cause each Subsidiary to, preserve and maintain its existence. The Company shall, and shall cause each Subsidiary to, preserve and keep in force and effect all licenses, permits, franchises, approvals, patents, trademarks, trade names, trade styles, copyrights, and other property rights necessary to the proper conduct of its business, except where the failure to do so could not reasonably be expected to have a material adverse effect on the Condition of the Company or on the prospects of repayment of the Notes. 5.15 Maintenance of Properties. The Company shall, and shall cause each Subsidiary to, maintain, preserve and keep its property and equipment in good repair, working order and condition (ordinary wear and tear excepted) and shall from time to time make all needful and proper repairs, renewals, replacements, additions and betterments thereto so that at all times the efficiency thereof shall by fully preserved and maintained, except in each case to the extent that, in the reasonable business judgment of such Person, any such property or equipment is no longer necessary for the proper conduct of the business of such Person. 6. The occurrence of any one or more of the following events shall constitute an "Event of Default": 6.1 Failure To Pay. (i) The failure of the Company to pay any principal due under any of the Notes when due and payable (whether by acceleration, declaration, extension or otherwise), or (ii) the failure of the Company to pay any other amounts due under any of the Notes when due and payable if such failure is not cured within five (5) days of Company's receipt of notice thereof from any of the Holders. 6.2 Financial Covenants. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the Financial Covenants set forth on Schedule 8.5 to the Purchase Agreement, and incorporated by reference in this Note in Section 5.2. 13 6.3 Other Covenants and Agreements. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the covenants of this Note, the Security Agreement or any of the other Loan Documents (other than the Financial Covenants set forth on Schedule 8.5 to the Purchase Agreement, and incorporated by reference in this Note in Section 5.2), if such failure is not cured within sixty (60) days. 6.4 Representations and Warranties. If any representation or warranty made by the Company or any of its Subsidiaries in the Loan Documents is not true and correct in all material respects on the Initial Closing Date. 6.5 Default on Other Obligations. The occurrence of any condition or default under any other indebtedness for borrowed money of the Company or any of its Subsidiaries with a principal amount of at least five hundred thousand dollars ($500,000) that results in the acceleration of such indebtedness which is not cured within sixty (60) days. 6.6 Involuntary Bankruptcy. There shall be filed against the Company or any of its Subsidiaries an involuntary petition or other pleading seeking the entry of a decree or order for relief under the United States Bankruptcy Code or any similar federal or state insolvency or similar laws ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a reorganization of the Company or any of its Subsidiaries or the business and affairs of the Company or any of its Subsidiaries or (c) the appointment of a receiver, liquidator, assignee, custodian, trustee or similar official for the Company or any of its Subsidiaries of the property of the Company or any of its Subsidiaries. 6.7 Voluntary Bankruptcy. The commencement by the Company or any of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any federal or state insolvency or similar laws or the consent by the Company or any of its Subsidiaries to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian or similar official for the Company or any of its Subsidiaries of any of the property of the Company or any of its Subsidiaries or the making by the Company or any of its Subsidiaries of an assignment for the benefit of creditors, or the failure by Company or any of its Subsidiaries generally to pay its debts as the debts become due. 6.8 Judgments, Awards. Any judgment or order for the payment of money is rendered against the Company or any of its Subsidiaries in an amount in excess of five hundred thousand dollars ($500,000) individually or in the aggregate and either (i) enforcement proceedings are commenced by any creditor upon such judgment or order and not stayed, or (ii) there is any period of sixty (60) consecutive days during which such judgment has not been paid in full or a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, is not in effect. 6.9 Attachment by Lenders. Any assets of the Company or any of its Subsidiaries shall be attached, levied upon, seized or repossessed, or come into the 14 possession of a trustee, receiver or other custodian and a determination by any Holder, in good faith but in its sole discretion, that the same could have a material adverse effect on the prospect for the Holders to fully and punctually realize the full benefits conferred on the Holders by the Loan Documents. 6.10 Adverse Change in Financial Condition. Any event having a material adverse effect on the business, operations, assets, properties or condition of the Company and its Subsidiaries taken as a whole shall have occurred and be continuing or a material adverse effect on the validity or enforceability of this or any of the other Loan Documents or the rights or remedies of the Holders hereunder or thereunder. 7. Remedies. Upon and after the occurrence of an Event of Default, the Holder shall be entitled to the exercise the rights and remedies set forth in the Security Agreement, the other Loan Documents and under applicable law, all such rights and remedies being cumulative and enforceable alternatively, successively or concurrently. 8. Prepayment. The Company may not prepay this Note prior to the Maturity Date without the prior written consent of the Holders. 9. Seniority. Except as set forth in the Subordination Agreement, the Notes will rank senior in right of payment to all other indebtedness of the Company. 10. Assignment. Subject to the restrictions on transfer described in Section 12 below, the rights and obligations of the Company and Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. The Company shall not be permitted to assign this Note without the prior written consent of the Holders. 11. Waiver of Notice. The Company hereby waives notice, presentment, demand, protest and notice of dishonor. 12. Transfer of This Note. With respect to any offer, sale or other disposition of this Note, Holder will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such Holder's counsel, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect); provided, that no opinion shall be required for any transfer to an Affiliate or if the transfer is made in compliance with the Securities Act, so long as the transferee can make the same representations and warranties at the time of transfer as set forth in Sections 4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Purchase Agreement. Promptly upon delivering such written notice and opinion, if so required, Holder may sell or otherwise dispose of this Note, all in accordance with the terms of the notice delivered to the Company. Each Note thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in 15 connection with such restrictions. Notwithstanding the foregoing, the Holder shall not be permitted to transfer this Note to any Person who is not an Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of written notice from the Company that Stockholder Approval cannot be obtained, or the occurrence of an actual vote of the Company's shareholders entitled to vote (whether by written consent or at a meeting specially called for such purpose), the result of which is a decision by a majority of the Company's shareholders entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of an Event of Default. 13. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 14. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally recognized courier service or mailed by registered or certified mail, postage prepaid, to the respective addresses of the parties as set forth on the signature pages hereto or if sent by facsimile to the respective facsimile numbers of the parties set forth on the signature pages hereto. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given and received when personally delivered or three (3) business days after deposited in the mail or one business day after sent by courier or upon confirmation of facsimile delivery in the manner set forth above. 15. No Stockholder Rights. Nothing contained in this Note shall be construed as conferring upon Holder or any other Person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. 16. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law relating to conflict of laws. 17. Amendments and Waivers. No amendments or waivers of any provision of this Note, and no consent by the Holder to any departure by the Company, shall in any event be effective unless the same shall be in writing, and signed by the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Purchase Agreement, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 18. Severability. Any provision of this Note that is prohibited or unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 16 19. WAIVER OF JURY TRIAL. THE COMPANY AND THE HOLDER HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. 20. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except as otherwise indicated, all references herein to Sections refer to Sections hereof. [the remainder of this page intentionally left blank] 17 IN WITNESS WHEREOF, the Company has caused this Note to be issued this 26th day of November, 2003. COMPANY: CRITICAL PATH, INC., a California corporation By: /s/ Michael J. Zukerman ----------------------------------- Name: Michael J. Zukerman. Title: Senior Vice President and General Counsel Critical Path, Inc. 350 The Embarcadero San Francisco, CA 94105-1204 Telecopy: (415) 541-2300 Attention: Chief Financial Officer With a copy to: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Telecopy: (415) 983-1200 Attention: Gregg Vignos, Esq. Name of Holder: General Atlantic Partners 74, L.P. Address: c/o General Atlantic Service Corporation 3 Pickwick Plaza Greenwich, CT 06830 Telecopy: (203) 618-9207 Attention: Matthew Nimetz Thomas J. Murphy With a copy to: Paul, Weiss, Rifkind, Wharton & Garrison LLP 1285 Avenue of the Americas New York, NY 10019-6064 Attention: Douglas A. Cifu, Esq. Telecopy: (212) 757-3990 EX-4.22 7 f97295exv4w22.txt EXHIBIT 4.22 EXHIBIT 4.22 NOTE THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS. CRITICAL PATH, INC. CONVERTIBLE SUBORDINATED PROMISSORY NOTE $1,067,777.00 San Francisco, California November 26, 2003 Critical Path, Inc., a California corporation (the "Company"), the principal office of which is located in San Francisco, California, for value received hereby promises to pay to the order of GAP Coinvestment Partners II, L.P., or its registered assigns ("Holder"), the sum of one million sixty-seven thousand seven hundred seventy-seven and 0/100 dollars ($1,067,777.00), or such lesser amount as shall then equal the outstanding principal amount hereof on the terms and conditions set forth hereinafter. The outstanding principal amount hereof and all accrued and unpaid interest hereon, as set forth below, shall be due and payable on the earlier to occur of (i) November 26, 2007, (ii) when declared due and payable by Holder upon the occurrence of an Event of Default (as defined below), (iii) consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock or Stock Equivalents by the Company, any cash capital contribution from any third person or any other debt or equity financing consummated by the Company after the date of issuance of this Note which, in the case of (v), individually or in the aggregate raises proceeds of at least forty million dollars ($40,000,000) in cash or cash equivalents (the earliest of the events set forth in items (i)-(v) immediately above, the "Maturity Date"); provided, however, that in the event that the Maturity Date is on or before November 26, 2004, the Company shall also make an additional payment to Holder equal to the amount of interest which would have otherwise accrued on the outstanding principal amount of the Note on the Maturity Date between the Maturity Date and November 26, 2004. The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 2 1. Definitions. Except as otherwise defined herein, each capitalized term used herein shall have the meaning assigned to it in the Purchase Agreement, as in effect on the date hereof, and without regard to any subsequent termination of the Purchase Agreement. All other references to the Purchase Agreement in this Note refer to the Purchase Agreement as in effect on the date hereof, and without regard to any subsequent termination of the Purchase Agreement. As used in this Note, the following terms, unless the context otherwise requires, have the following meanings: 1.1 "Affiliate" means any Person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended. 1.2 "Capitalized Lease Obligations" means, with respect to any Person, all rental obligations of such Person which, under GAAP, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with such principles. 1.3 "Change of Control" shall mean (i) any merger, consolidation or other business combination transaction (or series of related transactions) in which the stockholders owning a majority of the voting securities of the Company prior to such transaction do not own a majority of the voting securities of the surviving entity, (ii) any tender offer, exchange offer or other transaction whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended) (other than General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and the Affiliates of the foregoing, provided that Affiliates shall be deemed not to include any portfolio companies of any of the foregoing) obtains a majority of the outstanding shares of capital stock entitled to vote in the election of directors, (iii) any proxy contest in which a majority of the Board of Directors of the Company (or persons appointed by such Board of Directors) prior to such contest do not constitute a majority of the Company's Board of Directors after such contest or (iv) any other transaction described in any stockholder rights agreement or "poison pill," if any, to which the Company is party, which may permit the holders of any rights or similar certificates to exercise the rights evidenced thereby. 1.4 "Company" shall have the meaning set forth in the recitals hereto, and includes any corporation that shall succeed to or assume the obligations of the Company under this Note. 1.5 "Conversion Date" shall mean the Subsequent Closing Date. 1.6 "Designated Preferred Stock" shall mean the Series D Preferred Stock, par value $0.001, of the Company and the Series E Preferred Stock. 3 1.7 "Domestic Subsidiary" shall have the meaning set forth in Section 5.10 hereof. 1.8 "Event of Default" shall have the meaning set forth in Section 6 hereof. 1.9 "Guaranteed Interest" shall mean the total amount of interest that would accrue on this Note, at the Interest Rate specified in Section 2, from the date of this Note until the one year anniversary of the date of this Note. 1.10 "Guarantor" shall have the meaning set forth in the Security Agreement. 1.11 "Holder" shall mean the registered holder of this Note from time to time, and in the plural, shall mean all registered holders of Notes from time to time issued by the Company pursuant to the Purchase Agreement. 1.12 "Interest Amount" shall have the meaning set forth in Section 3.1 hereof. 1.13 "Investment" means (i) the acquisition (whether for cash, property, services, assumption of Indebtedness, securities or otherwise) of assets (other than equipment, inventory, supplies or other assets acquired in the ordinary course of business of the Company), capital stock, bonds, notes, debentures, partnership, joint venture or other ownership interests or other securities of any Person, (ii) any deposit with, or advance, loan or other extension of credit to, or on behalf of, any Person (other than deposits made in connection with the purchase of equipment, inventory, services, leases, supplies or other assets in the ordinary course of business of the Company), (iii) any other capital contribution to or investment in such Person, including, without limitation, any guaranty obligation incurred for the benefit of such Person. For the sake of clarity, Investments shall include any transfer of property or assets by the Company to any of its Subsidiaries or by any Subsidiary of the Company to any other Subsidiary. 1.14 "Loan Documents" shall have the meaning set forth in the Security Agreement. 1.15 "Note" shall mean this note, and in the plural, shall mean all notes issued to the Lenders pursuant to the terms of the Purchase Agreement, including this Note, and all amendments, modifications and extensions thereto. 1.16 "Permitted Investments" means (i) Investments in cash or cash equivalents, (ii) accounts receivable created, acquired or made in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (iii) Investments existing on the closing date, and listed on Schedule 3.27 to the Purchase Agreement, (iv) guaranty obligations permitted by Section 5.3 of this Agreement, (v) loans to employees, directors or officers of the Company in connection with the award of convertible bonds or capital stock under a stock incentive plan, stock option plan or other equity-based compensation plan or arrangement, (vi) other advances or loans to 4 employees, directors, officers or agents of the Company in the ordinary course of business not to exceed $500,000 in the aggregate at any time outstanding; (vii) loans, advances and investments in foreign Subsidiaries (that are not incorporated or otherwise organized under the laws of the United States of America or any state thereof) in an amount not to exceed $1,000,000 in the aggregate at any time outstanding; (viii) any acquisition for which the prior written consent of the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Purchase Agreement has been obtained, (ix) other loans, advances and investments of a nature not contemplated by the foregoing sections in an amount not to exceed $500,000 in the aggregate at any time outstanding or (x) Investments by the Company in the Guarantor. 1.17 "Permitted Liens" shall have the meaning set forth in Section 5.4. 1.18 "Person" means any individual, firm, corporation, partnership, trust, joint venture, joint stock company, limited liability company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. 1.19 "Price Per Share" shall have the meaning attributed to such term in the Series E Certificate of Determination, as filed with the Secretary of State of the State of California. 1.20 "Purchase Agreement" means that certain Convertible Note Purchase and Exchange Agreement, dated November 18, 2003, among the Company, the Holder and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.21 "Qualified Asset Sale" means the sale, transfer or other disposition of any of the assets of the Company or any of its Subsidiaries, other than (a) sales of assets in the ordinary course of business, (b) sales of assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the sale, transfer or other disposition of assets of the Company where the proceeds are applied to the purchase price or traded in for credit against the purchase price of other assets, provided that any such purchase is made, or credit issued, within 90 days of the sale, transfer or other disposition, and (d) one or more sales of the Company's assets (other than sales otherwise included in clauses (a), (b), and (c) immediately above) which collectively yield up to an aggregate of one million dollars ($1,000,000) in gross proceeds to the Company while this Note is outstanding. 1.22 "Restricted Payment" means (a) any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Company or any of its Subsidiaries or (b) any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any shares of any class of capital stock of the Company or any Subsidiary 5 or any option, warrant or other right to acquire any such shares of capital stock of the Company or any Subsidiary. 1.23 "Security Agreement" means that certain Guaranty and Security Agreement, of even date herewith between the Company, Compass Holding Corp., the Lenders and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.24 "Series E Conversion Price" shall have the meaning set forth in the Series E Certificate of Determination. 1.25 "Series E Preferred Stock" means the Series E Preferred Stock, par value $0.001, of the Company. 1.26 "Subordination Agreement" shall have the meaning set forth in Section 5.3. 1.27 "SVB" means Silicon Valley Bank, a California chartered bank, or any Affiliates thereof. 1.28 "UCC" shall have the meaning set forth in Section 5.4. 2. Interest. Simple interest shall accrue at the rate of ten percent (10%) per annum (or such lesser amount as shall equal the highest rate of interest allowable under applicable law) (the "Interest Rate"), on the outstanding principal of this Note from the date of this Note until the Maturity Date or the date this Note is otherwise repaid. The Company shall not be obligated to make any payments of interest which shall have accrued under this Note prior to the Maturity Date. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. In the event that the principal amount of this Note, any interest, or any amount payable hereunder is not paid in full when such amount becomes due and payable, or upon the occurrence of an Event of Default, interest shall accrue at the lesser of (a) the initial Interest Rate plus five percent (5%) per annum or (b) the highest rate of interest allowable under applicable law, on the balance of all amounts outstanding until such overdue amounts are paid or the Event of Default is cured, and such interest shall be payable on demand. 3. Conversion. 3.1 Conversion. On the Conversion Date, the principal amount of this Note plus the greater of (i) the accrued and unpaid interest thereon and (ii) the Guaranteed Interest (the greater of clause (i) and (ii), the "Interest Amount"), shall be automatically converted into the number of fully paid and nonassessable shares of Series E Preferred Stock equal to the quotient obtained by dividing (a) the entire principal amount of this Note plus the Interest Amount by (b) the Price Per Share. 3.2 Notice of Conversion. Upon conversion of this Note as provided in Section 3.1, Holder shall surrender this Note to the Company and shall state the name or names in which the certificate or certificates for such shares of Series E 6 Preferred Stock are to be issued. The Person or Persons entitled to receive the shares of Series E Preferred Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Series E Preferred Stock as of the Conversion Date. 3.3 Delivery of Stock Certificates. On the Conversion Date, the Company at its expense will issue and deliver to Holder of this Note a certificate or certificates (bearing such legends as are required by applicable state and federal securities laws in the opinion of counsel to the Company) for the number of full shares of Series E Preferred Stock issuable upon such conversion. 3.4 Mechanics and Effect of Conversion. No fractional shares of Series E Preferred Stock shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to Holder upon the conversion of this Note, the Company shall pay to Holder the amount of outstanding principal and interest that is not so converted. Upon conversion of all amounts due under this Note, the Company shall be released from all of its obligations under this Note. 4. Adjustments. The number of shares of Series E Preferred Stock convertible hereunder are subject to adjustment from time to time as follows: 4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at any time while this Note remains outstanding and unexpired there shall be (a) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (b) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise or (c) a sale or transfer of the Company's stock, properties or assets as, or substantially as, an entirety to any other Person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that Holder shall thereafter be entitled to receive by converting this Note the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon conversion of this Note would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Note had been converted immediately before such reorganization, merger, consolidation, sale or transfer (notwithstanding that the Stockholder Approval may not yet have been obtained), all subject to further adjustment as provided in this Section 4. The foregoing provisions of this Section 4.1 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation. If the per share consideration payable to Holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors based on the amount the Holder would have otherwise been entitled to receive had the transaction or transactions not occurred. In all events, appropriate adjustment (as determined in good faith by the Company's 7 Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of Holder after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon conversion of this Note. The Company shall be obligated to retain and set aside, or otherwise make fair provision for exercise of the right of the Holder to receive, the shares of stock and/or other securities, cash or other property provided for in this Section 4.1. 4.2 Election of Holder upon Merger or Sale of Assets. Notwithstanding anything to the contrary contained herein, if an event shall occur as provided in Section 4.1 hereof that would otherwise result in the occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first paragraph of this Note, then the Holder may, in its sole discretion, by written notice to the Company elect to convert the principal amount of this Note plus the Interest Amount into the number of shares of stock or other securities or property described in Section 4.1, in lieu of receiving payment in full of all amounts outstanding under this Note. The number of shares of stock or other securities or property to be issued upon such conversion shall be determined in accordance with Section 4.1 hereof, taking into account the occurrence of such event. 4.3 Reclassification, Etc. If the Company shall, at any time while this Note, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, change any of the securities as to which conversion rights under this Note exist into the same or a different number of securities of any other class or classes, this Note shall thereafter represent the right to acquire such number and kind of securities as would have been issuable with respect to the securities that were subject to the conversion rights under this Note immediately prior to such reclassification or other change, and the Price Per Share shall be appropriately adjusted, all subject to further adjustment as provided in this Section 4. 4.4 Split, Subdivision or Combination of Shares. If the Company at any time while this Note, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the shares of Series E Preferred Stock into a different number of securities of the same class, the Price Per Share shall be proportionately adjusted. 4.5 Series E Adjustments. The initial Series E Conversion Price of the shares of Series E Preferred Stock issued upon conversion of this Note pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on the Conversion Date, subject to the adjustment of such Series E Conversion Price from time to time thereafter as provided in the Series E Certificate of Determination. 4.6 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 4, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. 8 4.7 No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 5. Covenants. The Company covenants and agrees that until the earlier of (i) the date on which all Obligations (as defined in the Security Agreement) have been paid in full or (ii) the Conversion Date: 5.1 Financial Statements and Other Information. The Company shall deliver to the Holder of this Note the financial statements and other information required to be delivered under Section 8.1 of the Purchase Agreement. 5.2 Financial Covenants. The Company shall at all times comply with the financial and other covenants set forth in Schedule 8.5 to the Purchase Agreement as if such covenants were set forth herein. 5.3 Indebtedness. The Company shall not, and shall not permit any Subsidiary to, issue, incur, assume, create or have outstanding any Indebtedness, provided, however, that the foregoing shall not restrict nor operate to prevent: (a) Indebtedness in favor of the Holders under the Loan Documents; (b) Indebtedness existing on the date hereof, and as set forth on Schedule 3.22 to the Purchase Agreement; (c) Indebtedness for accounts payable incurred in the ordinary course of business by the Company; (d) Indebtedness incurred solely for the purpose of financing the acquisition of any equipment, machinery, software, improvements or any other similar property, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, that the aggregate outstanding principal amount of all Indebtedness permitted pursuant to this clause (d) outstanding for more than sixty (60) days after the incurrence of such Indebtedness shall not at any time exceed $500,000; (e) Indebtedness of the Company evidenced by Capitalized Lease Obligations, provided, that in no event shall the aggregate principal amount of Capitalized Lease Obligations permitted by this clause (e) exceed $500,000 at any time outstanding; and (f) Any extension renewal, refinancing, refunding, or replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and (e) 9 above, on such terms and conditions as are, on the whole, not materially more onerous to the Company than the terms and conditions of such original Indebtedness on the date of such refinancing (including that the principal amount of such refinancing Indebtedness does not exceed the principal amount of, plus the amount of accrued and unpaid interest on, the Indebtedness so refinanced (plus the amount of reasonable premium and fees and expenses incurred in connection therewith)), provided that, in the case of a refinancing of Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall only apply to the extent consistent with the Subordination Agreement, dated as of the date hereof, by and among SVB, the Holders and the Company (the "Subordination Agreement"). 5.4 Liens. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of the Company or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable), or assign any right to receive income or permit the filing of any financing statement under the Uniform Commercial Code, as from time to time in effect in the relevant jurisdiction (the "UCC"), or any other similar notice of Lien under any similar recording or notice statute; provided, that the provisions of this Section 5.4 shall not prevent the creation, incurrence, assumption or existence of the following: (a) Liens arising in the ordinary course of business by statute in connection with worker's compensation, unemployment insurance, old age benefits, social security obligations, statutory obligations or other similar charges (other then Liens arising under ERISA), good faith cash deposits in connection with tenders, contracts or leases to which the Company or any Subsidiary is a party or other cash deposits required to be made in the ordinary course of business, provided, that such Liens do not have a material adverse effect on the ability of the Company to repay amounts due under the Notes; (b) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (c) Liens in respect of property or assets of the Company or its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (i) which do not in the aggregate materially detract from the value of the Company's and its Subsidiaries' property or assets taken as a whole or result in a material adverse effect on the Condition of the Company or (ii) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; 10 (d) the pledge of assets for the purpose of securing an appeal, stay or discharge in the course of any legal proceeding, provided that the aggregate amount of liabilities of the Company and its Subsidiaries secured by a pledge of assets permitted under this subsection, including interest and penalties thereon, if any, shall not be in excess of $500,000 at any one time outstanding; (e) any interest or title of a lesser under any operating lease; (f) easements, rights-of-way, restrictions and other similar encumbrances against real property incurred in the ordinary course of business; (g) the Liens existing on the date hereof identified on Schedule 3.22 to the Purchase Agreement; (h) Liens on cash deposited with account debtors to secure performance by the Company or any Subsidiary in the ordinary course of business subject to customary and reasonable terms; (i) Liens upon assets of the Company or its Subsidiaries subject to Capitalized Lease Obligations, provided, that (A) such Liens only serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising under such Capitalized Lease Obligation and (B) the Lien encumbering the asset giving rise to the Capitalized Lease Obligation does not encumber any other asset of the Company or its Subsidiaries; (j) Liens placed upon equipment, machinery, software, improvements or any other similar property, used in the ordinary course of business of the Company or any of its Subsidiaries at the time of the acquisition thereof by the Company or any of its Subsidiaries or within ninety (90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above; provided, that the Liens encumbering the equipment, machinery software, improvements or any other similar property so acquired do not encumber any other asset of the Company or its Subsidiaries; (k) set-off rights of depository institutions; and (l) Liens created by the Security Agreement (collectively with clauses (a) through (k) hereof, the "Permitted Liens"). 5.5 Fundamental Changes. The Company will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or a series of transactions) all or substantially all of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time and immediately after giving effect thereto no Event of Default shall have occurred and be continuing (i) the Company or any of its Subsidiaries may, with the prior written consent of the Holders, merge with or into any other Person; (ii) any wholly-owned 11 Subsidiary of the Company (other than the Guarantor) may merge with or into the Company or any other wholly-owned Subsidiary of the Company; (iii) any Subsidiary (other than the Guarantor, and except as otherwise prohibited by this Note) may sell, transfer, lease or otherwise dispose of its assets to the Company or to another wholly-owned Subsidiary of the Company; and (iv) any Subsidiary may liquidate or dissolve if the board of directors of the Company determine in good faith that such liquidation or dissolution is in its best interests and is not disadvantageous to the Holders. 5.6 Restricted Payments. The Company will not, and the Company will not permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that (i) any Subsidiary may make a Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any Restricted Payment required by the terms of the Purchase Agreement and the other documents executed in connection therewith. 5.7 Transactions with Affiliates. The Company will not, and the Company will not permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions that are at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arm's length basis from unrelated third parties, (b) transactions exclusively between the Company and the Guarantor and (c) transactions under the agreements listed on Schedule 3.17 to the Purchase Agreement. 5.8 Investments. The Company will not, and the Company will not permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment in any Person, except for Permitted Investments. 5.9 Nature of Business. The Company will not, and the Company will not permit any Subsidiary to, engage in any business other than that conducted on the date hereof and any businesses reasonably related thereto. 5.10 Property of Existing Domestic Subsidiaries. The Company will not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise organized under the laws of the United States of America or any state thereof (a "Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease, license, purchase or otherwise acquire any personal or real property (excluding any material intellectual property) in excess of $50,000 for all property held by such Subsidiary, or $250,000 in the aggregate for all property held by all Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own or otherwise hold any rights to any material intellectual property or (iv) otherwise conduct any business or maintain operations. 5.11 Formation of Subsidiaries. The Company will not, and will not cause or permit any of its Subsidiaries to, form, acquire or permit the existence of any new domestic Subsidiary, without causing such domestic Subsidiary to execute and 12 deliver to the Holders a secured guaranty of the Notes and related security document, in form and substance satisfactory to the Holders. 5.12 Books and Records. The Company shall keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Company and its Subsidiaries in accordance with GAAP consistently applied. 5.13 Inspection. The Company shall, and shall cause each of its Subsidiaries to, permit representatives of the Holders to visit and inspect any of its properties, to examine its corporate, financial and operating records and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with their respective directors, officers and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably requested upon notice to the Company. 5.14 Maintenance of Business. The Company shall, and shall cause each Subsidiary to, preserve and maintain its existence. The Company shall, and shall cause each Subsidiary to, preserve and keep in force and effect all licenses, permits, franchises, approvals, patents, trademarks, trade names, trade styles, copyrights, and other property rights necessary to the proper conduct of its business, except where the failure to do so could not reasonably be expected to have a material adverse effect on the Condition of the Company or on the prospects of repayment of the Notes. 5.15 Maintenance of Properties. The Company shall, and shall cause each Subsidiary to, maintain, preserve and keep its property and equipment in good repair, working order and condition (ordinary wear and tear excepted) and shall from time to time make all needful and proper repairs, renewals, replacements, additions and betterments thereto so that at all times the efficiency thereof shall by fully preserved and maintained, except in each case to the extent that, in the reasonable business judgment of such Person, any such property or equipment is no longer necessary for the proper conduct of the business of such Person. 6. The occurrence of any one or more of the following events shall constitute an "Event of Default": 6.1 Failure To Pay. (i) The failure of the Company to pay any principal due under any of the Notes when due and payable (whether by acceleration, declaration, extension or otherwise), or (ii) the failure of the Company to pay any other amounts due under any of the Notes when due and payable if such failure is not cured within five (5) days of Company's receipt of notice thereof from any of the Holders. 6.2 Financial Covenants. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the Financial Covenants set forth on Schedule 8.5 to the Purchase Agreement, and incorporated by reference in this Note in Section 5.2. 13 6.3 Other Covenants and Agreements. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the covenants of this Note, the Security Agreement or any of the other Loan Documents (other than the Financial Covenants set forth on Schedule 8.5 to the Purchase Agreement, and incorporated by reference in this Note in Section 5.2), if such failure is not cured within sixty (60) days. 6.4 Representations and Warranties. If any representation or warranty made by the Company or any of its Subsidiaries in the Loan Documents is not true and correct in all material respects on the Initial Closing Date. 6.5 Default on Other Obligations. The occurrence of any condition or default under any other indebtedness for borrowed money of the Company or any of its Subsidiaries with a principal amount of at least five hundred thousand dollars ($500,000) that results in the acceleration of such indebtedness which is not cured within sixty (60) days. 6.6 Involuntary Bankruptcy. There shall be filed against the Company or any of its Subsidiaries an involuntary petition or other pleading seeking the entry of a decree or order for relief under the United States Bankruptcy Code or any similar federal or state insolvency or similar laws ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a reorganization of the Company or any of its Subsidiaries or the business and affairs of the Company or any of its Subsidiaries or (c) the appointment of a receiver, liquidator, assignee, custodian, trustee or similar official for the Company or any of its Subsidiaries of the property of the Company or any of its Subsidiaries. 6.7 Voluntary Bankruptcy. The commencement by the Company or any of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any federal or state insolvency or similar laws or the consent by the Company or any of its Subsidiaries to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian or similar official for the Company or any of its Subsidiaries of any of the property of the Company or any of its Subsidiaries or the making by the Company or any of its Subsidiaries of an assignment for the benefit of creditors, or the failure by Company or any of its Subsidiaries generally to pay its debts as the debts become due. 6.8 Judgments, Awards. Any judgment or order for the payment of money is rendered against the Company or any of its Subsidiaries in an amount in excess of five hundred thousand dollars ($500,000) individually or in the aggregate and either (i) enforcement proceedings are commenced by any creditor upon such judgment or order and not stayed, or (ii) there is any period of sixty (60) consecutive days during which such judgment has not been paid in full or a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, is not in effect. 6.9 Attachment by Lenders. Any assets of the Company or any of its Subsidiaries shall be attached, levied upon, seized or repossessed, or come into the 14 possession of a trustee, receiver or other custodian and a determination by any Holder, in good faith but in its sole discretion, that the same could have a material adverse effect on the prospect for the Holders to fully and punctually realize the full benefits conferred on the Holders by the Loan Documents. 6.10 Adverse Change in Financial Condition. Any event having a material adverse effect on the business, operations, assets, properties or condition of the Company and its Subsidiaries taken as a whole shall have occurred and be continuing or a material adverse effect on the validity or enforceability of this or any of the other Loan Documents or the rights or remedies of the Holders hereunder or thereunder. 7. Remedies. Upon and after the occurrence of an Event of Default, the Holder shall be entitled to the exercise the rights and remedies set forth in the Security Agreement, the other Loan Documents and under applicable law, all such rights and remedies being cumulative and enforceable alternatively, successively or concurrently. 8. Prepayment. The Company may not prepay this Note prior to the Maturity Date without the prior written consent of the Holders. 9. Seniority. Except as set forth in the Subordination Agreement, the Notes will rank senior in right of payment to all other indebtedness of the Company. 10. Assignment. Subject to the restrictions on transfer described in Section 12 below, the rights and obligations of the Company and Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. The Company shall not be permitted to assign this Note without the prior written consent of the Holders. 11. Waiver of Notice. The Company hereby waives notice, presentment, demand, protest and notice of dishonor. 12. Transfer of This Note. With respect to any offer, sale or other disposition of this Note, Holder will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such Holder's counsel, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect); provided, that no opinion shall be required for any transfer to an Affiliate or if the transfer is made in compliance with the Securities Act, so long as the transferee can make the same representations and warranties at the time of transfer as set forth in Sections 4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Purchase Agreement. Promptly upon delivering such written notice and opinion, if so required, Holder may sell or otherwise dispose of this Note, all in accordance with the terms of the notice delivered to the Company. Each Note thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in 15 connection with such restrictions. Notwithstanding the foregoing, the Holder shall not be permitted to transfer this Note to any Person who is not an Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of written notice from the Company that Stockholder Approval cannot be obtained, or the occurrence of an actual vote of the Company's shareholders entitled to vote (whether by written consent or at a meeting specially called for such purpose), the result of which is a decision by a majority of the Company's shareholders entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of an Event of Default. 13. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 14. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally recognized courier service or mailed by registered or certified mail, postage prepaid, to the respective addresses of the parties as set forth on the signature pages hereto or if sent by facsimile to the respective facsimile numbers of the parties set forth on the signature pages hereto. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given and received when personally delivered or three (3) business days after deposited in the mail or one business day after sent by courier or upon confirmation of facsimile delivery in the manner set forth above. 15. No Stockholder Rights. Nothing contained in this Note shall be construed as conferring upon Holder or any other Person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. 16. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law relating to conflict of laws. 17. Amendments and Waivers. No amendments or waivers of any provision of this Note, and no consent by the Holder to any departure by the Company, shall in any event be effective unless the same shall be in writing, and signed by the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Purchase Agreement, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 18. Severability. Any provision of this Note that is prohibited or unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 16 19. WAIVER OF JURY TRIAL. THE COMPANY AND THE HOLDER HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. 20. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except as otherwise indicated, all references herein to Sections refer to Sections hereof. [the remainder of this page intentionally left blank] 17 IN WITNESS WHEREOF, the Company has caused this Note to be issued this 26th day of November, 2003. COMPANY: CRITICAL PATH, INC., a California corporation By: /s/ Michael J. Zukerman ----------------------------------- Name: Michael J. Zukerman. Title: Senior Vice President and General Counsel Critical Path, Inc. 350 The Embarcadero San Francisco, CA 94105-1204 Telecopy: (415) 541-2300 Attention: Chief Financial Officer With a copy to: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Telecopy: (415) 983-1200 Attention: Gregg Vignos, Esq. Name of Holder: GAP Coinvestment Partners II, L.P. Address: c/o General Atlantic Service Corporation 3 Pickwick Plaza Greenwich, CT 06830 Telecopy: (203) 618-9207 Attention: Matthew Nimetz Thomas J. Murphy With a copy to: Paul, Weiss, Rifkind, Wharton & Garrison LLP 1285 Avenue of the Americas New York, NY 10019-6064 Attention: Douglas A. Cifu, Esq. Telecopy: (212) 757-3990 EX-4.23 8 f97295exv4w23.txt EXHIBIT 4.23 EXHIBIT 4.23 NOTE THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS. CRITICAL PATH, INC. CONVERTIBLE SUBORDINATED PROMISSORY NOTE $636,720.00 San Francisco, California November 26, 2003 Critical Path, Inc., a California corporation (the "Company"), the principal office of which is located in San Francisco, California, for value received hereby promises to pay to the order of GapStar, LLC, or its registered assigns ("Holder"), the sum of six hundred thirty-six thousand seven hundred twenty and 0/100 dollars ($636,720.00), or such lesser amount as shall then equal the outstanding principal amount hereof on the terms and conditions set forth hereinafter. The outstanding principal amount hereof and all accrued and unpaid interest hereon, as set forth below, shall be due and payable on the earlier to occur of (i) November 26, 2007, (ii) when declared due and payable by Holder upon the occurrence of an Event of Default (as defined below), (iii) consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock or Stock Equivalents by the Company, any cash capital contribution from any third person or any other debt or equity financing consummated by the Company after the date of issuance of this Note which, in the case of (v), individually or in the aggregate raises proceeds of at least forty million dollars ($40,000,000) in cash or cash equivalents (the earliest of the events set forth in items (i)-(v) immediately above, the "Maturity Date"); provided, however, that in the event that the Maturity Date is on or before November 26, 2004, the Company shall also make an additional payment to Holder equal to the amount of interest which would have otherwise accrued on the outstanding principal amount of the Note on the Maturity Date between the Maturity Date and November 26, 2004. The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 2 1. Definitions. Except as otherwise defined herein, each capitalized term used herein shall have the meaning assigned to it in the Purchase Agreement, as in effect on the date hereof, and without regard to any subsequent termination of the Purchase Agreement. All other references to the Purchase Agreement in this Note refer to the Purchase Agreement as in effect on the date hereof, and without regard to any subsequent termination of the Purchase Agreement. As used in this Note, the following terms, unless the context otherwise requires, have the following meanings: 1.1 "Affiliate" means any Person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended. 1.2 "Capitalized Lease Obligations" means, with respect to any Person, all rental obligations of such Person which, under GAAP, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with such principles. 1.3 "Change of Control" shall mean (i) any merger, consolidation or other business combination transaction (or series of related transactions) in which the stockholders owning a majority of the voting securities of the Company prior to such transaction do not own a majority of the voting securities of the surviving entity, (ii) any tender offer, exchange offer or other transaction whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended) (other than General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and the Affiliates of the foregoing, provided that Affiliates shall be deemed not to include any portfolio companies of any of the foregoing) obtains a majority of the outstanding shares of capital stock entitled to vote in the election of directors, (iii) any proxy contest in which a majority of the Board of Directors of the Company (or persons appointed by such Board of Directors) prior to such contest do not constitute a majority of the Company's Board of Directors after such contest or (iv) any other transaction described in any stockholder rights agreement or "poison pill," if any, to which the Company is party, which may permit the holders of any rights or similar certificates to exercise the rights evidenced thereby. 1.4 "Company" shall have the meaning set forth in the recitals hereto, and includes any corporation that shall succeed to or assume the obligations of the Company under this Note. 1.5 "Conversion Date" shall mean the Subsequent Closing Date. 1.6 "Designated Preferred Stock" shall mean the Series D Preferred Stock, par value $0.001, of the Company and the Series E Preferred Stock. 3 1.7 "Domestic Subsidiary" shall have the meaning set forth in Section 5.10 hereof. 1.8 "Event of Default" shall have the meaning set forth in Section 6 hereof. 1.9 "Guaranteed Interest" shall mean the total amount of interest that would accrue on this Note, at the Interest Rate specified in Section 2, from the date of this Note until the one year anniversary of the date of this Note. 1.10 "Guarantor" shall have the meaning set forth in the Security Agreement. 1.11 "Holder" shall mean the registered holder of this Note from time to time, and in the plural, shall mean all registered holders of Notes from time to time issued by the Company pursuant to the Purchase Agreement. 1.12 "Interest Amount" shall have the meaning set forth in Section 3.1 hereof. 1.13 "Investment" means (i) the acquisition (whether for cash, property, services, assumption of Indebtedness, securities or otherwise) of assets (other than equipment, inventory, supplies or other assets acquired in the ordinary course of business of the Company), capital stock, bonds, notes, debentures, partnership, joint venture or other ownership interests or other securities of any Person, (ii) any deposit with, or advance, loan or other extension of credit to, or on behalf of, any Person (other than deposits made in connection with the purchase of equipment, inventory, services, leases, supplies or other assets in the ordinary course of business of the Company), (iii) any other capital contribution to or investment in such Person, including, without limitation, any guaranty obligation incurred for the benefit of such Person. For the sake of clarity, Investments shall include any transfer of property or assets by the Company to any of its Subsidiaries or by any Subsidiary of the Company to any other Subsidiary. 1.14 "Loan Documents" shall have the meaning set forth in the Security Agreement. 1.15 "Note" shall mean this note, and in the plural, shall mean all notes issued to the Lenders pursuant to the terms of the Purchase Agreement, including this Note, and all amendments, modifications and extensions thereto. 1.16 "Permitted Investments" means (i) Investments in cash or cash equivalents, (ii) accounts receivable created, acquired or made in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (iii) Investments existing on the closing date, and listed on Schedule 3.27 to the Purchase Agreement, (iv) guaranty obligations permitted by Section 5.3 of this Agreement, (v) loans to employees, directors or officers of the Company in connection with the award of convertible bonds or capital stock under a stock incentive plan, stock option plan or other equity-based compensation plan or arrangement, (vi) other advances or loans to 4 employees, directors, officers or agents of the Company in the ordinary course of business not to exceed $500,000 in the aggregate at any time outstanding; (vii) loans, advances and investments in foreign Subsidiaries (that are not incorporated or otherwise organized under the laws of the United States of America or any state thereof) in an amount not to exceed $1,000,000 in the aggregate at any time outstanding; (viii) any acquisition for which the prior written consent of the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Purchase Agreement has been obtained, (ix) other loans, advances and investments of a nature not contemplated by the foregoing sections in an amount not to exceed $500,000 in the aggregate at any time outstanding or (x) Investments by the Company in the Guarantor. 1.17 "Permitted Liens" shall have the meaning set forth in Section 5.4. 1.18 "Person" means any individual, firm, corporation, partnership, trust, joint venture, joint stock company, limited liability company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. 1.19 "Price Per Share" shall have the meaning attributed to such term in the Series E Certificate of Determination, as filed with the Secretary of State of the State of California. 1.20 "Purchase Agreement" means that certain Convertible Note Purchase and Exchange Agreement, dated November 18, 2003, among the Company, the Holder and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.21 "Qualified Asset Sale" means the sale, transfer or other disposition of any of the assets of the Company or any of its Subsidiaries, other than (a) sales of assets in the ordinary course of business, (b) sales of assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the sale, transfer or other disposition of assets of the Company where the proceeds are applied to the purchase price or traded in for credit against the purchase price of other assets, provided that any such purchase is made, or credit issued, within 90 days of the sale, transfer or other disposition, and (d) one or more sales of the Company's assets (other than sales otherwise included in clauses (a), (b), and (c) immediately above) which collectively yield up to an aggregate of one million dollars ($1,000,000) in gross proceeds to the Company while this Note is outstanding. 1.22 "Restricted Payment" means (a) any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Company or any of its Subsidiaries or (b) any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any shares of any class of capital stock of the Company or any Subsidiary 5 or any option, warrant or other right to acquire any such shares of capital stock of the Company or any Subsidiary. 1.23 "Security Agreement" means that certain Guaranty and Security Agreement, of even date herewith between the Company, Compass Holding Corp., the Lenders and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.24 "Series E Conversion Price" shall have the meaning set forth in the Series E Certificate of Determination. 1.25 "Series E Preferred Stock" means the Series E Preferred Stock, par value $0.001, of the Company. 1.26 "Subordination Agreement" shall have the meaning set forth in Section 5.3. 1.27 "SVB" means Silicon Valley Bank, a California chartered bank, or any Affiliates thereof. 1.28 "UCC" shall have the meaning set forth in Section 5.4. 2. Interest. Simple interest shall accrue at the rate of ten percent (10%) per annum (or such lesser amount as shall equal the highest rate of interest allowable under applicable law) (the "Interest Rate"), on the outstanding principal of this Note from the date of this Note until the Maturity Date or the date this Note is otherwise repaid. The Company shall not be obligated to make any payments of interest which shall have accrued under this Note prior to the Maturity Date. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. In the event that the principal amount of this Note, any interest, or any amount payable hereunder is not paid in full when such amount becomes due and payable, or upon the occurrence of an Event of Default, interest shall accrue at the lesser of (a) the initial Interest Rate plus five percent (5%) per annum or (b) the highest rate of interest allowable under applicable law, on the balance of all amounts outstanding until such overdue amounts are paid or the Event of Default is cured, and such interest shall be payable on demand. 3. Conversion. 3.1 Conversion. On the Conversion Date, the principal amount of this Note plus the greater of (i) the accrued and unpaid interest thereon and (ii) the Guaranteed Interest (the greater of clause (i) and (ii), the "Interest Amount"), shall be automatically converted into the number of fully paid and nonassessable shares of Series E Preferred Stock equal to the quotient obtained by dividing (a) the entire principal amount of this Note plus the Interest Amount by (b) the Price Per Share. 3.2 Notice of Conversion. Upon conversion of this Note as provided in Section 3.1, Holder shall surrender this Note to the Company and shall state the name or names in which the certificate or certificates for such shares of Series E 6 Preferred Stock are to be issued. The Person or Persons entitled to receive the shares of Series E Preferred Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Series E Preferred Stock as of the Conversion Date. 3.3 Delivery of Stock Certificates. On the Conversion Date, the Company at its expense will issue and deliver to Holder of this Note a certificate or certificates (bearing such legends as are required by applicable state and federal securities laws in the opinion of counsel to the Company) for the number of full shares of Series E Preferred Stock issuable upon such conversion. 3.4 Mechanics and Effect of Conversion. No fractional shares of Series E Preferred Stock shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to Holder upon the conversion of this Note, the Company shall pay to Holder the amount of outstanding principal and interest that is not so converted. Upon conversion of all amounts due under this Note, the Company shall be released from all of its obligations under this Note. 4. Adjustments. The number of shares of Series E Preferred Stock convertible hereunder are subject to adjustment from time to time as follows: 4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at any time while this Note remains outstanding and unexpired there shall be (a) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (b) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise or (c) a sale or transfer of the Company's stock, properties or assets as, or substantially as, an entirety to any other Person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that Holder shall thereafter be entitled to receive by converting this Note the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon conversion of this Note would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Note had been converted immediately before such reorganization, merger, consolidation, sale or transfer (notwithstanding that the Stockholder Approval may not yet have been obtained), all subject to further adjustment as provided in this Section 4. The foregoing provisions of this Section 4.1 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation. If the per share consideration payable to Holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors based on the amount the Holder would have otherwise been entitled to receive had the transaction or transactions not occurred. In all events, appropriate adjustment (as determined in good faith by the Company's 7 Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of Holder after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon conversion of this Note. The Company shall be obligated to retain and set aside, or otherwise make fair provision for exercise of the right of the Holder to receive, the shares of stock and/or other securities, cash or other property provided for in this Section 4.1. 4.2 Election of Holder upon Merger or Sale of Assets. Notwithstanding anything to the contrary contained herein, if an event shall occur as provided in Section 4.1 hereof that would otherwise result in the occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first paragraph of this Note, then the Holder may, in its sole discretion, by written notice to the Company elect to convert the principal amount of this Note plus the Interest Amount into the number of shares of stock or other securities or property described in Section 4.1, in lieu of receiving payment in full of all amounts outstanding under this Note. The number of shares of stock or other securities or property to be issued upon such conversion shall be determined in accordance with Section 4.1 hereof, taking into account the occurrence of such event. 4.3 Reclassification, Etc. If the Company shall, at any time while this Note, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, change any of the securities as to which conversion rights under this Note exist into the same or a different number of securities of any other class or classes, this Note shall thereafter represent the right to acquire such number and kind of securities as would have been issuable with respect to the securities that were subject to the conversion rights under this Note immediately prior to such reclassification or other change, and the Price Per Share shall be appropriately adjusted, all subject to further adjustment as provided in this Section 4. 4.4 Split, Subdivision or Combination of Shares. If the Company at any time while this Note, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the shares of Series E Preferred Stock into a different number of securities of the same class, the Price Per Share shall be proportionately adjusted. 4.5 Series E Adjustments. The initial Series E Conversion Price of the shares of Series E Preferred Stock issued upon conversion of this Note pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on the Conversion Date, subject to the adjustment of such Series E Conversion Price from time to time thereafter as provided in the Series E Certificate of Determination. 4.6 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 4, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. 8 4.7 No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 5. Covenants. The Company covenants and agrees that until the earlier of (i) the date on which all Obligations (as defined in the Security Agreement) have been paid in full or (ii) the Conversion Date: 5.1 Financial Statements and Other Information. The Company shall deliver to the Holder of this Note the financial statements and other information required to be delivered under Section 8.1 of the Purchase Agreement. 5.2 Financial Covenants. The Company shall at all times comply with the financial and other covenants set forth in Schedule 8.5 to the Purchase Agreement as if such covenants were set forth herein. 5.3 Indebtedness. The Company shall not, and shall not permit any Subsidiary to, issue, incur, assume, create or have outstanding any Indebtedness, provided, however, that the foregoing shall not restrict nor operate to prevent: (a) Indebtedness in favor of the Holders under the Loan Documents; (b) Indebtedness existing on the date hereof, and as set forth on Schedule 3.22 to the Purchase Agreement; (c) Indebtedness for accounts payable incurred in the ordinary course of business by the Company; (d) Indebtedness incurred solely for the purpose of financing the acquisition of any equipment, machinery, software, improvements or any other similar property, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, that the aggregate outstanding principal amount of all Indebtedness permitted pursuant to this clause (d) outstanding for more than sixty (60) days after the incurrence of such Indebtedness shall not at any time exceed $500,000; (e) Indebtedness of the Company evidenced by Capitalized Lease Obligations, provided, that in no event shall the aggregate principal amount of Capitalized Lease Obligations permitted by this clause (e) exceed $500,000 at any time outstanding; and (f) Any extension renewal, refinancing, refunding, or replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and (e) 9 above, on such terms and conditions as are, on the whole, not materially more onerous to the Company than the terms and conditions of such original Indebtedness on the date of such refinancing (including that the principal amount of such refinancing Indebtedness does not exceed the principal amount of, plus the amount of accrued and unpaid interest on, the Indebtedness so refinanced (plus the amount of reasonable premium and fees and expenses incurred in connection therewith)), provided that, in the case of a refinancing of Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall only apply to the extent consistent with the Subordination Agreement, dated as of the date hereof, by and among SVB, the Holders and the Company (the "Subordination Agreement"). 5.4 Liens. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of the Company or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable), or assign any right to receive income or permit the filing of any financing statement under the Uniform Commercial Code, as from time to time in effect in the relevant jurisdiction (the "UCC"), or any other similar notice of Lien under any similar recording or notice statute; provided, that the provisions of this Section 5.4 shall not prevent the creation, incurrence, assumption or existence of the following: (a) Liens arising in the ordinary course of business by statute in connection with worker's compensation, unemployment insurance, old age benefits, social security obligations, statutory obligations or other similar charges (other then Liens arising under ERISA), good faith cash deposits in connection with tenders, contracts or leases to which the Company or any Subsidiary is a party or other cash deposits required to be made in the ordinary course of business, provided, that such Liens do not have a material adverse effect on the ability of the Company to repay amounts due under the Notes; (b) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (c) Liens in respect of property or assets of the Company or its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (i) which do not in the aggregate materially detract from the value of the Company's and its Subsidiaries' property or assets taken as a whole or result in a material adverse effect on the Condition of the Company or (ii) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; 10 (d) the pledge of assets for the purpose of securing an appeal, stay or discharge in the course of any legal proceeding, provided that the aggregate amount of liabilities of the Company and its Subsidiaries secured by a pledge of assets permitted under this subsection, including interest and penalties thereon, if any, shall not be in excess of $500,000 at any one time outstanding; (e) any interest or title of a lesser under any operating lease; (f) easements, rights-of-way, restrictions and other similar encumbrances against real property incurred in the ordinary course of business; (g) the Liens existing on the date hereof identified on Schedule 3.22 to the Purchase Agreement; (h) Liens on cash deposited with account debtors to secure performance by the Company or any Subsidiary in the ordinary course of business subject to customary and reasonable terms; (i) Liens upon assets of the Company or its Subsidiaries subject to Capitalized Lease Obligations, provided, that (A) such Liens only serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising under such Capitalized Lease Obligation and (B) the Lien encumbering the asset giving rise to the Capitalized Lease Obligation does not encumber any other asset of the Company or its Subsidiaries; (j) Liens placed upon equipment, machinery, software, improvements or any other similar property, used in the ordinary course of business of the Company or any of its Subsidiaries at the time of the acquisition thereof by the Company or any of its Subsidiaries or within ninety (90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above; provided, that the Liens encumbering the equipment, machinery software, improvements or any other similar property so acquired do not encumber any other asset of the Company or its Subsidiaries; (k) set-off rights of depository institutions; and (l) Liens created by the Security Agreement (collectively with clauses (a) through (k) hereof, the "Permitted Liens"). 5.5 Fundamental Changes. The Company will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or a series of transactions) all or substantially all of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time and immediately after giving effect thereto no Event of Default shall have occurred and be continuing (i) the Company or any of its Subsidiaries may, with the prior written consent of the Holders, merge with or into any other Person; (ii) any wholly-owned 11 Subsidiary of the Company (other than the Guarantor) may merge with or into the Company or any other wholly-owned Subsidiary of the Company; (iii) any Subsidiary (other than the Guarantor, and except as otherwise prohibited by this Note) may sell, transfer, lease or otherwise dispose of its assets to the Company or to another wholly-owned Subsidiary of the Company; and (iv) any Subsidiary may liquidate or dissolve if the board of directors of the Company determine in good faith that such liquidation or dissolution is in its best interests and is not disadvantageous to the Holders. 5.6 Restricted Payments. The Company will not, and the Company will not permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that (i) any Subsidiary may make a Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any Restricted Payment required by the terms of the Purchase Agreement and the other documents executed in connection therewith. 5.7 Transactions with Affiliates. The Company will not, and the Company will not permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions that are at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arm's length basis from unrelated third parties, (b) transactions exclusively between the Company and the Guarantor and (c) transactions under the agreements listed on Schedule 3.17 to the Purchase Agreement. 5.8 Investments. The Company will not, and the Company will not permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment in any Person, except for Permitted Investments. 5.9 Nature of Business. The Company will not, and the Company will not permit any Subsidiary to, engage in any business other than that conducted on the date hereof and any businesses reasonably related thereto. 5.10 Property of Existing Domestic Subsidiaries. The Company will not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise organized under the laws of the United States of America or any state thereof (a "Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease, license, purchase or otherwise acquire any personal or real property (excluding any material intellectual property) in excess of $50,000 for all property held by such Subsidiary, or $250,000 in the aggregate for all property held by all Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own or otherwise hold any rights to any material intellectual property or (iv) otherwise conduct any business or maintain operations. 5.11 Formation of Subsidiaries. The Company will not, and will not cause or permit any of its Subsidiaries to, form, acquire or permit the existence of any new domestic Subsidiary, without causing such domestic Subsidiary to execute and 12 deliver to the Holders a secured guaranty of the Notes and related security document, in form and substance satisfactory to the Holders. 5.12 Books and Records. The Company shall keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Company and its Subsidiaries in accordance with GAAP consistently applied. 5.13 Inspection. The Company shall, and shall cause each of its Subsidiaries to, permit representatives of the Holders to visit and inspect any of its properties, to examine its corporate, financial and operating records and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with their respective directors, officers and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably requested upon notice to the Company. 5.14 Maintenance of Business. The Company shall, and shall cause each Subsidiary to, preserve and maintain its existence. The Company shall, and shall cause each Subsidiary to, preserve and keep in force and effect all licenses, permits, franchises, approvals, patents, trademarks, trade names, trade styles, copyrights, and other property rights necessary to the proper conduct of its business, except where the failure to do so could not reasonably be expected to have a material adverse effect on the Condition of the Company or on the prospects of repayment of the Notes. 5.15 Maintenance of Properties. The Company shall, and shall cause each Subsidiary to, maintain, preserve and keep its property and equipment in good repair, working order and condition (ordinary wear and tear excepted) and shall from time to time make all needful and proper repairs, renewals, replacements, additions and betterments thereto so that at all times the efficiency thereof shall by fully preserved and maintained, except in each case to the extent that, in the reasonable business judgment of such Person, any such property or equipment is no longer necessary for the proper conduct of the business of such Person. 6. The occurrence of any one or more of the following events shall constitute an "Event of Default": 6.1 Failure To Pay. (i) The failure of the Company to pay any principal due under any of the Notes when due and payable (whether by acceleration, declaration, extension or otherwise), or (ii) the failure of the Company to pay any other amounts due under any of the Notes when due and payable if such failure is not cured within five (5) days of Company's receipt of notice thereof from any of the Holders. 6.2 Financial Covenants. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the Financial Covenants set forth on Schedule 8.5 to the Purchase Agreement, and incorporated by reference in this Note in Section 5.2. 13 6.3 Other Covenants and Agreements. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the covenants of this Note, the Security Agreement or any of the other Loan Documents (other than the Financial Covenants set forth on Schedule 8.5 to the Purchase Agreement, and incorporated by reference in this Note in Section 5.2), if such failure is not cured within sixty (60) days. 6.4 Representations and Warranties. If any representation or warranty made by the Company or any of its Subsidiaries in the Loan Documents is not true and correct in all material respects on the Initial Closing Date. 6.5 Default on Other Obligations. The occurrence of any condition or default under any other indebtedness for borrowed money of the Company or any of its Subsidiaries with a principal amount of at least five hundred thousand dollars ($500,000) that results in the acceleration of such indebtedness which is not cured within sixty (60) days. 6.6 Involuntary Bankruptcy. There shall be filed against the Company or any of its Subsidiaries an involuntary petition or other pleading seeking the entry of a decree or order for relief under the United States Bankruptcy Code or any similar federal or state insolvency or similar laws ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a reorganization of the Company or any of its Subsidiaries or the business and affairs of the Company or any of its Subsidiaries or (c) the appointment of a receiver, liquidator, assignee, custodian, trustee or similar official for the Company or any of its Subsidiaries of the property of the Company or any of its Subsidiaries. 6.7 Voluntary Bankruptcy. The commencement by the Company or any of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any federal or state insolvency or similar laws or the consent by the Company or any of its Subsidiaries to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian or similar official for the Company or any of its Subsidiaries of any of the property of the Company or any of its Subsidiaries or the making by the Company or any of its Subsidiaries of an assignment for the benefit of creditors, or the failure by Company or any of its Subsidiaries generally to pay its debts as the debts become due. 6.8 Judgments, Awards. Any judgment or order for the payment of money is rendered against the Company or any of its Subsidiaries in an amount in excess of five hundred thousand dollars ($500,000) individually or in the aggregate and either (i) enforcement proceedings are commenced by any creditor upon such judgment or order and not stayed, or (ii) there is any period of sixty (60) consecutive days during which such judgment has not been paid in full or a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, is not in effect. 6.9 Attachment by Lenders. Any assets of the Company or any of its Subsidiaries shall be attached, levied upon, seized or repossessed, or come into the 14 possession of a trustee, receiver or other custodian and a determination by any Holder, in good faith but in its sole discretion, that the same could have a material adverse effect on the prospect for the Holders to fully and punctually realize the full benefits conferred on the Holders by the Loan Documents. 6.10 Adverse Change in Financial Condition. Any event having a material adverse effect on the business, operations, assets, properties or condition of the Company and its Subsidiaries taken as a whole shall have occurred and be continuing or a material adverse effect on the validity or enforceability of this or any of the other Loan Documents or the rights or remedies of the Holders hereunder or thereunder. 7. Remedies. Upon and after the occurrence of an Event of Default, the Holder shall be entitled to the exercise the rights and remedies set forth in the Security Agreement, the other Loan Documents and under applicable law, all such rights and remedies being cumulative and enforceable alternatively, successively or concurrently. 8. Prepayment. The Company may not prepay this Note prior to the Maturity Date without the prior written consent of the Holders. 9. Seniority. Except as set forth in the Subordination Agreement, the Notes will rank senior in right of payment to all other indebtedness of the Company. 10. Assignment. Subject to the restrictions on transfer described in Section 12 below, the rights and obligations of the Company and Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. The Company shall not be permitted to assign this Note without the prior written consent of the Holders. 11. Waiver of Notice. The Company hereby waives notice, presentment, demand, protest and notice of dishonor. 12. Transfer of This Note. With respect to any offer, sale or other disposition of this Note, Holder will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such Holder's counsel, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect); provided, that no opinion shall be required for any transfer to an Affiliate or if the transfer is made in compliance with the Securities Act, so long as the transferee can make the same representations and warranties at the time of transfer as set forth in Sections 4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Purchase Agreement. Promptly upon delivering such written notice and opinion, if so required, Holder may sell or otherwise dispose of this Note, all in accordance with the terms of the notice delivered to the Company. Each Note thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in 15 connection with such restrictions. Notwithstanding the foregoing, the Holder shall not be permitted to transfer this Note to any Person who is not an Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of written notice from the Company that Stockholder Approval cannot be obtained, or the occurrence of an actual vote of the Company's shareholders entitled to vote (whether by written consent or at a meeting specially called for such purpose), the result of which is a decision by a majority of the Company's shareholders entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of an Event of Default. 13. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 14. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally recognized courier service or mailed by registered or certified mail, postage prepaid, to the respective addresses of the parties as set forth on the signature pages hereto or if sent by facsimile to the respective facsimile numbers of the parties set forth on the signature pages hereto. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given and received when personally delivered or three (3) business days after deposited in the mail or one business day after sent by courier or upon confirmation of facsimile delivery in the manner set forth above. 15. No Stockholder Rights. Nothing contained in this Note shall be construed as conferring upon Holder or any other Person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. 16. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law relating to conflict of laws. 17. Amendments and Waivers. No amendments or waivers of any provision of this Note, and no consent by the Holder to any departure by the Company, shall in any event be effective unless the same shall be in writing, and signed by the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Purchase Agreement, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 18. Severability. Any provision of this Note that is prohibited or unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 16 19. WAIVER OF JURY TRIAL. THE COMPANY AND THE HOLDER HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. 20. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except as otherwise indicated, all references herein to Sections refer to Sections hereof. [the remainder of this page intentionally left blank] 17 IN WITNESS WHEREOF, the Company has caused this Note to be issued this 26th day of November, 2003. COMPANY: CRITICAL PATH, INC., a California corporation By: /s/ Michael J. Zukerman ---------------------------------- Name: Michael J. Zukerman. Title: Senior Vice President and General Counsel Critical Path, Inc. 350 The Embarcadero San Francisco, CA 94105-1204 Telecopy: (415) 541-2300 Attention: Chief Financial Officer With a copy to: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Telecopy: (415) 983-1200 Attention: Gregg Vignos, Esq. Name of Holder: GapStar, LLC Address: c/o General Atlantic Service Corporation 3 Pickwick Plaza Greenwich, CT 06830 Telecopy: (203) 618-9207 Attention: Matthew Nimetz Thomas J. Murphy With a copy to: Paul, Weiss, Rifkind, Wharton & Garrison LLP 1285 Avenue of the Americas New York, NY 10019-6064 Attention: Douglas A. Cifu, Esq. Telecopy: (212) 757-3990 EX-4.24 9 f97295exv4w24.txt EXHIBIT 4.24 EXHIBIT 4.24 NOTE THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS. CRITICAL PATH, INC. CONVERTIBLE SUBORDINATED PROMISSORY NOTE $17,977.00 San Francisco, California November 26, 2003 Critical Path, Inc., a California corporation (the "Company"), the principal office of which is located in San Francisco, California, for value received hereby promises to pay to the order of GAPCO GmbH & Co. KG, or its registered assigns ("Holder"), the sum of seventeen thousand nine hundred seventy-seven and 0/100 dollars ($17,977.00), or such lesser amount as shall then equal the outstanding principal amount hereof on the terms and conditions set forth hereinafter. The outstanding principal amount hereof and all accrued and unpaid interest hereon, as set forth below, shall be due and payable on the earlier to occur of (i) November 26, 2007, (ii) when declared due and payable by Holder upon the occurrence of an Event of Default (as defined below), (iii) consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock or Stock Equivalents by the Company, any cash capital contribution from any third person or any other debt or equity financing consummated by the Company after the date of issuance of this Note which, in the case of (v), individually or in the aggregate raises proceeds of at least forty million dollars ($40,000,000) in cash or cash equivalents (the earliest of the events set forth in items (i)-(v) immediately above, the "Maturity Date"); provided, however, that in the event that the Maturity Date is on or before November 26, 2004, the Company shall also make an additional payment to Holder equal to the amount of interest which would have otherwise accrued on the outstanding principal amount of the Note on the Maturity Date between the Maturity Date and November 26, 2004. The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 2 1. Definitions. Except as otherwise defined herein, each capitalized term used herein shall have the meaning assigned to it in the Purchase Agreement, as in effect on the date hereof, and without regard to any subsequent termination of the Purchase Agreement. All other references to the Purchase Agreement in this Note refer to the Purchase Agreement as in effect on the date hereof, and without regard to any subsequent termination of the Purchase Agreement. As used in this Note, the following terms, unless the context otherwise requires, have the following meanings: 1.1 "Affiliate" means any Person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended. 1.2 "Capitalized Lease Obligations" means, with respect to any Person, all rental obligations of such Person which, under GAAP, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with such principles. 1.3 "Change of Control" shall mean (i) any merger, consolidation or other business combination transaction (or series of related transactions) in which the stockholders owning a majority of the voting securities of the Company prior to such transaction do not own a majority of the voting securities of the surviving entity, (ii) any tender offer, exchange offer or other transaction whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended) (other than General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and the Affiliates of the foregoing, provided that Affiliates shall be deemed not to include any portfolio companies of any of the foregoing) obtains a majority of the outstanding shares of capital stock entitled to vote in the election of directors, (iii) any proxy contest in which a majority of the Board of Directors of the Company (or persons appointed by such Board of Directors) prior to such contest do not constitute a majority of the Company's Board of Directors after such contest or (iv) any other transaction described in any stockholder rights agreement or "poison pill," if any, to which the Company is party, which may permit the holders of any rights or similar certificates to exercise the rights evidenced thereby. 1.4 "Company" shall have the meaning set forth in the recitals hereto, and includes any corporation that shall succeed to or assume the obligations of the Company under this Note. 1.5 "Conversion Date" shall mean the Subsequent Closing Date. 1.6 "Designated Preferred Stock" shall mean the Series D Preferred Stock, par value $0.001, of the Company and the Series E Preferred Stock. 3 1.7 "Domestic Subsidiary" shall have the meaning set forth in Section 5.10 hereof. 1.8 "Event of Default" shall have the meaning set forth in Section 6 hereof. 1.9 "Guaranteed Interest" shall mean the total amount of interest that would accrue on this Note, at the Interest Rate specified in Section 2, from the date of this Note until the one year anniversary of the date of this Note. 1.10 "Guarantor" shall have the meaning set forth in the Security Agreement. 1.11 "Holder" shall mean the registered holder of this Note from time to time, and in the plural, shall mean all registered holders of Notes from time to time issued by the Company pursuant to the Purchase Agreement. 1.12 "Interest Amount" shall have the meaning set forth in Section 3.1 hereof. 1.13 "Investment" means (i) the acquisition (whether for cash, property, services, assumption of Indebtedness, securities or otherwise) of assets (other than equipment, inventory, supplies or other assets acquired in the ordinary course of business of the Company), capital stock, bonds, notes, debentures, partnership, joint venture or other ownership interests or other securities of any Person, (ii) any deposit with, or advance, loan or other extension of credit to, or on behalf of, any Person (other than deposits made in connection with the purchase of equipment, inventory, services, leases, supplies or other assets in the ordinary course of business of the Company), (iii) any other capital contribution to or investment in such Person, including, without limitation, any guaranty obligation incurred for the benefit of such Person. For the sake of clarity, Investments shall include any transfer of property or assets by the Company to any of its Subsidiaries or by any Subsidiary of the Company to any other Subsidiary. 1.14 "Loan Documents" shall have the meaning set forth in the Security Agreement. 1.15 "Note" shall mean this note, and in the plural, shall mean all notes issued to the Lenders pursuant to the terms of the Purchase Agreement, including this Note, and all amendments, modifications and extensions thereto. 1.16 "Permitted Investments" means (i) Investments in cash or cash equivalents, (ii) accounts receivable created, acquired or made in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (iii) Investments existing on the closing date, and listed on Schedule 3.27 to the Purchase Agreement, (iv) guaranty obligations permitted by Section 5.3 of this Agreement, (v) loans to employees, directors or officers of the Company in connection with the award of convertible bonds or capital stock under a stock incentive plan, stock option plan or other equity-based compensation plan or arrangement, (vi) other advances or loans to 4 employees, directors, officers or agents of the Company in the ordinary course of business not to exceed $500,000 in the aggregate at any time outstanding; (vii) loans, advances and investments in foreign Subsidiaries (that are not incorporated or otherwise organized under the laws of the United States of America or any state thereof) in an amount not to exceed $1,000,000 in the aggregate at any time outstanding; (viii) any acquisition for which the prior written consent of the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Purchase Agreement has been obtained, (ix) other loans, advances and investments of a nature not contemplated by the foregoing sections in an amount not to exceed $500,000 in the aggregate at any time outstanding or (x) Investments by the Company in the Guarantor. 1.17 "Permitted Liens" shall have the meaning set forth in Section 5.4. 1.18 "Person" means any individual, firm, corporation, partnership, trust, joint venture, joint stock company, limited liability company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. 1.19 "Price Per Share" shall have the meaning attributed to such term in the Series E Certificate of Determination, as filed with the Secretary of State of the State of California. 1.20 "Purchase Agreement" means that certain Convertible Note Purchase and Exchange Agreement, dated November 18, 2003, among the Company, the Holder and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.21 "Qualified Asset Sale" means the sale, transfer or other disposition of any of the assets of the Company or any of its Subsidiaries, other than (a) sales of assets in the ordinary course of business, (b) sales of assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the sale, transfer or other disposition of assets of the Company where the proceeds are applied to the purchase price or traded in for credit against the purchase price of other assets, provided that any such purchase is made, or credit issued, within 90 days of the sale, transfer or other disposition, and (d) one or more sales of the Company's assets (other than sales otherwise included in clauses (a), (b), and (c) immediately above) which collectively yield up to an aggregate of one million dollars ($1,000,000) in gross proceeds to the Company while this Note is outstanding. 1.22 "Restricted Payment" means (a) any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Company or any of its Subsidiaries or (b) any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any shares of any class of capital stock of the Company or any Subsidiary 5 or any option, warrant or other right to acquire any such shares of capital stock of the Company or any Subsidiary. 1.23 "Security Agreement" means that certain Guaranty and Security Agreement, of even date herewith between the Company, Compass Holding Corp., the Lenders and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.24 "Series E Conversion Price" shall have the meaning set forth in the Series E Certificate of Determination. 1.25 "Series E Preferred Stock" means the Series E Preferred Stock, par value $0.001, of the Company. 1.26 "Subordination Agreement" shall have the meaning set forth in Section 5.3. 1.27 "SVB" means Silicon Valley Bank, a California chartered bank, or any Affiliates thereof. 1.28 "UCC" shall have the meaning set forth in Section 5.4. 2. Interest. Simple interest shall accrue at the rate of ten percent (10%) per annum (or such lesser amount as shall equal the highest rate of interest allowable under applicable law) (the "Interest Rate"), on the outstanding principal of this Note from the date of this Note until the Maturity Date or the date this Note is otherwise repaid. The Company shall not be obligated to make any payments of interest which shall have accrued under this Note prior to the Maturity Date. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. In the event that the principal amount of this Note, any interest, or any amount payable hereunder is not paid in full when such amount becomes due and payable, or upon the occurrence of an Event of Default, interest shall accrue at the lesser of (a) the initial Interest Rate plus five percent (5%) per annum or (b) the highest rate of interest allowable under applicable law, on the balance of all amounts outstanding until such overdue amounts are paid or the Event of Default is cured, and such interest shall be payable on demand. 3. Conversion. 3.1 Conversion. On the Conversion Date, the principal amount of this Note plus the greater of (i) the accrued and unpaid interest thereon and (ii) the Guaranteed Interest (the greater of clause (i) and (ii), the "Interest Amount"), shall be automatically converted into the number of fully paid and nonassessable shares of Series E Preferred Stock equal to the quotient obtained by dividing (a) the entire principal amount of this Note plus the Interest Amount by (b) the Price Per Share. 3.2 Notice of Conversion. Upon conversion of this Note as provided in Section 3.1, Holder shall surrender this Note to the Company and shall state the name or names in which the certificate or certificates for such shares of Series E 6 Preferred Stock are to be issued. The Person or Persons entitled to receive the shares of Series E Preferred Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Series E Preferred Stock as of the Conversion Date. 3.3 Delivery of Stock Certificates. On the Conversion Date, the Company at its expense will issue and deliver to Holder of this Note a certificate or certificates (bearing such legends as are required by applicable state and federal securities laws in the opinion of counsel to the Company) for the number of full shares of Series E Preferred Stock issuable upon such conversion. 3.4 Mechanics and Effect of Conversion. No fractional shares of Series E Preferred Stock shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to Holder upon the conversion of this Note, the Company shall pay to Holder the amount of outstanding principal and interest that is not so converted. Upon conversion of all amounts due under this Note, the Company shall be released from all of its obligations under this Note. 4. Adjustments. The number of shares of Series E Preferred Stock convertible hereunder are subject to adjustment from time to time as follows: 4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at any time while this Note remains outstanding and unexpired there shall be (a) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (b) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise or (c) a sale or transfer of the Company's stock, properties or assets as, or substantially as, an entirety to any other Person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that Holder shall thereafter be entitled to receive by converting this Note the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon conversion of this Note would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Note had been converted immediately before such reorganization, merger, consolidation, sale or transfer (notwithstanding that the Stockholder Approval may not yet have been obtained), all subject to further adjustment as provided in this Section 4. The foregoing provisions of this Section 4.1 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation. If the per share consideration payable to Holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors based on the amount the Holder would have otherwise been entitled to receive had the transaction or transactions not occurred. In all events, appropriate adjustment (as determined in good faith by the Company's 7 Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of Holder after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon conversion of this Note. The Company shall be obligated to retain and set aside, or otherwise make fair provision for exercise of the right of the Holder to receive, the shares of stock and/or other securities, cash or other property provided for in this Section 4.1. 4.2 Election of Holder upon Merger or Sale of Assets. Notwithstanding anything to the contrary contained herein, if an event shall occur as provided in Section 4.1 hereof that would otherwise result in the occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first paragraph of this Note, then the Holder may, in its sole discretion, by written notice to the Company elect to convert the principal amount of this Note plus the Interest Amount into the number of shares of stock or other securities or property described in Section 4.1, in lieu of receiving payment in full of all amounts outstanding under this Note. The number of shares of stock or other securities or property to be issued upon such conversion shall be determined in accordance with Section 4.1 hereof, taking into account the occurrence of such event. 4.3 Reclassification, Etc. If the Company shall, at any time while this Note, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, change any of the securities as to which conversion rights under this Note exist into the same or a different number of securities of any other class or classes, this Note shall thereafter represent the right to acquire such number and kind of securities as would have been issuable with respect to the securities that were subject to the conversion rights under this Note immediately prior to such reclassification or other change, and the Price Per Share shall be appropriately adjusted, all subject to further adjustment as provided in this Section 4. 4.4 Split, Subdivision or Combination of Shares. If the Company at any time while this Note, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the shares of Series E Preferred Stock into a different number of securities of the same class, the Price Per Share shall be proportionately adjusted. 4.5 Series E Adjustments. The initial Series E Conversion Price of the shares of Series E Preferred Stock issued upon conversion of this Note pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on the Conversion Date, subject to the adjustment of such Series E Conversion Price from time to time thereafter as provided in the Series E Certificate of Determination. 4.6 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 4, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. 8 4.7 No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 5. Covenants. The Company covenants and agrees that until the earlier of (i) the date on which all Obligations (as defined in the Security Agreement) have been paid in full or (ii) the Conversion Date: 5.1 Financial Statements and Other Information. The Company shall deliver to the Holder of this Note the financial statements and other information required to be delivered under Section 8.1 of the Purchase Agreement. 5.2 Financial Covenants. The Company shall at all times comply with the financial and other covenants set forth in Schedule 8.5 to the Purchase Agreement as if such covenants were set forth herein. 5.3 Indebtedness. The Company shall not, and shall not permit any Subsidiary to, issue, incur, assume, create or have outstanding any Indebtedness, provided, however, that the foregoing shall not restrict nor operate to prevent: (a) Indebtedness in favor of the Holders under the Loan Documents; (b) Indebtedness existing on the date hereof, and as set forth on Schedule 3.22 to the Purchase Agreement; (c) Indebtedness for accounts payable incurred in the ordinary course of business by the Company; (d) Indebtedness incurred solely for the purpose of financing the acquisition of any equipment, machinery, software, improvements or any other similar property, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, that the aggregate outstanding principal amount of all Indebtedness permitted pursuant to this clause (d) outstanding for more than sixty (60) days after the incurrence of such Indebtedness shall not at any time exceed $500,000; (e) Indebtedness of the Company evidenced by Capitalized Lease Obligations, provided, that in no event shall the aggregate principal amount of Capitalized Lease Obligations permitted by this clause (e) exceed $500,000 at any time outstanding; and (f) Any extension renewal, refinancing, refunding, or replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and (e) 9 above, on such terms and conditions as are, on the whole, not materially more onerous to the Company than the terms and conditions of such original Indebtedness on the date of such refinancing (including that the principal amount of such refinancing Indebtedness does not exceed the principal amount of, plus the amount of accrued and unpaid interest on, the Indebtedness so refinanced (plus the amount of reasonable premium and fees and expenses incurred in connection therewith)), provided that, in the case of a refinancing of Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall only apply to the extent consistent with the Subordination Agreement, dated as of the date hereof, by and among SVB, the Holders and the Company (the "Subordination Agreement"). 5.4 Liens. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of the Company or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable), or assign any right to receive income or permit the filing of any financing statement under the Uniform Commercial Code, as from time to time in effect in the relevant jurisdiction (the "UCC"), or any other similar notice of Lien under any similar recording or notice statute; provided, that the provisions of this Section 5.4 shall not prevent the creation, incurrence, assumption or existence of the following: (a) Liens arising in the ordinary course of business by statute in connection with worker's compensation, unemployment insurance, old age benefits, social security obligations, statutory obligations or other similar charges (other then Liens arising under ERISA), good faith cash deposits in connection with tenders, contracts or leases to which the Company or any Subsidiary is a party or other cash deposits required to be made in the ordinary course of business, provided, that such Liens do not have a material adverse effect on the ability of the Company to repay amounts due under the Notes; (b) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (c) Liens in respect of property or assets of the Company or its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (i) which do not in the aggregate materially detract from the value of the Company's and its Subsidiaries' property or assets taken as a whole or result in a material adverse effect on the Condition of the Company or (ii) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; 10 (d) the pledge of assets for the purpose of securing an appeal, stay or discharge in the course of any legal proceeding, provided that the aggregate amount of liabilities of the Company and its Subsidiaries secured by a pledge of assets permitted under this subsection, including interest and penalties thereon, if any, shall not be in excess of $500,000 at any one time outstanding; (e) any interest or title of a lesser under any operating lease; (f) easements, rights-of-way, restrictions and other similar encumbrances against real property incurred in the ordinary course of business; (g) the Liens existing on the date hereof identified on Schedule 3.22 to the Purchase Agreement; (h) Liens on cash deposited with account debtors to secure performance by the Company or any Subsidiary in the ordinary course of business subject to customary and reasonable terms; (i) Liens upon assets of the Company or its Subsidiaries subject to Capitalized Lease Obligations, provided, that (A) such Liens only serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising under such Capitalized Lease Obligation and (B) the Lien encumbering the asset giving rise to the Capitalized Lease Obligation does not encumber any other asset of the Company or its Subsidiaries; (j) Liens placed upon equipment, machinery, software, improvements or any other similar property, used in the ordinary course of business of the Company or any of its Subsidiaries at the time of the acquisition thereof by the Company or any of its Subsidiaries or within ninety (90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above; provided, that the Liens encumbering the equipment, machinery software, improvements or any other similar property so acquired do not encumber any other asset of the Company or its Subsidiaries; (k) set-off rights of depository institutions; and (l) Liens created by the Security Agreement (collectively with clauses (a) through (k) hereof, the "Permitted Liens"). 5.5 Fundamental Changes. The Company will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or a series of transactions) all or substantially all of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time and immediately after giving effect thereto no Event of Default shall have occurred and be continuing (i) the Company or any of its Subsidiaries may, with the prior written consent of the Holders, merge with or into any other Person; (ii) any wholly-owned 11 Subsidiary of the Company (other than the Guarantor) may merge with or into the Company or any other wholly-owned Subsidiary of the Company; (iii) any Subsidiary (other than the Guarantor, and except as otherwise prohibited by this Note) may sell, transfer, lease or otherwise dispose of its assets to the Company or to another wholly-owned Subsidiary of the Company; and (iv) any Subsidiary may liquidate or dissolve if the board of directors of the Company determine in good faith that such liquidation or dissolution is in its best interests and is not disadvantageous to the Holders. 5.6 Restricted Payments. The Company will not, and the Company will not permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that (i) any Subsidiary may make a Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any Restricted Payment required by the terms of the Purchase Agreement and the other documents executed in connection therewith. 5.7 Transactions with Affiliates. The Company will not, and the Company will not permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions that are at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arm's length basis from unrelated third parties, (b) transactions exclusively between the Company and the Guarantor and (c) transactions under the agreements listed on Schedule 3.17 to the Purchase Agreement. 5.8 Investments. The Company will not, and the Company will not permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment in any Person, except for Permitted Investments. 5.9 Nature of Business. The Company will not, and the Company will not permit any Subsidiary to, engage in any business other than that conducted on the date hereof and any businesses reasonably related thereto. 5.10 Property of Existing Domestic Subsidiaries. The Company will not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise organized under the laws of the United States of America or any state thereof (a "Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease, license, purchase or otherwise acquire any personal or real property (excluding any material intellectual property) in excess of $50,000 for all property held by such Subsidiary, or $250,000 in the aggregate for all property held by all Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own or otherwise hold any rights to any material intellectual property or (iv) otherwise conduct any business or maintain operations. 5.11 Formation of Subsidiaries. The Company will not, and will not cause or permit any of its Subsidiaries to, form, acquire or permit the existence of any new domestic Subsidiary, without causing such domestic Subsidiary to execute and 12 deliver to the Holders a secured guaranty of the Notes and related security document, in form and substance satisfactory to the Holders. 5.12 Books and Records. The Company shall keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Company and its Subsidiaries in accordance with GAAP consistently applied. 5.13 Inspection. The Company shall, and shall cause each of its Subsidiaries to, permit representatives of the Holders to visit and inspect any of its properties, to examine its corporate, financial and operating records and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with their respective directors, officers and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably requested upon notice to the Company. 5.14 Maintenance of Business. The Company shall, and shall cause each Subsidiary to, preserve and maintain its existence. The Company shall, and shall cause each Subsidiary to, preserve and keep in force and effect all licenses, permits, franchises, approvals, patents, trademarks, trade names, trade styles, copyrights, and other property rights necessary to the proper conduct of its business, except where the failure to do so could not reasonably be expected to have a material adverse effect on the Condition of the Company or on the prospects of repayment of the Notes. 5.15 Maintenance of Properties. The Company shall, and shall cause each Subsidiary to, maintain, preserve and keep its property and equipment in good repair, working order and condition (ordinary wear and tear excepted) and shall from time to time make all needful and proper repairs, renewals, replacements, additions and betterments thereto so that at all times the efficiency thereof shall by fully preserved and maintained, except in each case to the extent that, in the reasonable business judgment of such Person, any such property or equipment is no longer necessary for the proper conduct of the business of such Person. 6. The occurrence of any one or more of the following events shall constitute an "Event of Default": 6.1 Failure To Pay. (i) The failure of the Company to pay any principal due under any of the Notes when due and payable (whether by acceleration, declaration, extension or otherwise), or (ii) the failure of the Company to pay any other amounts due under any of the Notes when due and payable if such failure is not cured within five (5) days of Company's receipt of notice thereof from any of the Holders. 6.2 Financial Covenants. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the Financial Covenants set forth on Schedule 8.5 to the Purchase Agreement, and incorporated by reference in this Note in Section 5.2. 13 6.3 Other Covenants and Agreements. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the covenants of this Note, the Security Agreement or any of the other Loan Documents (other than the Financial Covenants set forth on Schedule 8.5 to the Purchase Agreement, and incorporated by reference in this Note in Section 5.2), if such failure is not cured within sixty (60) days. 6.4 Representations and Warranties. If any representation or warranty made by the Company or any of its Subsidiaries in the Loan Documents is not true and correct in all material respects on the Initial Closing Date. 6.5 Default on Other Obligations. The occurrence of any condition or default under any other indebtedness for borrowed money of the Company or any of its Subsidiaries with a principal amount of at least five hundred thousand dollars ($500,000) that results in the acceleration of such indebtedness which is not cured within sixty (60) days. 6.6 Involuntary Bankruptcy. There shall be filed against the Company or any of its Subsidiaries an involuntary petition or other pleading seeking the entry of a decree or order for relief under the United States Bankruptcy Code or any similar federal or state insolvency or similar laws ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a reorganization of the Company or any of its Subsidiaries or the business and affairs of the Company or any of its Subsidiaries or (c) the appointment of a receiver, liquidator, assignee, custodian, trustee or similar official for the Company or any of its Subsidiaries of the property of the Company or any of its Subsidiaries. 6.7 Voluntary Bankruptcy. The commencement by the Company or any of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any federal or state insolvency or similar laws or the consent by the Company or any of its Subsidiaries to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian or similar official for the Company or any of its Subsidiaries of any of the property of the Company or any of its Subsidiaries or the making by the Company or any of its Subsidiaries of an assignment for the benefit of creditors, or the failure by Company or any of its Subsidiaries generally to pay its debts as the debts become due. 6.8 Judgments, Awards. Any judgment or order for the payment of money is rendered against the Company or any of its Subsidiaries in an amount in excess of five hundred thousand dollars ($500,000) individually or in the aggregate and either (i) enforcement proceedings are commenced by any creditor upon such judgment or order and not stayed, or (ii) there is any period of sixty (60) consecutive days during which such judgment has not been paid in full or a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, is not in effect. 6.9 Attachment by Lenders. Any assets of the Company or any of its Subsidiaries shall be attached, levied upon, seized or repossessed, or come into the 14 possession of a trustee, receiver or other custodian and a determination by any Holder, in good faith but in its sole discretion, that the same could have a material adverse effect on the prospect for the Holders to fully and punctually realize the full benefits conferred on the Holders by the Loan Documents. 6.10 Adverse Change in Financial Condition. Any event having a material adverse effect on the business, operations, assets, properties or condition of the Company and its Subsidiaries taken as a whole shall have occurred and be continuing or a material adverse effect on the validity or enforceability of this or any of the other Loan Documents or the rights or remedies of the Holders hereunder or thereunder. 7. Remedies. Upon and after the occurrence of an Event of Default, the Holder shall be entitled to the exercise the rights and remedies set forth in the Security Agreement, the other Loan Documents and under applicable law, all such rights and remedies being cumulative and enforceable alternatively, successively or concurrently. 8. Prepayment. The Company may not prepay this Note prior to the Maturity Date without the prior written consent of the Holders. 9. Seniority. Except as set forth in the Subordination Agreement, the Notes will rank senior in right of payment to all other indebtedness of the Company. 10. Assignment. Subject to the restrictions on transfer described in Section 12 below, the rights and obligations of the Company and Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. The Company shall not be permitted to assign this Note without the prior written consent of the Holders. 11. Waiver of Notice. The Company hereby waives notice, presentment, demand, protest and notice of dishonor. 12. Transfer of This Note. With respect to any offer, sale or other disposition of this Note, Holder will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such Holder's counsel, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect); provided, that no opinion shall be required for any transfer to an Affiliate or if the transfer is made in compliance with the Securities Act, so long as the transferee can make the same representations and warranties at the time of transfer as set forth in Sections 4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Purchase Agreement. Promptly upon delivering such written notice and opinion, if so required, Holder may sell or otherwise dispose of this Note, all in accordance with the terms of the notice delivered to the Company. Each Note thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in 15 connection with such restrictions. Notwithstanding the foregoing, the Holder shall not be permitted to transfer this Note to any Person who is not an Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of written notice from the Company that Stockholder Approval cannot be obtained, or the occurrence of an actual vote of the Company's shareholders entitled to vote (whether by written consent or at a meeting specially called for such purpose), the result of which is a decision by a majority of the Company's shareholders entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of an Event of Default. 13. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 14. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally recognized courier service or mailed by registered or certified mail, postage prepaid, to the respective addresses of the parties as set forth on the signature pages hereto or if sent by facsimile to the respective facsimile numbers of the parties set forth on the signature pages hereto. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given and received when personally delivered or three (3) business days after deposited in the mail or one business day after sent by courier or upon confirmation of facsimile delivery in the manner set forth above. 15. No Stockholder Rights. Nothing contained in this Note shall be construed as conferring upon Holder or any other Person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. 16. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law relating to conflict of laws. 17. Amendments and Waivers. No amendments or waivers of any provision of this Note, and no consent by the Holder to any departure by the Company, shall in any event be effective unless the same shall be in writing, and signed by the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Purchase Agreement, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 18. Severability. Any provision of this Note that is prohibited or unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 16 19. WAIVER OF JURY TRIAL. THE COMPANY AND THE HOLDER HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. 20. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except as otherwise indicated, all references herein to Sections refer to Sections hereof. [the remainder of this page intentionally left blank] 17 IN WITNESS WHEREOF, the Company has caused this Note to be issued this 26th day of November, 2003. COMPANY: CRITICAL PATH, INC., a California corporation By: /s/ Michael J. Zukerman ---------------------------------- Name: Michael J. Zukerman. Title: Senior Vice President and General Counsel Critical Path, Inc. 350 The Embarcadero San Francisco, CA 94105-1204 Telecopy: (415) 541-2300 Attention: Chief Financial Officer With a copy to: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Telecopy: (415) 983-1200 Attention: Gregg Vignos, Esq. Name of Holder: GAPCO GmbH & Co. KG Address: c/o General Atlantic Service Corporation 3 Pickwick Plaza Greenwich, CT 06830 Telecopy: (203) 618-9207 Attention: Matthew Nimetz Thomas J. Murphy With a copy to: Paul, Weiss, Rifkind, Wharton & Garrison LLP 1285 Avenue of the Americas New York, NY 10019-6064 Attention: Douglas A. Cifu, Esq. Telecopy: (212) 757-3990 EX-4.25 10 f97295exv4w25.txt EXHIBIT 4.25 EXHIBIT 4.25 ================================================================================ SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT among CRITICAL PATH, INC. GENERAL ATLANTIC PARTNERS 74, L.P., GAP COINVESTMENT PARTNERS II, L.P., GAPSTAR, LLC, GAPCO GMBH & CO. KG and THE OTHER PARTIES LISTED HEREIN ---------- Dated: January 16, 2004 ---------- ================================================================================ TABLE OF CONTENTS

Page ---- 1. Definitions.....................................................................................2 2. General; Securities Subject to this Agreement...................................................6 (a) Grant of Rights........................................................................6 (b) Registrable Securities.................................................................6 (c) Holders of Registrable Securities......................................................6 3. Demand Registration.............................................................................7 (a) Request for Demand Registration........................................................7 (b) Incidental or "Piggy-Back" Rights with Respect to a Demand Registration................7 (c) Effective Demand Registration..........................................................8 (d) Expenses...............................................................................8 (e) Underwriting Procedures................................................................8 (f) Selection of Underwriters..............................................................9 4. Incidental or "Piggy-Back" Registration.........................................................9 (a) Request for Incidental Registration....................................................9 (b) Expenses..............................................................................10 5. Holdback Agreements............................................................................10 (a) Restrictions on Public Sale by Designated Holders.....................................10 (b) Restrictions on Public Sale by the Company............................................11 6. Registration Procedures........................................................................11 (a) Obligations of the Company............................................................11 (b) Seller Information....................................................................14 (c) Notice to Discontinue.................................................................14 (d) Registration Expenses.................................................................14 7. Indemnification; Contribution..................................................................15 (a) Indemnification by the Company........................................................15 (b) Indemnification by Designated Holders.................................................15 (c) Conduct of Indemnification Proceedings................................................16 (d) Contribution..........................................................................16 8. Rule 144.......................................................................................17 9. Miscellaneous..................................................................................17 (a) Recapitalizations, Exchanges, etc.....................................................17 (b) No Inconsistent Agreements............................................................17 (c) Remedies..............................................................................17 (d) Amendments and Waivers................................................................18 (e) Notices...............................................................................18 (f) Successors and Assigns; Third Party Beneficiaries.....................................20

i

Page ---- (g) Counterparts..........................................................................20 (h) Headings..............................................................................21 (i) Governing Law.........................................................................21 (j) Severability..........................................................................21 (k) Rules of Construction.................................................................21 (l) Entire Agreement......................................................................21 (m) Further Assurances....................................................................21 (n) Other Agreements......................................................................21 (o) Effective Date and Termination........................................................21

ii SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated January 16, 2004 (this "Agreement"), among Critical Path, Inc., a California corporation (the "Company"), General Atlantic Partners 74, L.P., a Delaware limited partnership ("GAP LP"), GAP Coinvestment Partners II, L.P., a Delaware limited partnership ("GAP Coinvestment"), GapStar, LLC, a Delaware limited liability company ("GapStar"), GAPCO GmbH & Co. KG, a German limited partnership ("GmbH Coinvestment"), Cenwell Limited ("Cenwell"), Campina Enterprises Limited ("Campina"), Great Affluent Limited ("Great Affluent"), Dragonfield Limited ("Dragonfield"), Lion Cosmos Limited ("Lion Cosmos"), Vectis CP Holdings, LLC, a Delaware limited liability company ("Vectis"), Permal U.S. Opportunities Limited ("Permal"), Zaxis Equity Neutral, L.P. ("Zaxis Equity"), Zaxis Institutional Partners, L.P. ("Zaxis Institutional"), Zaxis Offshore Limited ("Zaxis Offshore"), Zaxis Partners, L.P. ("Zaxis Partners and collectively with Permal, Zaxis Equity, Zaxis Institutional and Zaxis Offshore, "Apex Capital"), Passport Master Fund, L.P. ("Passport Capital"), WHEREAS, pursuant to the Stock and Warrant Purchase Agreement, dated November 8, 2001, as amended from time to time (the "Stock Purchase Agreement"), among the Company, GAP LP, GAP Coinvestment, GapStar, Cenwell, Campina and Vectis, the Company has (i) issued and sold to GAP LP, GAP Coinvestment, GapStar, Cenwell, Campina and Vectis, an aggregate of 2,162,582 shares of Series D Cumulative Redeemable Convertible Participating Series D Preferred Stock, par value $0.001 per share, of the Company, as amended from time to time (the "Series D Preferred Stock"), (ii) issued and delivered to GAP LP, GAP Coinvestment and GapStar an aggregate of 1,837,418 shares of Series D Preferred Stock in exchange for a certain amount of convertible subordinated notes of the Company and (iii) issued and sold to GAP LP, GAP Coinvestment and GapStar warrants to purchase shares of Common Stock (as hereinafter defined) (the "Warrants"); WHEREAS, pursuant to the Convertible Note Purchase and Exchange Agreement, dated November 18, 2003 (the "Convertible Note Purchase and Exchange Agreement"), among the Company, GAP LP, GAP Coinvestment, GapStar, GAP-W, LLC, a Delaware limited liability company, GmbH Coinvestment, Campina, Cenwell, Great Affluent, Dragonfield and Lion Cosmos, as amended, (i) the Company has issued and sold to GAP LP, GAP Coinvestment, GapStar and GmbH Coinvestment convertible promissory notes (the "GA Notes") which are convertible into shares, par value $0.001 per share, of Series E Redeemable Convertible Preferred Stock of the Company (the "Series E Preferred Stock") and (ii) Campina, Cenwell, Great Affluent, Dragonfield and Lion Cosmos agreed upon the satisfaction of certain conditions to exchange their CK Sub Notes (as hereinafter defined) for shares of Series E Preferred Stock; WHEREAS, pursuant to the Convertible Note Purchase Agreement, dated January 16, 2004, among the Company, Apex Capital and Passport Capital (the "Apex Note Purchase Agreement"), (i) the Company has issued and sold to Apex Capital and Passport Capital convertible promissory notes (the "Apex Notes" and, together with the GA Notes, the "Notes") which are convertible into shares of Series E Preferred Stock; and WHEREAS, in order to induce (i) each of GAP LP, GAP Coinvestment, GapStar, GmbH Coinvestment, Apex Capital and Passport Capital to purchase the Notes and (ii) Campina, Cenwell, Great Affluent, Dragonfield and Lion Cosmos to exchange the CK Sub Notes for shares of Series E Preferred Stock, the Company has agreed to grant registration rights with respect to the Registrable Securities (as hereinafter defined) as set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Definitions. As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated: "Affiliate" shall mean any Person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. "Agreement" means this Agreement as the same may be amended, supplemented or modified in accordance with the terms hereof. "Amended and Restated Stockholders Agreement" shall mean the Amended and Restated Stockholders Agreement, dated the date hereof, among the Company, GAP LP, GAP Coinvestment, GapStar, GmbH Coinvestment and the Persons listed therein as "Coinvestors." "Apex Capital" has the meaning set forth in the preamble to this Agreement. "Apex Note Purchase Agreement" has the meaning set forth in the recitals to this Agreement. "Apex Notes" has the meaning set forth in the recitals to this Agreement. "Apex Stockholders" means Apex Capital and Passport Capital and any Affiliate thereof that, after the date hereof, acquires Registrable Securities. "Approved Underwriter" has the meaning set forth in Section 3(f) of this Agreement. "Board of Directors" means the Board of Directors of the Company. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in the State of New York are authorized or required by law or executive order to close. "Campina" has the meaning set forth in the preamble to this Agreement. "Cenwell" has the meaning set forth in the preamble to this Agreement. 2 "Coinvestor Stockholders" means Cenwell, Campina, Great Affluent, Dragonfield, Lion Cosmos and any Affiliate thereof that, after the date hereof, acquires Registrable Securities. "CK Sub Notes" means the 53/4% Convertible Subordinated Notes due April 1, 2005 issued by the Company in the principal face amount of thirty-two million seven hundred ninety-five thousand dollars ($32,795,000), pursuant to the Company's Indenture, dated March 31, 2000. "Commission" means the Securities and Exchange Commission or any similar agency then having jurisdiction to enforce the Securities Act. "Common Stock" means the Common Stock, par value $0.001 per share, of the Company or any other capital stock of the Company into which such stock is reclassified or reconstituted and any other common stock of the Company. "Company" has the meaning set forth in the preamble to this Agreement. "Company Underwriter" has the meaning set forth in Section 4(a) of this Agreement. "Conversion" has the meaning set forth in the Apex Note Purchase Agreement. "Conversion and Exchange" has the meaning set forth in the Convertible Note Purchase and Exchange Agreement. "Convertible Note Purchase and Exchange Agreement" has the meaning set forth in the recitals to this Agreement. "Daily Trade Amount" means, as to each of the General Atlantic Stockholders, the Coinvestor Stockholders, the Vectis Stockholders and the Apex Stockholders (other than Passport Capital), the greater of (w) with respect to any date a proposed sale pursuant to a Registration Statement is to be executed, 20% of the daily trading volume of the Common Stock on the Nasdaq National Market System on the date a proposed trade is to take place and (x) 20% of the average daily trading volume of the Common Stock on the Nasdaq National Market for the five trading days immediately preceding such date, and as to Passport Capital, the greater of (y) 6.7% of the daily trading volume of the Common Stock on the Nasdaq National Market System on the date a proposed trade is to take place and (z) 6.7% of the average daily trading volume of the Common Stock on the Nasdaq National Market for the five trading days immediately preceding such date; provided, however, that for the purpose of calculating the Daily Trade Amount, a block trade effected by a party outside the Nasdaq National Market System shall be disregarded for purposes of calculating the amount disposed of by the party and the daily trading volume. The Daily Trade Amount shall apply to each such stockholder severally and not jointly, shall not be aggregated among or between such stockholders, and such stockholders shall not be required hereby to coordinate their sales or dispositions of Common Stock. 3 "Demand Registration" has the meaning set forth in Section 3(a) of this Agreement. "Designated Holder" means each of the General Atlantic Stockholders, the Coinvestor Stockholders, the Vectis Stockholders and the Apex Stockholders and any transferee of any of them to whom Registrable Securities have been transferred in accordance with Section 9(f) of this Agreement, other than a transferee to whom Registrable Securities have been transferred pursuant to a Registration Statement under the Securities Act or Rule 144 (or any successor rule thereto). "Dragonfield" has the meaning set forth in the recitals to this Agreement. "Exchange" has the meaning set forth in the Convertible Note Purchase and Exchange Agreement. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder. "GA Notes" has the meaning set forth in the recitals to this Agreement. "GAP Coinvestment" has the meaning set forth in the preamble to this Agreement. "GAP LLC" means General Atlantic Partners, LLC, a Delaware limited liability company and the general partner of GAP LP and the managing member of GapStar, and any successor to such entity. "GAP LP" has the meaning set forth in the preamble to this Agreement. "GapStar" has the meaning set forth in the preamble to this Agreement. "General Atlantic Stockholders" means GAP LP, GAP Coinvestment, GapStar, GmbH Coinvestment and any Affiliate of GAP LLC that, after the date hereof, acquires Registrable Securities. "GmbH Coinvestment" means GAPCO GmbH & Co. KG, a German limited partnership. "Great Affluent" has the meaning set forth in the recitals to this Agreement. "Holders' Counsel" has the meaning set forth in Section 6(a)(i) of this Agreement. "Incidental Registration" has the meaning set forth in Section 4(a) of this Agreement. "Indemnified Party" has the meaning set forth in Section 7(c) of this Agreement. 4 "Indemnifying Party" has the meaning set forth in Section 7(c) of this Agreement. "Initiating Holders" has the meaning set forth in Section 3(a) of this Agreement. "Inspector" has the meaning set forth in Section 6(a)(vii) of this Agreement. "Liability" has the meaning set forth in Section 7(a) of this Agreement. "Lion Cosmos" has the meaning set forth in the recitals to this Agreement. "NASD" means the National Association of Securities Dealers, Inc. "Passport Capital" has the meaning set forth in the preamble to this Agreement. "Person" means any individual, firm, corporation, partnership, limited liability company, trust, incorporated or unincorporated association, joint venture, joint stock company, limited liability company, government (or an agency or political subdivision thereof) or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. "Public Offering" means any public offering of the shares of Common Stock of the Company pursuant to an effective Registration Statement filed under the Securities Act. "Records" has the meaning set forth in Section 6(a)(vii) of this Agreement. "Registrable Securities" means each of the following: (a) any and all shares of Common Stock issued or issuable upon conversion of shares of Series D Preferred Stock or exercise of the Warrants, and, subject to Stockholder Approval, any and all shares of Common Stock issued or issuable upon conversion of shares of Series E Preferred Stock, (b) if the Subsequent Closing does not occur by April 30, 2004, the shares of Common Stock issued upon conversion of the Apex Notes, (c) any other shares of Common Stock acquired or owned by any of the Designated Holders after the date hereof if such Designated Holder is an Affiliate of the Company and (d) any shares of Common Stock issued or issuable to any of the Designated Holders with respect to the Registrable Securities by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise and any shares of Common Stock or voting common stock issuable upon conversion, exercise or exchange thereof. "Registration Expenses" has the meaning set forth in Section 6(d) of this Agreement. "Registration Statement" means a Registration Statement filed pursuant to the Securities Act. "Rights Offering" has the meaning set forth in the Convertible Note Purchase and Exchange Agreement. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. 5 "Series D Preferred Stock" has the meaning set forth in the recitals to this Agreement. "Series E Preferred Stock" has the meaning set forth in the recitals to this Agreement. "Stock Purchase Agreement" has the meaning set forth in the recitals to this Agreement. "Stockholder Approval" has the meaning set forth in the Convertible Note Purchase and Exchange Agreement. "Valid Business Reason" has the meaning set forth in Section 3(a) of this Agreement. "Vectis" has the meaning set forth in the preamble of this Agreement. "Vectis Stockholders" means Vectis and any Affiliate thereof that, after the date hereof, acquires Registrable Securities. "Warrants" has the meaning set forth in the recitals to this Agreement. 2. General; Securities Subject to this Agreement. (a) Grant of Rights. The Company hereby grants registration rights to the Designated Holders upon the terms and conditions set forth in this Agreement. (b) Registrable Securities. For the purposes of this Agreement, Registrable Securities will cease to be Registrable Securities, when (i) a Registration Statement covering such Registrable Securities has been declared effective under the Securities Act by the Commission and such Registrable Securities have been disposed of pursuant to such effective Registration Statement, (ii) (x) the entire amount of the Registrable Securities owned by a Designated Holder may be sold in a single sale, in the opinion of counsel satisfactory to the Company and such Designated Holder, each in their reasonable judgment, without any limitation as to volume pursuant to Rule 144 (or any successor provision then in effect) under the Securities Act and (y) such Designated Holder owning such Registrable Securities owns less than one percent (1%) of the outstanding shares of Common Stock on a fully diluted basis, or (iii) the Registrable Securities are proposed to be sold or distributed by a Person not entitled to the registration rights granted by this Agreement. (c) Holders of Registrable Securities. A Person is deemed to be a holder of Registrable Securities whenever such Person owns of record Registrable Securities, or holds an option to purchase, or a security convertible into or exercisable or exchangeable for, Registrable Securities whether or not such acquisition or conversion has actually been effected. If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company may act upon the basis of the instructions, notice or election received from the registered owner of such Registrable Securities. 6 Registrable Securities issuable upon exercise of an option or upon conversion of another security shall be deemed outstanding for the purposes of this Agreement. 3. Demand Registration. (a) Request for Demand Registration. At any time after the earliest of (i) the expiration or consummation of the exercise of the right of the General Atlantic Stockholders and the Coinvestor Stockholders (or their respective permitted transferees) to subscribe for those shares of Series E Preferred Stock offered in the Rights Offering but not acquired by holders of shares of the Company's Common Stock, (ii) the termination of the Rights Offering and (iii) April 30, 2004, if the Conversion and Exchange and the Conversion have not occurred on or prior to such date, each of (A) the General Atlantic Stockholders, (B) the Coinvestor Stockholders and (C) Apex Capital (the "Initiating Holders"), may each make a written request to the Company to register, and the Company shall register, under the Securities Act and on an appropriate registration statement form as reasonably determined by the Company and approved by the Initiating Holders (a "Demand Registration"), the number of Registrable Securities stated in such request; provided, however, that the Company shall not be obligated to effect more than one such Demand Registration for the General Atlantic Stockholders (subject to Section 3(e)(ii) below), more than one such Demand Registration for the Coinvestor Stockholders (subject to Section 3(e)(ii) below) and more than one such Demand Registration for the Apex Stockholders (subject to Section 3(e)(ii) below). If following receipt of a written request for a Demand Registration the Board of Directors, in its good faith judgment, determines that any registration of Registrable Securities should not be made or continued because it would materially interfere with any material financing, acquisition, corporate reorganization or merger or other material transaction involving the Company (a "Valid Business Reason"), the Company may (x) postpone filing a Registration Statement relating to a Demand Registration until such Valid Business Reason no longer exists, but in no event for more than ninety (90) days, and (y) in case a Registration Statement has been filed relating to a Demand Registration, if the Valid Business Reason has not resulted from actions taken by the Company, the Company, upon the approval of a majority of the Board of Directors, such majority to include at least one Director appointed by the General Atlantic Stockholders, may cause such Registration Statement to be withdrawn and its effectiveness terminated or may postpone amending or supplementing such Registration Statement. The Company shall give written notice of its determination to postpone or withdraw a Registration Statement and of the fact that the Valid Business Reason for such postponement or withdrawal no longer exists, in each case, promptly after the occurrence thereof. Notwithstanding anything to the contrary contained herein, the Company may not postpone or withdraw a filing under this Section 3(a) more than once in any twelve (12) month period. Each request for a Demand Registration by the Initiating Holders shall state the amount of the Registrable Securities proposed to be sold and the intended method of disposition thereof. (b) Incidental or "Piggy-Back" Rights with Respect to a Demand Registration. Each of the Designated Holders (other than Initiating Holders which have requested a registration under Section 3(a)) may offer its or his Registrable Securities under any Demand Registration pursuant to this Section 3(b). Within five (5) days after the receipt of a request for a Demand Registration from an Initiating Holder, the Company shall (i) give written notice thereof to all of the Designated Holders (other than Initiating Holders which have requested a registration under Section 3(a)) and (ii) subject to Section 3(e), include in such registration all of 7 the Registrable Securities held by such Designated Holders from whom the Company has received a written request for inclusion therein within ten (10) days of the receipt by such Designated Holders of such written notice referred to in clause (i) above. Each such request by such Designated Holders shall specify the number of Registrable Securities proposed to be registered. The failure of any Designated Holder to respond within such 10 day period referred to in clause (ii) above shall be deemed to be a waiver of such Designated Holder's rights under this Section 3 with respect to such Demand Registration. Any Designated Holder may waive its rights under this Section 3 prior to the expiration of such 10-day period by giving written notice to the Company, with a copy to the Initiating Holders. If a Designated Holder sends the Company a written request for inclusion of part or all of such Designated Holder's Registrable Securities in a registration, such Designated Holder shall not be entitled to withdraw or revoke such request without the prior written consent of the Company in its sole discretion unless, as a result of facts or circumstances arising after the date on which such request was made relating to the Company or to market conditions, such Designated Holder reasonably determines that participation in such registration would have a material adverse effect on such Designated Holder. (c) Effective Demand Registration. The Company shall use all commercially reasonable efforts to cause any such Demand Registration to be filed not later than thirty (30) days after it receives a request under Section 3(a) hereof and to become and remain effective as soon as practicable thereafter but, in any event, not later than ninety (90) days (or, if the Company is eligible to effect such registration on Form S-3, sixty (60) days) after such filing. A registration shall not constitute a Demand Registration unless it has become effective and remains continuously effective until the earlier of the date (i) on which all Registrable Securities registered in the Demand Registration are sold and (ii) that is the second anniversary of the effectiveness of the Registration Statement relating to such Demand Registration; provided, however, that a registration shall not constitute a Demand Registration if (x) after such Demand Registration has become effective, such registration or the related offer, sale or distribution of Registrable Securities thereunder is interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason not attributable to the Initiating Holders and such interference is not thereafter eliminated or (y) the conditions specified in the underwriting agreement, if any, entered into in connection with such Demand Registration are not satisfied or waived, other than by reason of a failure by the Initiating Holder. (d) Expenses. The Company shall pay all Registration Expenses in connection with a Demand Registration, whether or not such Demand Registration becomes effective, except for an underwritten Demand Registration pursuant to Section 3(e)(i)(y) below, as to which each participating Designated Holder shall bear its pro rata portion of expenses based on the number of shares of Common Stock registered pursuant thereto. (e) Underwriting Procedures. (i) If (x) any of the Initiating Holders so elects for itself or (y) with respect to any given trading day, a Designated Holder proposes to sell or dispose of more than the Daily Trade Amount and the Company's board of directors determines in good faith that it is necessary for an orderly distribution to be made pursuant to a firm commitment underwritten 8 offering, then the Company shall use all commercially reasonable efforts to cause such Demand Registration to be in the form of, and such Designated Holder or Designated Holders shall be obligated to sell or dispose of its or their Registrable Securities pursuant to, a firm commitment underwritten offering and the managing underwriter or underwriters selected for such offering shall be the Approved Underwriter selected in accordance with Section 3(f). In connection with any Demand Registration under this Section 3 involving an underwritten offering, none of the Registrable Securities held by any Designated Holder making a request for inclusion of such Registrable Securities pursuant to Section 3(b) hereof shall be included in such underwritten offering unless such Designated Holder accepts the terms of the offering as agreed upon by the Company, the Initiating Holders and the Approved Underwriter, and then only in such quantity as will not, in the opinion of the Approved Underwriter, jeopardize the success of such offering by the Initiating Holders. If the Approved Underwriter advises the Company in its reasonable opinion that the aggregate amount of such Registrable Securities requested to be included in such offering is sufficiently large to have a material adverse effect on the success of such offering, then the Company shall include in such registration only the aggregate amount of Registrable Securities that the Approved Underwriter believes may be sold without any such material adverse effect and shall reduce the amount of Registrable Securities to be included in such registration by removing from such registration securities owned, first by the Company and second by the Designated Holders (including the Initiating Holders) pro rata based on the number of Registrable Securities owned by each such Designated Holder. (ii) If an Initiating Holder makes a request for a Demand Registration and, pursuant to Section 3(e)(i) above, the Approved Underwriter advises the Company to reduce the aggregate amount of Registrable Securities requested to be included in such offering such that less than seventy-five percent (75%) of the Registrable Securities requested to be included by any Initiating Holder are ultimately included in and sold pursuant to such Demand Registration, the Initiating Holder shall have the right to require the Company to effect an additional Demand Registration; provided, however, that in no event shall the aggregate number of Demand Registrations to be effected by the Company for any one Initiating Holder exceed two (2). (f) Selection of Underwriters. If any Demand Registration of Registrable Securities is in the form of an underwritten offering, the Company shall select and obtain an investment banking firm of national reputation to act as the managing underwriter of the offering (the "Approved Underwriter"); provided, however, that the Approved Underwriter shall, in any case, also be approved by the Initiating Holders. 4. Incidental or "Piggy-Back" Registration. (a) Request for Incidental Registration. If at any time the Company proposes to file a Registration Statement under the Securities Act with respect to an offering by the Company for its own account (other than a Registration Statement on Form S-4 or S-8 or any successor thereto) or for the account of any stockholder of the Company other than the Designated Holders, then the Company shall give written notice of such proposed filing to each of the Designated Holders at least twenty (20) days before the anticipated filing date, and such notice shall describe the proposed registration and distribution and offer such Designated Holders the opportunity to register the number of Registrable Securities as each such Designated 9 Holder may request (an "Incidental Registration"). The Company shall use all commercially reasonable efforts (within twenty (20) days of the notice provided for in the preceding sentence) to cause the managing underwriter or underwriters in the case of a proposed underwritten offering (the "Company Underwriter") to permit each of the Designated Holders who have requested in writing to participate in the Incidental Registration to include its or his Registrable Securities in such offering on the same terms and conditions as the securities of the Company or the account of such other stockholder, as the case may be, included therein. In connection with any Incidental Registration under this Section 4(a) involving an underwritten offering, the Company shall not be required to include any Registrable Securities in such underwritten offering unless the Designated Holders thereof accept the terms of the underwritten offering as agreed upon between the Company, such other stockholders, if any, and the Company Underwriter, and then only in such quantity as the Company Underwriter believes will not jeopardize the success of the offering by the Company. If the Company Underwriter determines that the registration of all or part of the Registrable Securities which the Designated Holders have requested to be included would materially adversely affect the success of such offering, then the Company shall be required to include in such Incidental Registration, to the extent of the amount that the Company Underwriter believes may be sold without causing such adverse effect, first, all of the securities to be offered for the account of the Company or on the account of the selling stockholder that caused the registration statement that has triggered the Incidental Registration to be filed, as the case may be; second, the Registrable Securities to be offered for the account of the Designated Holders pursuant to this Section 4, pro rata based on the number of Registrable Securities owned by each such Designated Holder; and third, any other securities requested to be included in such offering. (b) Expenses. The Company shall bear all Registration Expenses in connection with any Incidental Registration pursuant to this Section 4, whether or not such Incidental Registration becomes effective. 5. Holdback Agreements. (a) Restrictions on Public Sale by Designated Holders. To the extent (i) requested (A) by the Company or the Initiating Holders, as the case may be, in the case of a non-underwritten public offering and (B) by the Approved Underwriter or the Company Underwriter, as the case may be, in the case of an underwritten public offering and (ii) all of the Company's officers, directors and holders in excess of one percent (1%) of its outstanding capital stock execute agreements identical to those referred to in this Section 5(a), each Designated Holder agrees (x) not to effect any public sale or distribution of any Registrable Securities or of any securities convertible into or exchangeable or exercisable for such Registrable Securities, including a sale pursuant to Rule 144 under the Securities Act, or offer to sell, contract to sell (including without limitation any short sale), grant any option to purchase or enter into any hedging or similar transaction with the same economic effect as a public sale any Registrable Securities and (y) not to make any request for a Demand Registration under this Agreement, during the ninety (90) day period or such shorter period, if any, mutually agreed upon by such Designated Holder and the requesting party beginning on the effective date of the Registration Statement (except as part of such registration) for such public offering. No Designated Holder of Registrable Securities subject to this Section 5(a) shall be released from any obligation under any agreement, arrangement or understanding entered into pursuant to this 10 Section 5(a) unless all other Designated Holders of Registrable Securities subject to the same obligation are also released. All Designated Holders of Registrable Securities shall be automatically released from any obligations under any agreement, arrangement or understanding entered into pursuant to this Section 5(a) immediately upon the expiration of the 90 day period, and in any case, on the date that is two years from the date of this Agreement. (b) Restrictions on Public Sale by the Company. The Company agrees not to effect any public sale or distribution of any of its securities, or any securities convertible into or exchangeable or exercisable for such securities (except pursuant to registrations on Form S-4 or S-8 or any successor thereto), during the period beginning on the effective date of any Registration Statement in which the Designated Holders of Registrable Securities are participating and ending on the earlier of (i) the date on which all Registrable Securities registered on such Registration Statement are sold and (ii) 120 days after the effective date of such Registration Statement (except as part of such registration). 6. Registration Procedures. (a) Obligations of the Company. Whenever registration of Registrable Securities has been requested pursuant to Section 3 or Section 4 of this Agreement, the Company shall use all commercially reasonable efforts to effect the registration and sale of such Registrable Securities in accordance with the intended method of distribution thereof as quickly as practicable, and in connection with any such request, the Company shall, as expeditiously as possible: (i) prepare and file with the Commission a Registration Statement on any form for which the Company then qualifies or which counsel for the Company shall deem appropriate and which form shall be available for the sale of such Registrable Securities in accordance with the intended method of distribution thereof, and cause such Registration Statement to become effective; provided, however, that (x) before filing a Registration Statement or prospectus or any amendments or supplements thereto, the Company shall provide counsel selected by the Designated Holders holding a majority of the Registrable Securities being registered in such registration ("Holders' Counsel") with an adequate opportunity to review and comment on such Registration Statement and each prospectus included therein (and each amendment or supplement thereto) to be filed with the Commission, subject to such documents being under the Company's control, and (y) the Company shall notify the Holders' Counsel and each seller of Registrable Securities of any stop order issued or threatened by the Commission and take all action required to prevent the entry of such stop order or to remove it if entered; (ii) prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for the lesser of (x) 120 days and (y) such shorter period which will terminate when all Registrable Securities covered by such Registration Statement have been sold, and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement; 11 (iii) furnish to each seller of Registrable Securities, prior to filing a Registration Statement, at least one copy of such Registration Statement as is proposed to be filed, and thereafter such number of copies of such Registration Statement, each amendment and supplement thereto (in each case including all exhibits thereto), and the prospectus included in such Registration Statement (including each preliminary prospectus) and any prospectus filed under Rule 424 under the Securities Act as each such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller; (iv) register or qualify such Registrable Securities under such other securities or "blue sky" laws of such jurisdictions as any seller of Registrable Securities may request, and to continue such qualification in effect in such jurisdiction for as long as permissible pursuant to the laws of such jurisdiction, or for as long as any such seller requests or until all of such Registrable Securities are sold, whichever is shortest, and do any and all other acts and things which may be reasonably necessary or advisable to enable any such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller; provided, however, that the Company shall not be required to (x) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 6(a)(iv), (y) subject itself to taxation in any such jurisdiction or (z) consent to general service of process in any such jurisdiction; (v) notify each seller of Registrable Securities at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such Registration Statement contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and the Company shall promptly prepare a supplement or amendment to such prospectus and furnish to each seller of Registrable Securities a reasonable number of copies of such supplement to or an amendment of such prospectus as may be necessary so that, after delivery to the purchasers of such Registrable Securities, such prospectus shall not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (vi) enter into and perform customary agreements (including an underwriting agreement containing representations, warranties, covenants and indemnities for securities law matters and otherwise in customary form with the Approved Underwriter or Company Underwriter, if any, selected as provided in Section 3 or Section 4, as the case may be) and take such other actions as are prudent and reasonably required in order to expedite or facilitate the disposition of such Registrable Securities, including causing its officers to participate in "road shows" and other information meetings organized by the Approved Underwriter or Company Underwriter; (vii) make available at reasonable times for inspection by any seller of Registrable Securities, any managing underwriter participating in any disposition of such Registrable Securities pursuant to a Registration Statement, Holders' Counsel and any attorney, accountant or other agent retained by any such seller or any managing underwriter (each, an "Inspector" and collectively, the "Inspectors"), all financial and other records, pertinent 12 corporate documents and properties of the Company and its subsidiaries (collectively, the "Records") as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's and its subsidiaries' officers, directors and employees, and the independent public accountants of the Company, to supply all information reasonably requested by any such Inspector in connection with such Registration Statement. Records that the Company determines, in good faith, to be confidential and which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors (and the Inspectors shall confirm their agreement in writing in advance to the Company if the Company shall so request) unless (x) the disclosure of such Records is necessary, in the Company's judgment, to avoid or correct a misstatement or omission in the Registration Statement, (y) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction after exhaustion of all appeals therefrom or (z) the information in such Records was known to the Inspectors on a non-confidential basis prior to its disclosure by the Company or has been made generally available to the public. Each seller of Registrable Securities agrees that it shall, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at the Company's expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential; (viii) if such sale is pursuant to an underwritten offering, obtain a "cold comfort" letter dated the effective date of the Registration Statement and the date of the closing under the underwriting agreement from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by "cold comfort" letters as the managing underwriter reasonably requests; (ix) furnish, at the request of any seller of Registrable Securities on the date such securities are delivered to the underwriters for sale pursuant to such registration or, if such securities are not being sold through underwriters, on the date the Registration Statement with respect to such securities becomes effective, an opinion, if reasonably available, dated such date, of counsel representing the Company for the purposes of such registration, addressed to the underwriters, if any, and to the seller making such request, covering such legal matters with respect to the registration in respect of which such opinion is being given as the underwriters, if any, and such seller may reasonably request and are customarily included in such opinions; (x) comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable but no later than fifteen (15) months after the effective date of the Registration Statement, an earnings statement covering a period of twelve (12) months beginning after the effective date of the Registration Statement, in a manner which satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; (xi) cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed, provided that the applicable listing requirements are satisfied; (xii) cooperate with each seller of Registrable Securities and each underwriter participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the NASD; and 13 (xiii) take all other steps reasonably necessary to effect the registration of the Registrable Securities contemplated hereby. (b) Seller Information. The Company may require each seller of Registrable Securities as to which any registration is being effected to furnish, and such seller shall furnish, to the Company such information regarding the distribution of such securities as the Company may from time to time reasonably request in writing. (c) Notice to Discontinue. Each Designated Holder agrees that, not more than two times in any 12-month period, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 6(a)(v), such Designated Holder shall, for a total period not longer than 90 days during each such 12-month period (inclusive of any delay pursuant to a Valid Business Reason under Section 3(a) or period during which the Designated Holder is unable to dispose of Registrable Securities under the Registration Statement pursuant to a notice by the Company under Section 6(a)(v) hereof), forthwith discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Designated Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 6(a)(v) and, if so directed by the Company, such Designated Holder shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Designated Holder's possession, of the prospectus covering such Registrable Securities which is current at the time of receipt of such notice. If the Company shall give any such notice, the Company shall extend the period during which such Registration Statement shall be maintained effective pursuant to this Agreement (including, without limitation, the period referred to in Section 6(a)(ii)) by the number of days during the period from and including the date of the giving of such notice pursuant to Section 6(a)(v) to and including the date when sellers of such Registrable Securities under such Registration Statement shall have received the copies of the supplemented or amended prospectus contemplated by and meeting the requirements of Section 6(a)(v). (d) Registration Expenses. The Company shall pay all expenses arising from or incident to its performance of, or compliance with, this Agreement, including, without limitation, (i) Commission, stock exchange and NASD registration and filing fees, (ii) all fees and expenses incurred in complying with securities or "blue sky" laws (including reasonable fees, charges and disbursements of counsel to any underwriter incurred in connection with "blue sky" qualifications of the Registrable Securities as may be set forth in any underwriting agreement), (iii) all printing, messenger and delivery expenses and (iv) the fees, charges and expenses of counsel to the Company and of its independent public accountants and any other accounting fees, charges and expenses incurred by the Company (including, without limitation, any expenses arising from any "cold comfort" letters or any special audits incident to or required by any registration or qualification) and any reasonable legal fees, charges and expenses incurred by one counsel for the General Atlantic Stockholders. All of the expenses described in the preceding sentence of this Section 6(d) are referred to herein as "Registration Expenses." The Designated Holders of Registrable Securities sold pursuant to a Registration Statement shall bear the expense of any underwriter's discount or commission relating to registration and sale of such Designated Holders' Registrable Securities. 14 7. Indemnification; Contribution. (a) Indemnification by the Company. The Company agrees to indemnify and hold harmless each Designated Holder, its partners, directors, officers, affiliates and each Person who controls (within the meaning of Section 15 of the Securities Act) such Designated Holder from and against any and all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) (each, a "Liability" and collectively, "Liabilities"), arising out of or based upon any untrue, or allegedly untrue, statement of a material fact contained in any Registration Statement, prospectus or preliminary prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which such statements were made, except insofar as such Liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission contained in such Registration Statement, preliminary prospectus or final prospectus in reliance and in conformity with information concerning such Designated Holder furnished in writing to the Company by such Designated Holder expressly for use therein, including, without limitation, the information furnished to the Company pursuant to Section 7(b). The Company shall also provide customary indemnities to any underwriters of the Registrable Securities, their officers, directors and employees and each Person who controls such underwriters (within the meaning of Section 15 of the Securities Act) to the same extent as provided above with respect to the indemnification of the Designated Holders of Registrable Securities. (b) Indemnification by Designated Holders. In connection with any Registration Statement in which a Designated Holder is participating pursuant to Section 3 or Section 4 hereof, each such Designated Holder shall promptly furnish to the Company in writing such information with respect to such Designated Holder as the Company may reasonably request or as may be required by law for use in connection with any such Registration Statement or prospectus and all information required to be disclosed in order to make the information previously furnished to the Company by such Designated Holder not materially misleading or necessary to cause such Registration Statement not to omit a material fact with respect to such Designated Holder necessary in order to make the statements therein not misleading. Each Designated Holder agrees to indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the Registration Statement, any underwriter retained by the Company and each Person who controls the Company or such underwriter (within the meaning of Section 15 of the Securities Act) to the same extent as the foregoing indemnity from the Company to the Designated Holders, but only if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with information with respect to such Designated Holder furnished in writing to the Company by such Designated Holder expressly for use in such Registration Statement or prospectus, including, without limitation, the information furnished to the Company pursuant to this Section 7(b); provided, however, that the total amount to be indemnified by such Designated Holder pursuant to this Section 7(b) shall be limited to the net proceeds (after deducting the underwriters' discounts and commissions) received by such Designated Holder in the offering to which the Registration Statement or prospectus relates. 15 (c) Conduct of Indemnification Proceedings. Any Person entitled to indemnification hereunder (the "Indemnified Party") agrees to give prompt written notice to the indemnifying party (the "Indemnifying Party") after the receipt by the Indemnified Party of any written notice of the commencement of any action, suit, proceeding or investigation or threat thereof made in writing for which the Indemnified Party intends to claim indemnification or contribution pursuant to this Agreement; provided, however, that the failure so to notify the Indemnifying Party shall not relieve the Indemnifying Party of any Liability that it may have to the Indemnified Party hereunder (except to the extent that the Indemnifying Party is materially prejudiced or otherwise forfeits substantive rights or defenses by reason of such failure). If notice of commencement of any such action is given to the Indemnifying Party as above provided, the Indemnifying Party shall be entitled to participate in and, to the extent it may wish, jointly with any other Indemnifying Party similarly notified, to assume the defense of such action at its own expense, with counsel chosen by it and reasonably satisfactory to such Indemnified Party. The Indemnified Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be paid by the Indemnified Party unless (i) the Indemnifying Party agrees to pay the same, (ii) the Indemnifying Party fails to assume the defense of such action with counsel reasonably satisfactory to the Indemnified Party or (iii) the named parties to any such action (including any impleaded parties) include both the Indemnifying Party and the Indemnified Party and such parties have been advised by such counsel that either (x) representation of such Indemnified Party and the Indemnifying Party by the same counsel would be inappropriate under applicable standards of professional conduct or (y) there may be one or more legal defenses available to the Indemnified Party which are different from or additional to those available to the Indemnifying Party. In any of such cases, the Indemnifying Party shall not have the right to assume the defense of such action on behalf of such Indemnified Party, it being understood, however, that the Indemnifying Party shall not be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all Indemnified Parties. No Indemnifying Party shall be liable for any settlement entered into without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the consent of such Indemnified Party, effect any settlement of any pending or threatened proceeding in respect of which such Indemnified Party is a party and indemnity has been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability for claims that are the subject matter of such proceeding. (d) Contribution. If the indemnification provided for in this Section 7 from the Indemnifying Party is unavailable to an Indemnified Party hereunder in respect of any Liabilities referred to herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Liabilities in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions which resulted in such Liabilities, as well as any other relevant equitable considerations. The relative faults of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the Liabilities referred to above shall 16 be deemed to include, subject to the limitations set forth in Sections 7(a), 7(b) and 7(c), any legal or other fees, charges or expenses reasonably incurred by such party in connection with any investigation or proceeding; provided that the total amount to be contributed by such Designated Holder shall be limited to the net proceeds (after deducting the underwriters' discounts and commissions) received by such Designated Holder in the offering. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 7(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. 8. Rule 144. The Company covenants that it shall (a) file any reports required to be filed by it under the Exchange Act and (b) take such further action as each Designated Holder may reasonably request (including providing any information necessary to comply with Rule 144 under the Securities Act), all to the extent required from time to time to enable such Designated Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 under the Securities Act, as such rule may be amended from time to time or (ii) any similar rules or regulations hereafter adopted by the Commission. The Company shall, upon the request of any Designated Holder, deliver to such Designated Holder a written statement as to whether it has complied with such requirements. 9. Miscellaneous. (a) Recapitalizations, Exchanges, etc. The provisions of this Agreement shall apply to the full extent set forth herein with respect to (i) the shares of Common Stock, (ii) any and all shares of voting common stock of the Company into which the shares of Common Stock are converted, exchanged or substituted in any recapitalization or other capital reorganization by the Company and (iii) any and all equity securities of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in conversion of, in exchange for or in substitution of, the shares of Common Stock and shall be appropriately adjusted for any stock dividends, splits, reverse splits, combinations, recapitalizations and the like occurring after the date hereof. The Company shall use all commercially reasonable efforts to cause any successor or assign (whether by merger, consolidation, sale of assets or otherwise) to enter into a new registration rights agreement with the Designated Holders on terms substantially the same as this Agreement as a condition of any such transaction. (b) No Inconsistent Agreements. The Company shall not enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Designated Holders in this Agreement or grant any additional registration rights to any Person or with respect to any securities which are not Registrable Securities which are prior in right to or inconsistent with the rights granted in this Agreement. (c) Remedies. The Designated Holders, in addition to being entitled to exercise all rights granted by law, including recovery of damages, shall be entitled to specific 17 performance of their rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees to waive in any action for specific performance the defense that a remedy at law would be adequate. (d) Amendments and Waivers. Except as otherwise provided herein, the provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless consented to in writing by (i) the Company and (ii) the General Atlantic Stockholders, Coinvestor Stockholders, Vectis Stockholders and Apex Stockholders holding Registrable Securities representing (after giving effect to any adjustments) at least a majority of the aggregate number of Registrable Securities owned by all of the General Atlantic Stockholders, Coinvestor Stockholders, Vectis Stockholders and Apex Stockholders; provided, however, that to the extent any amendment or waiver shall adversely affect any of such stockholders, such amendment or waiver shall require the prior written consent of each stockholder so adversely affected. Any such written consent shall be binding upon the Company and all of the Designated Holders. (e) Notices. All notices, demands and other communications provided for or permitted hereunder shall be made in writing and shall be made by registered or certified first-class mail, return receipt requested, telecopier, courier service or personal delivery: (i) if to the Company: Critical Path, Inc. 350 The Embarcadero San Francisco, CA 94105-1204 Telecopy: (415) 541-2300 Attention: Chief Financial Officer with a copy to: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Telecopy: (415) 983-1200 Attention: Gregg F. Vignos, Esq. (ii) if to the General Atlantic Stockholders: c/o General Atlantic Service Company 3 Pickwick Plaza Greenwich, CT 06830 Telecopy: (203) 622-8818 Attention: Matthew Nimetz Thomas J. Murphy 18 with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison LLP 1285 Avenue of the Americas New York, NY 10019-6064 Telecopy: (212) 757-3990 Attention: Douglas A. Cifu, Esq. (iii) if to Campina, Great Affluent, Dragonfield or Lion Cosmos: c/o 7th Floor Cheung Kong Center 2 Queen's Road Central Hong Kong Telecopy: (852) 2845-2057 Attention: Mr. Edmond Ip (iv) if to Cenwell: c/o 22nd Floor Hutchison House 10 Harcourt Road Hong Kong Telecopy: (852) 2128-1778 Attention: Company Secretary (v) if to Vectis: c/o Vectis Group, LLC 117 Greenwich Street San Francisco, CA 94111 Telecopy: 415-352-5310 Attention: Matthew Hobart with a copy to: Kirkland & Ellis 153 East 53rd Street New York, NY 10022-4675 Telecopy: 212-446-4900 Attention: Michael Movsovich, Esq. 19 (vi) if to Apex Capital: Apex Capital, LLC 25 Orinda Way, Suite 300 Orinda, CA 94563 Telecopy: (925) 253-1809 Attention: Adam Fiore, General Counsel (vii) if to Passport Capital: Passport Capital, LLC One Sansome Street, 39th Floor San Francisco, CA 94104 Telecopy: (415) 399-7608 Attention: John Burbank, Managing Partner (viii) if to any other Designated Holder, at its address as it appears on the record books of the Company. All such notices, demands and other communications shall be deemed to have been duly given when delivered by hand, if personally delivered; when delivered by courier, if delivered by commercial courier service; five (5) Business Days after being deposited in the mail, postage prepaid, if mailed; and when receipt is mechanically acknowledged, if telecopied. Any party may by notice given in accordance with this Section 9(e) designate another address or Person for receipt of notices hereunder. (f) Successors and Assigns; Third Party Beneficiaries. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto as hereinafter provided. The Demand Registration rights and related rights of the General Atlantic Stockholders, the Coinvestor Stockholders or the Apex Stockholders contained in Section 3 hereof shall be (i) with respect to any Registrable Security that is transferred to an Affiliate of a General Atlantic Stockholder, a Coinvestor Stockholder or an Apex Stockholder, automatically transferred to such Affiliate and (ii) with respect to any Registrable Security that is transferred in all cases to a non-Affiliate, transferred only with the consent of the Company which consent shall not be unreasonably withheld, conditioned or delayed. The incidental or "piggy-back" registration rights of the Designated Holders contained in Sections 3(b) and 4 hereof and the other rights of each of the Designated Holders with respect thereto shall be, with respect to any Registrable Security, automatically transferred to any Person who is the transferee of such Registrable Security so long as such transferee agrees to be bound by this Agreement. All of the obligations of the Company hereunder shall survive any such transfer. Except as provided in Section 7, no Person other than the parties hereto and their successors and permitted assigns is intended to be a beneficiary of this Agreement. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 20 (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. (j) Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof. (k) Rules of Construction. Unless the context otherwise requires, references to sections or subsections refer to sections or subsections of this Agreement. (l) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto with respect to the subject matter contained herein. There are no restrictions, promises, representations, warranties or undertakings with respect to the subject matter contained herein, other than those set forth or referred to herein. Subject to Section 9(o), upon the Subsequent Closing (as defined in the Convertible Note Purchase and Exchange Agreement and the Apex Note Purchase Agreement), this Agreement shall supersede all prior agreements and understandings among the parties with respect to such subject matter. (m) Further Assurances. Each of the parties shall execute such documents and perform such further acts as may be reasonably required or desirable to carry out or to perform the provisions of this Agreement. (n) Other Agreements. Nothing contained in this Agreement shall be deemed to be a waiver of, or release from, any obligations any party hereto may have under, or any restrictions on the transfer of Registrable Securities or other securities of the Company imposed by, any other agreement including, but not limited to, the Stock Purchase Agreement, the Convertible Note Purchase and Exchange Agreement, the Apex Note Purchase Agreement or the Amended and Restated Stockholders Agreement. (o) Effective Date and Termination. Subject to the provisions of this Section 9(o), this Agreement shall become effective immediately following the Subsequent Closing. If the Subsequent Closing does not occur and the obligation to consummate the Conversion and the Exchange and the Conversion has been terminated pursuant to Article IX of the Convertible Note Purchase and Exchange Agreement or Article IX of the Apex Note Purchase Agreement, then this Agreement shall become effective as of the date of such termination; provided, however, that Registrable Securities shall not include any shares of Common Stock issued or issuable upon conversion of the Series E Preferred Stock. 21 IN WITNESS WHEREOF, the undersigned have executed, or have caused to be executed, this Amended and Restated Registration Rights Agreement on the date first written above. CRITICAL PATH, INC. By: /s/ William E. McGlashan, Jr. ----------------------------------------- Name: William E. McGlashan, Jr. Title: Chairman, Chief Executive Officer SIGNATURE PAGE TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT GENERAL ATLANTIC PARTNERS 74, L.P. By: GENERAL ATLANTIC PARTNERS, LLC, its General Partner By: /s/ Matthew Nimetz ----------------------------------- Name: Matthew Nimetz Title: A Managing Member GAP COINVESTMENT PARTNERS II, L.P. By: /s/ Matthew Nimetz ----------------------------------- Name: Matthew Nimetz Title: A General Partner GAPSTAR, LLC By: GENERAL ATLANTIC PARTNERS, LLC, its Managing Member By: /s/ Matthew Nimetz ----------------------------------- Name: Matthew Nimetz Title: A Managing Member GAPCO GMBH & CO. KG By: GAPCO MANAGEMENT GMBH, its General Partner By: /s/ Matthew Nimetz ----------------------------------- Name: Matthew Nimetz Title: A Managing Director SIGNATURE PAGE TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT VECTIS CP HOLDINGS, LLC, a Delaware limited liability company By: VECTIS GROUP, LLC its Managing Member By: /s/ Matthew T. Hobart ----------------------------------- Name: Matthew T. Hobart Title: Managing Director SIGNATURE PAGE TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT CENWELL LIMITED By: /s/ Ma Lai Chee, Gerald ----------------------------------------- Name: Ma Lai Chee, Gerald Title: Authorised Person CAMPINA ENTERPRISES LIMITED By: /s/ Ma Lai Chee, Gerald ----------------------------------------- Name: Ma Lai Chee, Gerald Title: Authorised Person GREAT AFFLUENT LIMITED By: /s/ Ma Lai Chee, Gerald ----------------------------------------- Name: Ma Lai Chee, Gerald Title: Authorised Person DRAGONFIELD LIMITED By: /s/ Ma Lai Chee, Gerald ----------------------------------------- Name: Ma Lai Chee, Gerald Title: Authorised Person LION COSMOS LIMITED By: /s/ Ma Lai Chee, Gerald ----------------------------------------- Name: Ma Lai Chee, Gerald Title: Authorised Person SIGNATURE PAGE TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT PERMAL U.S. OPPORTUNITIES LIMITED By: Apex Capital, LLC, its Authorized Investment Advisor By: /s/ Sanford J. Colen ---------------------------------------- Name: Sanford J. Colen Title: Manager and Principal ZAXIS PARTNERS, L.P. By: Apex Capital, LLC, its General Partner By: /s/ Sanford J. Colen ---------------------------------------- Name: Sanford J. Colen Title: Manager and Principal ZAXIS EQUITY NEUTRAL, L.P. By: Apex Capital, LLC, its General Partner By: /s/ Sanford J. Colen ---------------------------------------- Name: Sanford J. Colen Title: Manager and Principal ZAXIS OFFSHORE LIMITED By: Apex Capital, LLC, its Authorized Investment Advisor By: /s/ Sanford J. Colen ---------------------------------------- Name: Sanford J. Colen Title: Manager and Principal ZAXIS INSTITUTIONAL PARTNERS, L.P. By: Apex Capital, LLC, its General Partner By: /s/ Sanford J. Colen ---------------------------------------- Name: Sanford J. Colen Title: Manager and Principal SIGNATURE PAGE TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT PASSPORT MASTER FUND, LP By: /s/ John Burbank ----------------------------------------- Name: John Burbank Title: Managing Partner SIGNATURE PAGE TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT EX-4.26 11 f97295exv4w26.txt EXHIBIT 4.26 EXHIBIT 4.26 THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS. CRITICAL PATH, INC. CONVERTIBLE SUBORDINATED PROMISSORY NOTE $3,465,000.00 San Francisco, California January 16, 2004 Critical Path, Inc., a California corporation (the "Company"), the principal office of which is located in San Francisco, California, for value received hereby promises to pay to the order of Permal U.S. Opportunities Limited, or its registered assigns ("Holder"), the sum of three million four hundred sixty-five thousand dollars ($3,465,000), or such lesser amount as shall then equal the outstanding principal amount hereof on the terms and conditions set forth hereinafter. The outstanding principal amount hereof and all accrued and unpaid interest hereon, as set forth below, shall be due and payable on the earlier to occur of (i) January 16, 2008, (ii) when declared due and payable by Holder upon the occurrence of an Event of Default (as defined below), (iii) consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock or Stock Equivalents by the Company, any cash capital contribution from any third person or any other debt or equity financing consummated by the Company after the date of issuance of this Note which, in the case of (v), individually or in the aggregate raises proceeds of at least forty million dollars ($40,000,000) in cash or cash equivalents (the earliest of the events set forth in items (i)-(v) immediately above, the "Maturity Date"). The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. Except as otherwise defined herein, each capitalized term used herein shall have the meaning assigned to it in the Note Purchase Agreement, as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. All other references to the Note Purchase Agreement in this Note refer to the Note Purchase Agreement as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. As used in this 2 Note, the following terms, unless the context otherwise requires, have the following meanings: 1.1 "Affiliate" means any Person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended. 1.2 "Capitalized Lease Obligations" means, with respect to any Person, all rental obligations of such Person which, under GAAP, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with such principles. 1.3 "Change of Control" shall mean (i) any merger, consolidation or other business combination transaction (or series of related transactions) in which the stockholders owning a majority of the voting securities of the Company prior to such transaction do not own a majority of the voting securities of the surviving entity, (ii) any tender offer, exchange offer or other transaction whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended) (other than General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and the Affiliates of the foregoing, provided that Affiliates shall be deemed not to include any portfolio companies of any of the foregoing) obtains a majority of the outstanding shares of capital stock entitled to vote in the election of directors, (iii) any proxy contest in which a majority of the Board of Directors of the Company (or persons appointed by such Board of Directors) prior to such contest do not constitute a majority of the Company's Board of Directors after such contest or (iv) any other transaction described in any stockholder rights agreement or "poison pill," if any, to which the Company is party, which may permit the holders of any rights or similar certificates to exercise the rights evidenced thereby. 1.4 "Company" shall have the meaning set forth in the recitals hereto, and includes any corporation that shall succeed to or assume the obligations of the Company under this Note. 1.5 "Common Conversion Date" shall have the meaning set forth in Section 3.1(b) hereof. 1.6 "Common Stock" means the common stock, par value $0.001 per share, of the Company. 1.7 "Conversion Date" shall mean the Subsequent Closing Date. 1.8 "Domestic Subsidiary" shall have the meaning set forth in Section 5.10 hereof. 3 1.9 "Event of Default" shall have the meaning set forth in Section 6 hereof. 1.10 "GA Notes" shall mean the Convertible Subordinated Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP Entities pursuant to the Purchase and Exchange Agreement. 1.11 "GAP Entities" shall mean General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG. 1.12 "Guarantor" shall have the meaning set forth in the Security Agreement. 1.13 "Holder" shall mean the registered holder of this Note from time to time, and in the plural, shall mean all registered holders of Notes from time to time issued by the Company pursuant to the Note Purchase Agreement. 1.14 "Intercreditor Agreement" shall mean the Intercreditor Agreement, dated the date hereof, among the GAP Entities, Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P. 1.15 "Interest Amount" shall have the meaning set forth in Section 3.1 hereof. 1.16 "Investment" means (i) the acquisition (whether for cash, property, services, assumption of Indebtedness, securities or otherwise) of assets (other than equipment, inventory, supplies or other assets acquired in the ordinary course of business of the Company), capital stock, bonds, notes, debentures, partnership, joint venture or other ownership interests or other securities of any Person, (ii) any deposit with, or advance, loan or other extension of credit to, or on behalf of, any Person (other than deposits made in connection with the purchase of equipment, inventory, services, leases, supplies or other assets in the ordinary course of business of the Company), and (iii) any other capital contribution to or investment in any Person, including, without limitation, any guaranty obligation incurred for the benefit of any Person. For the sake of clarity, Investments shall include any transfer of property or assets by the Company to any of its Subsidiaries or by any Subsidiary of the Company to any other Subsidiary. 1.17 "Loan Documents" shall have the meaning set forth in the Security Agreement. 1.18 "Note" shall mean this note, and in the plural, shall mean all notes issued to the Lenders pursuant to the terms of the Note Purchase Agreement, including this Note, and all amendments, modifications and extensions thereto. 1.19 "Note Purchase Agreement" means that certain Convertible Note Purchase Agreement, dated January 16, 2004, among the Company, the Holder and 4 the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.20 "Permitted Investments" means (i) Investments in cash or cash equivalents, (ii) accounts receivable created, acquired or made in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (iii) Investments existing on the closing date, and listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty obligations permitted by Section 5.3 of this Agreement, (v) loans to employees, directors or officers of the Company in connection with the award of convertible bonds or capital stock under a stock incentive plan, stock option plan or other equity-based compensation plan or arrangement, (vi) other advances or loans to employees, directors, officers or agents of the Company in the ordinary course of business not to exceed $500,000 in the aggregate at any time outstanding; (vii) loans, advances and investments in foreign Subsidiaries (that are not incorporated or otherwise organized under the laws of the United States of America or any state thereof) in an amount not to exceed $1,000,000 in the aggregate at any time outstanding; (viii) any acquisition for which the prior written consent of the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement has been obtained, (ix) other loans, advances and investments of a nature not contemplated by the foregoing sections in an amount not to exceed $500,000 in the aggregate at any time outstanding or (x) Investments by the Company in the Guarantor. 1.21 "Permitted Liens" shall have the meaning set forth in Section 5.4. 1.22 "Person" means any individual, firm, corporation, partnership, trust, joint venture, joint stock company, limited liability company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. 1.23 "Price Per Share" shall have the meaning attributed to such term in the Series E Certificate of Determination, as filed with the Secretary of State of the State of California. 1.24 "Purchase and Exchange Agreement" shall mean the Convertible Note Purchase and Exchange Agreement, dated November 18, 2003, among the Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended. 1.25 "Qualified Asset Sale" means the sale, transfer or other disposition of any of the assets of the Company or any of its Subsidiaries, other than (a) sales of assets in the ordinary course of business, (b) sales of assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the sale, transfer or other disposition of assets of the Company where the proceeds are applied to the purchase price or traded in for credit against the purchase price of other assets, provided that any such purchase is made, or credit issued, within 90 days of the sale, transfer or other disposition, and (d) one or more sales of the Company's assets (other than sales otherwise included in clauses 5 (a), (b), and (c) immediately above) which collectively yield up to an aggregate of one million dollars ($1,000,000) in gross proceeds to the Company while this Note is outstanding. 1.26 "Restricted Payment" means (a) any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Company or any of its Subsidiaries or (b) any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any shares of any class of capital stock of the Company or any Subsidiary or any option, warrant or other right to acquire any such shares of capital stock of the Company or any Subsidiary. 1.27 "Security Agreement" means that certain Guaranty and Security Agreement, of even date herewith between the Company, Compass Holding Corp., the Lenders and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.28 "Series E Conversion Price" shall have the meaning set forth in the Series E Certificate of Determination. 1.29 "Series E Preferred Stock" means the Series E Preferred Stock, par value $0.001, of the Company. 1.30 "Subordination Agreement" shall have the meaning set forth in Section 5.3. 1.31 "Subsequent Closing Date" shall have the meaning set forth in Section 2.4(e) of the Note Purchase Agreement. 1.32 "SVB" means Silicon Valley Bank, a California chartered bank, or any Affiliates thereof. 1.33 "Ten Percent Holder" means, with respect to a class of equity securities of the Company, a Person (together with such Person's Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such class of equity securities of the Company, as defined by Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 1.34 "UCC" shall have the meaning set forth in Section 5.4. 2. Interest. Simple interest shall accrue at the rate of ten percent (10%) per annum (or such lesser amount as shall equal the highest rate of interest allowable under applicable law) (the "Interest Rate"), on the outstanding principal of this Note from the date of this Note until the Maturity Date or the date this Note is otherwise repaid. The Company shall not be obligated to make any payments of interest which shall have accrued under this Note prior to the Maturity Date. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. In the event that the 6 principal amount of this Note, any interest, or any amount payable hereunder is not paid in full when such amount becomes due and payable, or upon the occurrence of an Event of Default, interest shall accrue at the lesser of (a) the initial Interest Rate plus five percent (5%) per annum or (b) the highest rate of interest allowable under applicable law, on the balance of all amounts outstanding until such overdue amounts are paid or the Event of Default is cured, and such interest shall be payable on demand. 3. Conversion. 3.1 Conversion. (a) On the Conversion Date, the principal amount of this Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall be automatically converted into the number of fully paid and nonassessable shares of Series E Preferred Stock equal to the quotient obtained by dividing (a) the entire principal amount of this Note plus the Interest Amount by (b) the Price Per Share. (b) In the event that the Conversion Date has not occurred on or prior to April 30, 2004 (the "Common Conversion Date"), then, following the Common Conversion Date, the principal amount of this Note plus the Interest Amount shall be convertible, at the option of Holder and from time to time, into Common Stock at a conversion price per share equal to $1.65, as adjusted for any stock dividends, stock splits or similar consolidations or subdivisions, following the date hereof; provided, however, that Holder shall not be permitted to convert any portion of the principal of this Note or the Interest Amount into Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion, the conversion would cause Holder to be a Ten Percent Holder. 3.2 Notice of Conversion. Upon conversion of this Note as provided in Section 3.1, Holder shall surrender this Note to the Company and shall state the name or names in which the certificate or certificates for such shares of Series E Preferred Stock or Common Stock, as the case may be, are to be issued. The Person or Persons entitled to receive the shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion shall be treated for all purposes as the record holder or holders (a) of such shares of Series E Preferred Stock as of the Conversion Date and (b) of such shares of Common Stock as of the date of any conversion pursuant to Section 3.1(b). 3.3 Delivery of Stock Certificates. Upon conversion of this Note as provided in Section 3.1, the Company at its expense will issue and deliver to Holder of this Note a certificate or certificates (bearing such legends as are required by applicable state and federal securities laws in the opinion of counsel to the Company) for the number of full shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion. 3.4 Mechanics and Effect of Conversion. No fractional shares of Series E Preferred Stock or Common Stock, as the case may be, shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to Holder 7 upon the conversion of this Note, the Company shall pay to Holder the amount of outstanding principal and interest that is not so converted. Upon conversion of all amounts due under this Note, the Company shall be released from all of its obligations under this Note. 4. Adjustments. The number of shares of Series E Preferred Stock or Common Stock convertible hereunder are subject to adjustment from time to time as follows: 4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at any time while this Note remains outstanding and unexpired there shall be (a) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (b) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise or (c) a sale or transfer of the Company's stock, properties or assets as, or substantially as, an entirety to any other Person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that Holder shall thereafter be entitled to receive by converting this Note the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon conversion of this Note would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Note had been converted immediately before such reorganization, merger, consolidation, sale or transfer (notwithstanding that the Stockholder Approval may not yet have been obtained), all subject to further adjustment as provided in this Section 4. The foregoing provisions of this Section 4.1 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation. If the per share consideration payable to Holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors based on the amount the Holder would have otherwise been entitled to receive had the transaction or transactions not occurred. In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of Holder after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon conversion of this Note. The Company shall be obligated to retain and set aside, or otherwise make fair provision for exercise of the right of the Holder to receive, the shares of stock and/or other securities, cash or other property provided for in this Section 4.1. 4.2 Election of Holder upon Merger or Sale of Assets. Notwithstanding anything to the contrary contained herein, if an event shall occur as provided in Section 4.1 hereof that would otherwise result in the occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first paragraph of this Note, then the 8 Holder may, in its sole discretion, by written notice to the Company elect to convert the principal amount of this Note plus the Interest Amount into the number of shares of stock or other securities or property described in Section 4.1, in lieu of receiving payment in full of all amounts outstanding under this Note. The number of shares of stock or other securities or property to be issued upon such conversion shall be determined in accordance with Section 4.1 hereof, taking into account the occurrence of such event. 4.3 Reclassification, Etc. If the Company shall, at any time while this Note, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, change any of the securities as to which conversion rights under this Note exist into the same or a different number of securities of any other class or classes, this Note shall thereafter represent the right to acquire such number and kind of securities as would have been issuable with respect to the securities that were subject to the conversion rights under this Note immediately prior to such reclassification or other change, and the Price Per Share shall be appropriately adjusted, all subject to further adjustment as provided in this Section 4. 4.4 Split, Subdivision or Combination of Shares. If the Company at any time while this Note, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the shares of Series E Preferred Stock or Common Stock into a different number of securities of the same class, the Price Per Share or conversion price, as the case may be, shall be proportionately adjusted. 4.5 Series E Adjustments. The initial Series E Conversion Price of the shares of Series E Preferred Stock issued upon conversion of this Note pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on the Conversion Date, subject to the adjustment of such Series E Conversion Price from time to time thereafter as provided in the Series E Certificate of Determination. 4.6 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 4, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. 4.7 No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 5. Covenants. The Company covenants and agrees that until the earlier of (i) the date on which all Obligations (as defined in the Security Agreement) have been paid in full or (ii) the date on which all amounts outstanding under the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b): 9 5.1 Financial Statements and Other Information. The Company shall deliver to the Holder of this Note the financial statements and other information required to be delivered under Section 8.1 of the Note Purchase Agreement. 5.2 Financial Covenants. The Company shall at all times comply with the financial and other covenants set forth in Schedule 8.5 to the Note Purchase Agreement as if such covenants were set forth herein. 5.3 Indebtedness. The Company shall not, and shall not permit any Subsidiary to, issue, incur, assume, create or have outstanding any Indebtedness, provided, however, that the foregoing shall not restrict nor operate to prevent: (a) Indebtedness in favor of the Holders under the Loan Documents; (b) Indebtedness existing on the date hereof, as set forth on Schedule 3.22 to the Note Purchase Agreement; (c) Indebtedness for accounts payable incurred in the ordinary course of business by the Company; (d) Indebtedness incurred solely for the purpose of financing the acquisition of any equipment, machinery, software, improvements or any other similar property, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, that the aggregate outstanding principal amount of all Indebtedness permitted pursuant to this clause (d) outstanding for more than sixty (60) days after the incurrence of such Indebtedness shall not at any time exceed $500,000; (e) Indebtedness of the Company evidenced by Capitalized Lease Obligations, provided, that in no event shall the aggregate principal amount of Capitalized Lease Obligations permitted by this clause (e) exceed $500,000 at any time outstanding; and (f) Any extension, renewal, refinancing, refunding, or replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and (e) above, on such terms and conditions as are, on the whole, not materially more onerous to the Company than the terms and conditions of such original Indebtedness on the date of such refinancing (including that the principal amount of such refinancing Indebtedness does not exceed the principal amount of, plus the amount of accrued and unpaid interest on, the Indebtedness so refinanced (plus the amount of reasonable premium and fees and expenses incurred in connection therewith)), provided that, in the case of a refinancing of Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall only apply to the extent consistent with the Subordination Agreement, dated as of the date hereof, by and among SVB, the Holders and the Company (the "Subordination Agreement"). 10 5.4 Liens. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of the Company or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable), or assign any right to receive income or permit the filing of any financing statement under the Uniform Commercial Code, as from time to time in effect in the relevant jurisdiction (the "UCC"), or any other similar notice of Lien under any similar recording or notice statute; provided, that the provisions of this Section 5.4 shall not prevent the creation, incurrence, assumption or existence of the following: (a) Liens arising in the ordinary course of business by statute in connection with worker's compensation, unemployment insurance, old age benefits, social security obligations, statutory obligations or other similar charges (other then Liens arising under ERISA), good faith cash deposits in connection with tenders, contracts or leases to which the Company or any Subsidiary is a party or other cash deposits required to be made in the ordinary course of business, provided, that such Liens do not have a material adverse effect on the ability of the Company to repay amounts due under the Notes; (b) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (c) Liens in respect of property or assets of the Company or its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (i) which do not in the aggregate materially detract from the value of the Company's and its Subsidiaries' property or assets taken as a whole or result in a material adverse effect on the Condition of the Company or (ii) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; (d) the pledge of assets for the purpose of securing an appeal, stay or discharge in the course of any legal proceeding, provided that the aggregate amount of liabilities of the Company and its Subsidiaries secured by a pledge of assets permitted under this subsection, including interest and penalties thereon, if any, shall not be in excess of $500,000 at any one time outstanding; (e) any interest or title of a lessor under any operating lease; 11 (f) easements, rights-of-way, restrictions and other similar encumbrances against real property incurred in the ordinary course of business; (g) the Liens existing on the date hereof identified on Schedule 3.22 to the Note Purchase Agreement; (h) Liens on cash deposited with account debtors to secure performance by the Company or any Subsidiary in the ordinary course of business subject to customary and reasonable terms; (i) Liens upon assets of the Company or its Subsidiaries subject to Capitalized Lease Obligations, provided, that (A) such Liens only serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising under such Capitalized Lease Obligation and (B) the Lien encumbering the asset giving rise to the Capitalized Lease Obligation does not encumber any other asset of the Company or its Subsidiaries; (j) Liens placed upon equipment, machinery, software, improvements or any other similar property, used in the ordinary course of business of the Company or any of its Subsidiaries at the time of the acquisition thereof by the Company or any of its Subsidiaries or within ninety (90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above; provided, that the Liens encumbering the equipment, machinery software, improvements or any other similar property so acquired do not encumber any other asset of the Company or its Subsidiaries; (k) set-off rights of depository institutions; and (l) Liens created by the Security Agreement (collectively with clauses (a) through (k) hereof, the "Permitted Liens"). 5.5 Fundamental Changes. The Company will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or a series of transactions) all or substantially all of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time and immediately after giving effect thereto no Event of Default shall have occurred and be continuing (i) the Company or any of its Subsidiaries may, with the prior written consent of the Holders, merge with or into any other Person; (ii) any wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with or into the Company or any other wholly-owned Subsidiary of the Company; (iii) any Subsidiary (other than the Guarantor, and except as otherwise prohibited by this Note) may sell, transfer, lease or otherwise dispose of its assets to the Company or to another wholly-owned Subsidiary of the Company; and (iv) any Subsidiary may liquidate or dissolve if the board of directors of the Company determine in good faith that such liquidation or dissolution is in its best interests and is not disadvantageous to the Holders. 12 5.6 Restricted Payments. The Company will not, and the Company will not permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that (i) any Subsidiary may make a Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any Restricted Payment required by the terms of the Note Purchase Agreement and the other documents executed in connection therewith. 5.7 Transactions with Affiliates. The Company will not, and the Company will not permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions that are at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arm's length basis from unrelated third parties, (b) transactions exclusively between the Company and the Guarantor and (c) transactions under the agreements listed on Schedule 3.17 to the Note Purchase Agreement. 5.8 Investments. The Company will not, and the Company will not permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment in any Person, except for Permitted Investments. 5.9 Nature of Business. The Company will not, and the Company will not permit any Subsidiary to, engage in any business other than that conducted on the date hereof and any businesses reasonably related thereto. 5.10 Property of Existing Domestic Subsidiaries. The Company will not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise organized under the laws of the United States of America or any state thereof (a "Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease, license, purchase or otherwise acquire any personal or real property (excluding any material intellectual property) in excess of $50,000 for all property held by such Subsidiary, or $250,000 in the aggregate for all property held by all Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own or otherwise hold any rights to any material intellectual property or (iv) otherwise conduct any business or maintain operations. 5.11 Formation of Subsidiaries. The Company will not, and will not cause or permit any of its Subsidiaries to, form, acquire or permit the existence of any new domestic Subsidiary, without causing such domestic Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes and related security document, in form and substance satisfactory to the Holders. 5.12 Books and Records. The Company shall keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Company and its Subsidiaries in accordance with GAAP consistently applied. 13 5.13 Inspection. The Company shall, and shall cause each of its Subsidiaries to, permit representatives of the Holders to visit and inspect any of its properties, to examine its corporate, financial and operating records and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with their respective directors, officers and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably requested upon notice to the Company. 5.14 Maintenance of Business. The Company shall, and shall cause each Subsidiary to, preserve and maintain its existence. The Company shall, and shall cause each Subsidiary to, preserve and keep in force and effect all licenses, permits, franchises, approvals, patents, trademarks, trade names, trade styles, copyrights, and other property rights necessary to the proper conduct of its business, except where the failure to do so could not reasonably be expected to have a material adverse effect on the Condition of the Company or on the prospects of repayment of the Notes. 5.15 Maintenance of Properties. The Company shall, and shall cause each Subsidiary to, maintain, preserve and keep its property and equipment in good repair, working order and condition (ordinary wear and tear excepted) and shall from time to time make all needful and proper repairs, renewals, replacements, additions and betterments thereto so that at all times the efficiency thereof shall by fully preserved and maintained, except in each case to the extent that, in the reasonable business judgment of such Person, any such property or equipment is no longer necessary for the proper conduct of the business of such Person. 6. The occurrence of any one or more of the following events shall constitute an "Event of Default": 6.1 Failure To Pay. (i) The failure of the Company to pay any principal due under any of the Notes when due and payable (whether by acceleration, declaration, extension or otherwise), or (ii) the failure of the Company to pay any other amounts due under any of the Notes when due and payable if such failure is not cured within five (5) days of Company's receipt of notice thereof from any of the Holders. 6.2 Financial Covenants. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2. 6.3 Other Covenants and Agreements. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the covenants of this Note, the Security Agreement or any of the other Loan Documents (other than the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2), if such failure is not cured within sixty (60) days. 14 6.4 Representations and Warranties. If any representation or warranty made by the Company or any of its Subsidiaries in the Loan Documents is not true and correct in all material respects on the Initial Closing Date. 6.5 Default on Other Obligations. The occurrence of any condition or default under any other indebtedness for borrowed money of the Company or any of its Subsidiaries with a principal amount of at least five hundred thousand dollars ($500,000) that results in the acceleration of such indebtedness which is not cured within sixty (60) days. 6.6 Involuntary Bankruptcy. There shall be filed against the Company or any of its Subsidiaries an involuntary petition or other pleading seeking the entry of a decree or order for relief under the United States Bankruptcy Code or any similar federal or state insolvency or similar laws ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a reorganization of the Company or any of its Subsidiaries or the business and affairs of the Company or any of its Subsidiaries or (c) the appointment of a receiver, liquidator, assignee, custodian, trustee or similar official for the Company or any of its Subsidiaries of the property of the Company or any of its Subsidiaries. 6.7 Voluntary Bankruptcy. The commencement by the Company or any of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any federal or state insolvency or similar laws or the consent by the Company or any of its Subsidiaries to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian or similar official for the Company or any of its Subsidiaries of any of the property of the Company or any of its Subsidiaries or the making by the Company or any of its Subsidiaries of an assignment for the benefit of creditors, or the failure by Company or any of its Subsidiaries generally to pay its debts as the debts become due. 6.8 Judgments, Awards. Any judgment or order for the payment of money is rendered against the Company or any of its Subsidiaries in an amount in excess of five hundred thousand dollars ($500,000) individually or in the aggregate and either (i) enforcement proceedings are commenced by any creditor upon such judgment or order and not stayed, or (ii) there is any period of sixty (60) consecutive days during which such judgment has not been paid in full or a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, is not in effect. 6.9 Attachment by Lenders. Any assets of the Company or any of its Subsidiaries shall be attached, levied upon, seized or repossessed, or come into the possession of a trustee, receiver or other custodian and a determination by any Holder, in good faith but in its sole discretion, that the same could have a material adverse effect on the prospect for the Holders to fully and punctually realize the full benefits conferred on the Holders by the Loan Documents. 6.10 Adverse Change in Financial Condition. Any event having a material adverse effect on the business, operations, assets, properties or condition of the 15 Company and its Subsidiaries taken as a whole shall have occurred and be continuing or a material adverse effect on the validity or enforceability of this or any of the other Loan Documents or the rights or remedies of the Holders hereunder or thereunder. 7. Remedies. Upon and after the occurrence of an Event of Default, the Holder shall be entitled to the exercise the rights and remedies set forth in the Security Agreement, the other Loan Documents and under applicable law, all such rights and remedies being cumulative and enforceable alternatively, successively or concurrently. 8. Prepayment. The Company may not prepay this Note prior to the Maturity Date without the prior written consent of the Holders. 9. Seniority. (a) Except as set forth in the Subordination Agreement, the Notes will rank senior in right of payment to all other indebtedness of the Company, other than the GA Notes, with respect to which the Notes will be pari passu in right of payment in accordance with the Intercreditor Agreement. (b) Notwithstanding anything to the contrary contained in the Notes, this Note and the other Notes, and the terms and the conditions hereof and thereof, are subject to the Intercreditor Agreement. 10. Assignment. Subject to the restrictions on transfer described in Section 12 below, the rights and obligations of the Company and Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. The Company shall not be permitted to assign this Note without the prior written consent of the Holders. 11. Waiver of Notice. The Company hereby waives notice, presentment, demand, protest and notice of dishonor. 12. Transfer of This Note. With respect to any offer, sale or other disposition of this Note, Holder will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such Holder's counsel, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect); provided, that no opinion shall be required for any transfer to an Affiliate or if the transfer is made in compliance with the Securities Act, so long as the transferee can make the same representations and warranties at the time of transfer as set forth in Sections 4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly upon delivering such written notice and opinion, if so required, Holder may sell or otherwise dispose of this Note, all in accordance with the terms of the notice delivered to the Company. Each Note thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the 16 Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Notwithstanding the foregoing, the Holder shall not be permitted to transfer this Note to any Person who is not an Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of written notice from the Company that Stockholder Approval cannot be obtained, or the occurrence of an actual vote of the Company's shareholders entitled to vote (whether by written consent or at a meeting specially called for such purpose), the result of which is a decision by a majority of the Company's shareholders entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of an Event of Default. 13. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 14. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally recognized courier service or mailed by registered or certified mail, postage prepaid, to the respective addresses of the parties as set forth on the signature pages hereto or if sent by facsimile to the respective facsimile numbers of the parties set forth on the signature pages hereto. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given and received when personally delivered or three (3) business days after deposited in the mail or one business day after sent by courier or upon confirmation of facsimile delivery in the manner set forth above. 15. No Stockholder Rights. Nothing contained in this Note shall be construed as conferring upon Holder or any other Person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. 16. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law relating to conflict of laws. 17. Amendments and Waivers. No amendments or waivers of any provision of this Note, and no consent by the Holder to any departure by the Company, shall in any event be effective unless the same shall be in writing, and signed by the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 18. Severability. Any provision of this Note that is prohibited or unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or 17 render unenforceable such provision in any other jurisdiction. 19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. 20. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except as otherwise indicated, all references herein to Sections refer to Sections hereof. [the remainder of this page intentionally left blank] 18 IN WITNESS WHEREOF, the Company has caused this Note to be issued this 16th day of January, 2004. COMPANY: CRITICAL PATH, INC., a California corporation By: /s/ William E. McGlashan, Jr. ---------------------------------------- Name: William E. McGlashan, Jr. Title: Chairman, Chief Executive Officer Critical Path, Inc. 350 The Embarcadero San Francisco, CA 94105-1204 Telecopy: (415) 541-2300 Attention: Chief Financial Officer With a copy to: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Telecopy: (415) 983-1200 Attention: Gregg Vignos, Esq. Name of Holder: PERMAL U.S. OPPORTUNITIES LIMITED Address: c/o Apex Capital, LLC 25 Orinda Way, Suite 300 Orinda, CA 94563 Attention: Adam Fiore, General Counsel Telephone: (925) 253-6125 Facsimile: (925) 253-1809 EX-4.27 12 f97295exv4w27.txt EXHIBIT 4.27 EXHIBIT 4.27 THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS. CRITICAL PATH, INC. CONVERTIBLE SUBORDINATED PROMISSORY NOTE $600,000.00 San Francisco, California January 16, 2004 Critical Path, Inc., a California corporation (the "Company"), the principal office of which is located in San Francisco, California, for value received hereby promises to pay to the order of Zaxis Equity Neutral, L.P., or its registered assigns ("Holder"), the sum of six hundred thousand dollars ($600,000), or such lesser amount as shall then equal the outstanding principal amount hereof on the terms and conditions set forth hereinafter. The outstanding principal amount hereof and all accrued and unpaid interest hereon, as set forth below, shall be due and payable on the earlier to occur of (i) January 16, 2008, (ii) when declared due and payable by Holder upon the occurrence of an Event of Default (as defined below), (iii) consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock or Stock Equivalents by the Company, any cash capital contribution from any third person or any other debt or equity financing consummated by the Company after the date of issuance of this Note which, in the case of (v), individually or in the aggregate raises proceeds of at least forty million dollars ($40,000,000) in cash or cash equivalents (the earliest of the events set forth in items (i)-(v) immediately above, the "Maturity Date"). The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. Except as otherwise defined herein, each capitalized term used herein shall have the meaning assigned to it in the Note Purchase Agreement, as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. All other references to the Note Purchase Agreement in this Note refer to the Note Purchase Agreement as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. As used in this Note, the following terms, unless the context otherwise requires, have the following 2 meanings: 1.1 "Affiliate" means any Person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended. 1.2 "Capitalized Lease Obligations" means, with respect to any Person, all rental obligations of such Person which, under GAAP, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with such principles. 1.3 "Change of Control" shall mean (i) any merger, consolidation or other business combination transaction (or series of related transactions) in which the stockholders owning a majority of the voting securities of the Company prior to such transaction do not own a majority of the voting securities of the surviving entity, (ii) any tender offer, exchange offer or other transaction whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended) (other than General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and the Affiliates of the foregoing, provided that Affiliates shall be deemed not to include any portfolio companies of any of the foregoing) obtains a majority of the outstanding shares of capital stock entitled to vote in the election of directors, (iii) any proxy contest in which a majority of the Board of Directors of the Company (or persons appointed by such Board of Directors) prior to such contest do not constitute a majority of the Company's Board of Directors after such contest or (iv) any other transaction described in any stockholder rights agreement or "poison pill," if any, to which the Company is party, which may permit the holders of any rights or similar certificates to exercise the rights evidenced thereby. 1.4 "Company" shall have the meaning set forth in the recitals hereto, and includes any corporation that shall succeed to or assume the obligations of the Company under this Note. 1.5 "Common Conversion Date" shall have the meaning set forth in Section 3.1(b) hereof. 1.6 "Common Stock" means the common stock, par value $0.001 per share, of the Company. 1.7 "Conversion Date" shall mean the Subsequent Closing Date. 1.8 "Domestic Subsidiary" shall have the meaning set forth in Section 5.10 hereof. 1.9 "Event of Default" shall have the meaning set forth in Section 6 hereof. 3 1.10 "GA Notes" shall mean the Convertible Subordinated Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP Entities pursuant to the Purchase and Exchange Agreement. 1.11 "GAP Entities" shall mean General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG. 1.12 "Guarantor" shall have the meaning set forth in the Security Agreement. 1.13 "Holder" shall mean the registered holder of this Note from time to time, and in the plural, shall mean all registered holders of Notes from time to time issued by the Company pursuant to the Note Purchase Agreement. 1.14 "Intercreditor Agreement" shall mean the Intercreditor Agreement, dated the date hereof, among the GAP Entities, Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P. 1.15 "Interest Amount" shall have the meaning set forth in Section 3.1 hereof. 1.16 "Investment" means (i) the acquisition (whether for cash, property, services, assumption of Indebtedness, securities or otherwise) of assets (other than equipment, inventory, supplies or other assets acquired in the ordinary course of business of the Company), capital stock, bonds, notes, debentures, partnership, joint venture or other ownership interests or other securities of any Person, (ii) any deposit with, or advance, loan or other extension of credit to, or on behalf of, any Person (other than deposits made in connection with the purchase of equipment, inventory, services, leases, supplies or other assets in the ordinary course of business of the Company), and (iii) any other capital contribution to or investment in any Person, including, without limitation, any guaranty obligation incurred for the benefit of any Person. For the sake of clarity, Investments shall include any transfer of property or assets by the Company to any of its Subsidiaries or by any Subsidiary of the Company to any other Subsidiary. 1.17 "Loan Documents" shall have the meaning set forth in the Security Agreement. 1.18 "Note" shall mean this note, and in the plural, shall mean all notes issued to the Lenders pursuant to the terms of the Note Purchase Agreement, including this Note, and all amendments, modifications and extensions thereto. 1.19 "Note Purchase Agreement" means that certain Convertible Note Purchase Agreement, dated January 16, 2004, among the Company, the Holder and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 4 1.20 "Permitted Investments" means (i) Investments in cash or cash equivalents, (ii) accounts receivable created, acquired or made in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (iii) Investments existing on the closing date, and listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty obligations permitted by Section 5.3 of this Agreement, (v) loans to employees, directors or officers of the Company in connection with the award of convertible bonds or capital stock under a stock incentive plan, stock option plan or other equity-based compensation plan or arrangement, (vi) other advances or loans to employees, directors, officers or agents of the Company in the ordinary course of business not to exceed $500,000 in the aggregate at any time outstanding; (vii) loans, advances and investments in foreign Subsidiaries (that are not incorporated or otherwise organized under the laws of the United States of America or any state thereof) in an amount not to exceed $1,000,000 in the aggregate at any time outstanding; (viii) any acquisition for which the prior written consent of the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement has been obtained, (ix) other loans, advances and investments of a nature not contemplated by the foregoing sections in an amount not to exceed $500,000 in the aggregate at any time outstanding or (x) Investments by the Company in the Guarantor. 1.21 "Permitted Liens" shall have the meaning set forth in Section 5.4. 1.22 "Person" means any individual, firm, corporation, partnership, trust, joint venture, joint stock company, limited liability company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. 1.23 "Price Per Share" shall have the meaning attributed to such term in the Series E Certificate of Determination, as filed with the Secretary of State of the State of California. 1.24 "Purchase and Exchange Agreement" shall mean the Convertible Note Purchase and Exchange Agreement, dated November 18, 2003, among the Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended. 1.25 "Qualified Asset Sale" means the sale, transfer or other disposition of any of the assets of the Company or any of its Subsidiaries, other than (a) sales of assets in the ordinary course of business, (b) sales of assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the sale, transfer or other disposition of assets of the Company where the proceeds are applied to the purchase price or traded in for credit against the purchase price of other assets, provided that any such purchase is made, or credit issued, within 90 days of the sale, transfer or other disposition, and (d) one or more sales of the Company's assets (other than sales otherwise included in clauses (a), (b), and (c) immediately above) which collectively yield up to an aggregate of one million dollars ($1,000,000) in gross proceeds to the Company while this Note is outstanding. 5 1.26 "Restricted Payment" means (a) any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Company or any of its Subsidiaries or (b) any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any shares of any class of capital stock of the Company or any Subsidiary or any option, warrant or other right to acquire any such shares of capital stock of the Company or any Subsidiary. 1.27 "Security Agreement" means that certain Guaranty and Security Agreement, of even date herewith between the Company, Compass Holding Corp., the Lenders and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.28 "Series E Conversion Price" shall have the meaning set forth in the Series E Certificate of Determination. 1.29 "Series E Preferred Stock" means the Series E Preferred Stock, par value $0.001, of the Company. 1.30 "Subordination Agreement" shall have the meaning set forth in Section 5.3. 1.31 "Subsequent Closing Date" shall have the meaning set forth in Section 2.4(e) of the Note Purchase Agreement. 1.32 "SVB" means Silicon Valley Bank, a California chartered bank, or any Affiliates thereof. 1.33 "Ten Percent Holder" means, with respect to a class of equity securities of the Company, a Person (together with such Person's Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such class of equity securities of the Company, as defined by Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 1.34 "UCC" shall have the meaning set forth in Section 5.4. 2. Interest. Simple interest shall accrue at the rate of ten percent (10%) per annum (or such lesser amount as shall equal the highest rate of interest allowable under applicable law) (the "Interest Rate"), on the outstanding principal of this Note from the date of this Note until the Maturity Date or the date this Note is otherwise repaid. The Company shall not be obligated to make any payments of interest which shall have accrued under this Note prior to the Maturity Date. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. In the event that the principal amount of this Note, any interest, or any amount payable hereunder is not paid in full when such amount becomes due and payable, or upon the occurrence of an Event of Default, interest shall accrue at the lesser of (a) the initial Interest Rate plus five percent (5%) per annum or (b) the highest rate of interest allowable under applicable law, 6 on the balance of all amounts outstanding until such overdue amounts are paid or the Event of Default is cured, and such interest shall be payable on demand. 3. Conversion. 3.1 Conversion. (a) On the Conversion Date, the principal amount of this Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall be automatically converted into the number of fully paid and nonassessable shares of Series E Preferred Stock equal to the quotient obtained by dividing (a) the entire principal amount of this Note plus the Interest Amount by (b) the Price Per Share. (b) In the event that the Conversion Date has not occurred on or prior to April 30, 2004 (the "Common Conversion Date"), then, following the Common Conversion Date, the principal amount of this Note plus the Interest Amount shall be convertible, at the option of Holder and from time to time, into Common Stock at a conversion price per share equal to $1.65, as adjusted for any stock dividends, stock splits or similar consolidations or subdivisions, following the date hereof; provided, however, that Holder shall not be permitted to convert any portion of the principal of this Note or the Interest Amount into Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion, the conversion would cause Holder to be a Ten Percent Holder. 3.2 Notice of Conversion. Upon conversion of this Note as provided in Section 3.1, Holder shall surrender this Note to the Company and shall state the name or names in which the certificate or certificates for such shares of Series E Preferred Stock or Common Stock, as the case may be, are to be issued. The Person or Persons entitled to receive the shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion shall be treated for all purposes as the record holder or holders (a) of such shares of Series E Preferred Stock as of the Conversion Date and (b) of such shares of Common Stock as of the date of any conversion pursuant to Section 3.1(b). 3.3 Delivery of Stock Certificates. Upon conversion of this Note as provided in Section 3.1, the Company at its expense will issue and deliver to Holder of this Note a certificate or certificates (bearing such legends as are required by applicable state and federal securities laws in the opinion of counsel to the Company) for the number of full shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion. 3.4 Mechanics and Effect of Conversion. No fractional shares of Series E Preferred Stock or Common Stock, as the case may be, shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to Holder upon the conversion of this Note, the Company shall pay to Holder the amount of outstanding principal and interest that is not so converted. Upon conversion of all amounts due under this Note, the Company shall be released from all of its obligations under this Note. 7 4. Adjustments. The number of shares of Series E Preferred Stock or Common Stock convertible hereunder are subject to adjustment from time to time as follows: 4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at any time while this Note remains outstanding and unexpired there shall be (a) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (b) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise or (c) a sale or transfer of the Company's stock, properties or assets as, or substantially as, an entirety to any other Person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that Holder shall thereafter be entitled to receive by converting this Note the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon conversion of this Note would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Note had been converted immediately before such reorganization, merger, consolidation, sale or transfer (notwithstanding that the Stockholder Approval may not yet have been obtained), all subject to further adjustment as provided in this Section 4. The foregoing provisions of this Section 4.1 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation. If the per share consideration payable to Holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors based on the amount the Holder would have otherwise been entitled to receive had the transaction or transactions not occurred. In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of Holder after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon conversion of this Note. The Company shall be obligated to retain and set aside, or otherwise make fair provision for exercise of the right of the Holder to receive, the shares of stock and/or other securities, cash or other property provided for in this Section 4.1. 4.2 Election of Holder upon Merger or Sale of Assets. Notwithstanding anything to the contrary contained herein, if an event shall occur as provided in Section 4.1 hereof that would otherwise result in the occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first paragraph of this Note, then the Holder may, in its sole discretion, by written notice to the Company elect to convert the principal amount of this Note plus the Interest Amount into the number of shares of stock or other securities or property described in Section 4.1, in lieu of receiving payment in full of all amounts outstanding under this Note. The number of shares of stock or other 8 securities or property to be issued upon such conversion shall be determined in accordance with Section 4.1 hereof, taking into account the occurrence of such event. 4.3 Reclassification, Etc. If the Company shall, at any time while this Note, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, change any of the securities as to which conversion rights under this Note exist into the same or a different number of securities of any other class or classes, this Note shall thereafter represent the right to acquire such number and kind of securities as would have been issuable with respect to the securities that were subject to the conversion rights under this Note immediately prior to such reclassification or other change, and the Price Per Share shall be appropriately adjusted, all subject to further adjustment as provided in this Section 4. 4.4 Split, Subdivision or Combination of Shares. If the Company at any time while this Note, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the shares of Series E Preferred Stock or Common Stock into a different number of securities of the same class, the Price Per Share or conversion price, as the case may be, shall be proportionately adjusted. 4.5 Series E Adjustments. The initial Series E Conversion Price of the shares of Series E Preferred Stock issued upon conversion of this Note pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on the Conversion Date, subject to the adjustment of such Series E Conversion Price from time to time thereafter as provided in the Series E Certificate of Determination. 4.6 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 4, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. 4.7 No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 5. Covenants. The Company covenants and agrees that until the earlier of (i) the date on which all Obligations (as defined in the Security Agreement) have been paid in full or (ii) the date on which all amounts outstanding under the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b): 5.1 Financial Statements and Other Information. The Company shall deliver to the Holder of this Note the financial statements and other information required to be delivered under Section 8.1 of the Note Purchase Agreement. 9 5.2 Financial Covenants. The Company shall at all times comply with the financial and other covenants set forth in Schedule 8.5 to the Note Purchase Agreement as if such covenants were set forth herein. 5.3 Indebtedness. The Company shall not, and shall not permit any Subsidiary to, issue, incur, assume, create or have outstanding any Indebtedness, provided, however, that the foregoing shall not restrict nor operate to prevent: (a) Indebtedness in favor of the Holders under the Loan Documents; (b) Indebtedness existing on the date hereof, as set forth on Schedule 3.22 to the Note Purchase Agreement; (c) Indebtedness for accounts payable incurred in the ordinary course of business by the Company; (d) Indebtedness incurred solely for the purpose of financing the acquisition of any equipment, machinery, software, improvements or any other similar property, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, that the aggregate outstanding principal amount of all Indebtedness permitted pursuant to this clause (d) outstanding for more than sixty (60) days after the incurrence of such Indebtedness shall not at any time exceed $500,000; (e) Indebtedness of the Company evidenced by Capitalized Lease Obligations, provided, that in no event shall the aggregate principal amount of Capitalized Lease Obligations permitted by this clause (e) exceed $500,000 at any time outstanding; and (f) Any extension, renewal, refinancing, refunding, or replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and (e) above, on such terms and conditions as are, on the whole, not materially more onerous to the Company than the terms and conditions of such original Indebtedness on the date of such refinancing (including that the principal amount of such refinancing Indebtedness does not exceed the principal amount of, plus the amount of accrued and unpaid interest on, the Indebtedness so refinanced (plus the amount of reasonable premium and fees and expenses incurred in connection therewith)), provided that, in the case of a refinancing of Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall only apply to the extent consistent with the Subordination Agreement, dated as of the date hereof, by and among SVB, the Holders and the Company (the "Subordination Agreement"). 5.4 Liens. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of the Company or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or 10 assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable), or assign any right to receive income or permit the filing of any financing statement under the Uniform Commercial Code, as from time to time in effect in the relevant jurisdiction (the "UCC"), or any other similar notice of Lien under any similar recording or notice statute; provided, that the provisions of this Section 5.4 shall not prevent the creation, incurrence, assumption or existence of the following: (a) Liens arising in the ordinary course of business by statute in connection with worker's compensation, unemployment insurance, old age benefits, social security obligations, statutory obligations or other similar charges (other then Liens arising under ERISA), good faith cash deposits in connection with tenders, contracts or leases to which the Company or any Subsidiary is a party or other cash deposits required to be made in the ordinary course of business, provided, that such Liens do not have a material adverse effect on the ability of the Company to repay amounts due under the Notes; (b) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (c) Liens in respect of property or assets of the Company or its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (i) which do not in the aggregate materially detract from the value of the Company's and its Subsidiaries' property or assets taken as a whole or result in a material adverse effect on the Condition of the Company or (ii) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; (d) the pledge of assets for the purpose of securing an appeal, stay or discharge in the course of any legal proceeding, provided that the aggregate amount of liabilities of the Company and its Subsidiaries secured by a pledge of assets permitted under this subsection, including interest and penalties thereon, if any, shall not be in excess of $500,000 at any one time outstanding; (e) any interest or title of a lessor under any operating lease; (f) easements, rights-of-way, restrictions and other similar encumbrances against real property incurred in the ordinary course of business; 11 (g) the Liens existing on the date hereof identified on Schedule 3.22 to the Note Purchase Agreement; (h) Liens on cash deposited with account debtors to secure performance by the Company or any Subsidiary in the ordinary course of business subject to customary and reasonable terms; (i) Liens upon assets of the Company or its Subsidiaries subject to Capitalized Lease Obligations, provided, that (A) such Liens only serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising under such Capitalized Lease Obligation and (B) the Lien encumbering the asset giving rise to the Capitalized Lease Obligation does not encumber any other asset of the Company or its Subsidiaries; (j) Liens placed upon equipment, machinery, software, improvements or any other similar property, used in the ordinary course of business of the Company or any of its Subsidiaries at the time of the acquisition thereof by the Company or any of its Subsidiaries or within ninety (90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above; provided, that the Liens encumbering the equipment, machinery software, improvements or any other similar property so acquired do not encumber any other asset of the Company or its Subsidiaries; (k) set-off rights of depository institutions; and (l) Liens created by the Security Agreement (collectively with clauses (a) through (k) hereof, the "Permitted Liens"). 5.5 Fundamental Changes. The Company will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or a series of transactions) all or substantially all of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time and immediately after giving effect thereto no Event of Default shall have occurred and be continuing (i) the Company or any of its Subsidiaries may, with the prior written consent of the Holders, merge with or into any other Person; (ii) any wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with or into the Company or any other wholly-owned Subsidiary of the Company; (iii) any Subsidiary (other than the Guarantor, and except as otherwise prohibited by this Note) may sell, transfer, lease or otherwise dispose of its assets to the Company or to another wholly-owned Subsidiary of the Company; and (iv) any Subsidiary may liquidate or dissolve if the board of directors of the Company determine in good faith that such liquidation or dissolution is in its best interests and is not disadvantageous to the Holders. 5.6 Restricted Payments. The Company will not, and the Company will not permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that (i) any Subsidiary may make a 12 Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any Restricted Payment required by the terms of the Note Purchase Agreement and the other documents executed in connection therewith. 5.7 Transactions with Affiliates. The Company will not, and the Company will not permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions that are at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arm's length basis from unrelated third parties, (b) transactions exclusively between the Company and the Guarantor and (c) transactions under the agreements listed on Schedule 3.17 to the Note Purchase Agreement. 5.8 Investments. The Company will not, and the Company will not permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment in any Person, except for Permitted Investments. 5.9 Nature of Business. The Company will not, and the Company will not permit any Subsidiary to, engage in any business other than that conducted on the date hereof and any businesses reasonably related thereto. 5.10 Property of Existing Domestic Subsidiaries. The Company will not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise organized under the laws of the United States of America or any state thereof (a "Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease, license, purchase or otherwise acquire any personal or real property (excluding any material intellectual property) in excess of $50,000 for all property held by such Subsidiary, or $250,000 in the aggregate for all property held by all Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own or otherwise hold any rights to any material intellectual property or (iv) otherwise conduct any business or maintain operations. 5.11 Formation of Subsidiaries. The Company will not, and will not cause or permit any of its Subsidiaries to, form, acquire or permit the existence of any new domestic Subsidiary, without causing such domestic Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes and related security document, in form and substance satisfactory to the Holders. 5.12 Books and Records. The Company shall keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Company and its Subsidiaries in accordance with GAAP consistently applied. 5.13 Inspection. The Company shall, and shall cause each of its Subsidiaries to, permit representatives of the Holders to visit and inspect any of its properties, to examine its corporate, financial and operating records and make copies 13 thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with their respective directors, officers and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably requested upon notice to the Company. 5.14 Maintenance of Business. The Company shall, and shall cause each Subsidiary to, preserve and maintain its existence. The Company shall, and shall cause each Subsidiary to, preserve and keep in force and effect all licenses, permits, franchises, approvals, patents, trademarks, trade names, trade styles, copyrights, and other property rights necessary to the proper conduct of its business, except where the failure to do so could not reasonably be expected to have a material adverse effect on the Condition of the Company or on the prospects of repayment of the Notes. 5.15 Maintenance of Properties. The Company shall, and shall cause each Subsidiary to, maintain, preserve and keep its property and equipment in good repair, working order and condition (ordinary wear and tear excepted) and shall from time to time make all needful and proper repairs, renewals, replacements, additions and betterments thereto so that at all times the efficiency thereof shall by fully preserved and maintained, except in each case to the extent that, in the reasonable business judgment of such Person, any such property or equipment is no longer necessary for the proper conduct of the business of such Person. 6. The occurrence of any one or more of the following events shall constitute an "Event of Default": 6.1 Failure To Pay. (i) The failure of the Company to pay any principal due under any of the Notes when due and payable (whether by acceleration, declaration, extension or otherwise), or (ii) the failure of the Company to pay any other amounts due under any of the Notes when due and payable if such failure is not cured within five (5) days of Company's receipt of notice thereof from any of the Holders. 6.2 Financial Covenants. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2. 6.3 Other Covenants and Agreements. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the covenants of this Note, the Security Agreement or any of the other Loan Documents (other than the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2), if such failure is not cured within sixty (60) days. 6.4 Representations and Warranties. If any representation or warranty made by the Company or any of its Subsidiaries in the Loan Documents is not true and correct in all material respects on the Initial Closing Date. 14 6.5 Default on Other Obligations. The occurrence of any condition or default under any other indebtedness for borrowed money of the Company or any of its Subsidiaries with a principal amount of at least five hundred thousand dollars ($500,000) that results in the acceleration of such indebtedness which is not cured within sixty (60) days. 6.6 Involuntary Bankruptcy. There shall be filed against the Company or any of its Subsidiaries an involuntary petition or other pleading seeking the entry of a decree or order for relief under the United States Bankruptcy Code or any similar federal or state insolvency or similar laws ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a reorganization of the Company or any of its Subsidiaries or the business and affairs of the Company or any of its Subsidiaries or (c) the appointment of a receiver, liquidator, assignee, custodian, trustee or similar official for the Company or any of its Subsidiaries of the property of the Company or any of its Subsidiaries. 6.7 Voluntary Bankruptcy. The commencement by the Company or any of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any federal or state insolvency or similar laws or the consent by the Company or any of its Subsidiaries to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian or similar official for the Company or any of its Subsidiaries of any of the property of the Company or any of its Subsidiaries or the making by the Company or any of its Subsidiaries of an assignment for the benefit of creditors, or the failure by Company or any of its Subsidiaries generally to pay its debts as the debts become due. 6.8 Judgments, Awards. Any judgment or order for the payment of money is rendered against the Company or any of its Subsidiaries in an amount in excess of five hundred thousand dollars ($500,000) individually or in the aggregate and either (i) enforcement proceedings are commenced by any creditor upon such judgment or order and not stayed, or (ii) there is any period of sixty (60) consecutive days during which such judgment has not been paid in full or a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, is not in effect. 6.9 Attachment by Lenders. Any assets of the Company or any of its Subsidiaries shall be attached, levied upon, seized or repossessed, or come into the possession of a trustee, receiver or other custodian and a determination by any Holder, in good faith but in its sole discretion, that the same could have a material adverse effect on the prospect for the Holders to fully and punctually realize the full benefits conferred on the Holders by the Loan Documents. 6.10 Adverse Change in Financial Condition. Any event having a material adverse effect on the business, operations, assets, properties or condition of the Company and its Subsidiaries taken as a whole shall have occurred and be continuing or a material adverse effect on the validity or enforceability of this or any of the other Loan Documents or the rights or remedies of the Holders hereunder or thereunder. 15 7. Remedies. Upon and after the occurrence of an Event of Default, the Holder shall be entitled to the exercise the rights and remedies set forth in the Security Agreement, the other Loan Documents and under applicable law, all such rights and remedies being cumulative and enforceable alternatively, successively or concurrently. 8. Prepayment. The Company may not prepay this Note prior to the Maturity Date without the prior written consent of the Holders. 9. Seniority. (a) Except as set forth in the Subordination Agreement, the Notes will rank senior in right of payment to all other indebtedness of the Company, other than the GA Notes, with respect to which the Notes will be pari passu in right of payment in accordance with the Intercreditor Agreement. (b) Notwithstanding anything to the contrary contained in the Notes, this Note and the other Notes, and the terms and the conditions hereof and thereof, are subject to the Intercreditor Agreement. 10. Assignment. Subject to the restrictions on transfer described in Section 12 below, the rights and obligations of the Company and Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. The Company shall not be permitted to assign this Note without the prior written consent of the Holders. 11. Waiver of Notice. The Company hereby waives notice, presentment, demand, protest and notice of dishonor. 12. Transfer of This Note. With respect to any offer, sale or other disposition of this Note, Holder will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such Holder's counsel, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect); provided, that no opinion shall be required for any transfer to an Affiliate or if the transfer is made in compliance with the Securities Act, so long as the transferee can make the same representations and warranties at the time of transfer as set forth in Sections 4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly upon delivering such written notice and opinion, if so required, Holder may sell or otherwise dispose of this Note, all in accordance with the terms of the notice delivered to the Company. Each Note thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Notwithstanding the foregoing, the Holder shall not be permitted to transfer this Note to any Person who is not an Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of written notice from the 16 Company that Stockholder Approval cannot be obtained, or the occurrence of an actual vote of the Company's shareholders entitled to vote (whether by written consent or at a meeting specially called for such purpose), the result of which is a decision by a majority of the Company's shareholders entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of an Event of Default. 13. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 14. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally recognized courier service or mailed by registered or certified mail, postage prepaid, to the respective addresses of the parties as set forth on the signature pages hereto or if sent by facsimile to the respective facsimile numbers of the parties set forth on the signature pages hereto. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given and received when personally delivered or three (3) business days after deposited in the mail or one business day after sent by courier or upon confirmation of facsimile delivery in the manner set forth above. 15. No Stockholder Rights. Nothing contained in this Note shall be construed as conferring upon Holder or any other Person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. 16. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law relating to conflict of laws. 17. Amendments and Waivers. No amendments or waivers of any provision of this Note, and no consent by the Holder to any departure by the Company, shall in any event be effective unless the same shall be in writing, and signed by the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 18. Severability. Any provision of this Note that is prohibited or unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY (A) COVENANTS AND AGREES NOT TO 17 ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. 20. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except as otherwise indicated, all references herein to Sections refer to Sections hereof. [the remainder of this page intentionally left blank] 18 IN WITNESS WHEREOF, the Company has caused this Note to be issued this 16th day of January, 2004. COMPANY: CRITICAL PATH, INC., a California corporation By: /s/ William E. McGlashan, Jr. ----------------------------------------- Name: William E. McGlashan, Jr. Title: Chairman, Chief Executive Officer Critical Path, Inc. 350 The Embarcadero San Francisco, CA 94105-1204 Telecopy: (415) 541-2300 Attention: Chief Financial Officer With a copy to: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Telecopy: (415) 983-1200 Attention: Gregg Vignos, Esq. Name of Holder: ZAXIS EQUITY NEUTRAL, L.P. Address: c/o Apex Capital, LLC 25 Orinda Way, Suite 300 Orinda, CA 94563 Attention: Adam Fiore, General Counsel Telephone: (925) 253-6125 Facsimile: (925) 253-1809 EX-4.28 13 f97295exv4w28.txt EXHIBIT 4.28 EXHIBIT 4.28 THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS. CRITICAL PATH, INC. CONVERTIBLE SUBORDINATED PROMISSORY NOTE $930,000.00 San Francisco, California January 16, 2004 Critical Path, Inc., a California corporation (the "Company"), the principal office of which is located in San Francisco, California, for value received hereby promises to pay to the order of Zaxis Institutional Partners, L.P., or its registered assigns ("Holder"), the sum of nine hundred thirty thousand dollars ($930,000), or such lesser amount as shall then equal the outstanding principal amount hereof on the terms and conditions set forth hereinafter. The outstanding principal amount hereof and all accrued and unpaid interest hereon, as set forth below, shall be due and payable on the earlier to occur of (i) January 16, 2008, (ii) when declared due and payable by Holder upon the occurrence of an Event of Default (as defined below), (iii) consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock or Stock Equivalents by the Company, any cash capital contribution from any third person or any other debt or equity financing consummated by the Company after the date of issuance of this Note which, in the case of (v), individually or in the aggregate raises proceeds of at least forty million dollars ($40,000,000) in cash or cash equivalents (the earliest of the events set forth in items (i)-(v) immediately above, the "Maturity Date"). The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. Except as otherwise defined herein, each capitalized term used herein shall have the meaning assigned to it in the Note Purchase Agreement, as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. All other references to the Note Purchase Agreement in this Note refer to the Note Purchase Agreement as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. As used in this Note, the following terms, unless the context otherwise requires, have the following 2 meanings: 1.1 "Affiliate" means any Person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended. 1.2 "Capitalized Lease Obligations" means, with respect to any Person, all rental obligations of such Person which, under GAAP, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with such principles. 1.3 "Change of Control" shall mean (i) any merger, consolidation or other business combination transaction (or series of related transactions) in which the stockholders owning a majority of the voting securities of the Company prior to such transaction do not own a majority of the voting securities of the surviving entity, (ii) any tender offer, exchange offer or other transaction whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended) (other than General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and the Affiliates of the foregoing, provided that Affiliates shall be deemed not to include any portfolio companies of any of the foregoing) obtains a majority of the outstanding shares of capital stock entitled to vote in the election of directors, (iii) any proxy contest in which a majority of the Board of Directors of the Company (or persons appointed by such Board of Directors) prior to such contest do not constitute a majority of the Company's Board of Directors after such contest or (iv) any other transaction described in any stockholder rights agreement or "poison pill," if any, to which the Company is party, which may permit the holders of any rights or similar certificates to exercise the rights evidenced thereby. 1.4 "Company" shall have the meaning set forth in the recitals hereto, and includes any corporation that shall succeed to or assume the obligations of the Company under this Note. 1.5 "Common Conversion Date" shall have the meaning set forth in Section 3.1(b) hereof. 1.6 "Common Stock" means the common stock, par value $0.001 per share, of the Company. 1.7 "Conversion Date" shall mean the Subsequent Closing Date. 1.8 "Domestic Subsidiary" shall have the meaning set forth in Section 5.10 hereof. 1.9 "Event of Default" shall have the meaning set forth in Section 6 hereof. 3 1.10 "GA Notes" shall mean the Convertible Subordinated Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP Entities pursuant to the Purchase and Exchange Agreement. 1.11 "GAP Entities" shall mean General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG. 1.12 "Guarantor" shall have the meaning set forth in the Security Agreement. 1.13 "Holder" shall mean the registered holder of this Note from time to time, and in the plural, shall mean all registered holders of Notes from time to time issued by the Company pursuant to the Note Purchase Agreement. 1.14 "Intercreditor Agreement" shall mean the Intercreditor Agreement, dated the date hereof, among the GAP Entities, Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P. 1.15 "Interest Amount" shall have the meaning set forth in Section 3.1 hereof. 1.16 "Investment" means (i) the acquisition (whether for cash, property, services, assumption of Indebtedness, securities or otherwise) of assets (other than equipment, inventory, supplies or other assets acquired in the ordinary course of business of the Company), capital stock, bonds, notes, debentures, partnership, joint venture or other ownership interests or other securities of any Person, (ii) any deposit with, or advance, loan or other extension of credit to, or on behalf of, any Person (other than deposits made in connection with the purchase of equipment, inventory, services, leases, supplies or other assets in the ordinary course of business of the Company), and (iii) any other capital contribution to or investment in any Person, including, without limitation, any guaranty obligation incurred for the benefit of any Person. For the sake of clarity, Investments shall include any transfer of property or assets by the Company to any of its Subsidiaries or by any Subsidiary of the Company to any other Subsidiary. 1.17 "Loan Documents" shall have the meaning set forth in the Security Agreement. 1.18 "Note" shall mean this note, and in the plural, shall mean all notes issued to the Lenders pursuant to the terms of the Note Purchase Agreement, including this Note, and all amendments, modifications and extensions thereto. 1.19 "Note Purchase Agreement" means that certain Convertible Note Purchase Agreement, dated January 16, 2004, among the Company, the Holder and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 4 1.20 "Permitted Investments" means (i) Investments in cash or cash equivalents, (ii) accounts receivable created, acquired or made in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (iii) Investments existing on the closing date, and listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty obligations permitted by Section 5.3 of this Agreement, (v) loans to employees, directors or officers of the Company in connection with the award of convertible bonds or capital stock under a stock incentive plan, stock option plan or other equity-based compensation plan or arrangement, (vi) other advances or loans to employees, directors, officers or agents of the Company in the ordinary course of business not to exceed $500,000 in the aggregate at any time outstanding; (vii) loans, advances and investments in foreign Subsidiaries (that are not incorporated or otherwise organized under the laws of the United States of America or any state thereof) in an amount not to exceed $1,000,000 in the aggregate at any time outstanding; (viii) any acquisition for which the prior written consent of the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement has been obtained, (ix) other loans, advances and investments of a nature not contemplated by the foregoing sections in an amount not to exceed $500,000 in the aggregate at any time outstanding or (x) Investments by the Company in the Guarantor. 1.21 "Permitted Liens" shall have the meaning set forth in Section 5.4. 1.22 "Person" means any individual, firm, corporation, partnership, trust, joint venture, joint stock company, limited liability company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. 1.23 "Price Per Share" shall have the meaning attributed to such term in the Series E Certificate of Determination, as filed with the Secretary of State of the State of California. 1.24 "Purchase and Exchange Agreement" shall mean the Convertible Note Purchase and Exchange Agreement, dated November 18, 2003, among the Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended. 1.25 "Qualified Asset Sale" means the sale, transfer or other disposition of any of the assets of the Company or any of its Subsidiaries, other than (a) sales of assets in the ordinary course of business, (b) sales of assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the sale, transfer or other disposition of assets of the Company where the proceeds are applied to the purchase price or traded in for credit against the purchase price of other assets, provided that any such purchase is made, or credit issued, within 90 days of the sale, transfer or other disposition, and (d) one or more sales of the Company's assets (other than sales otherwise included in clauses (a), (b), and (c) immediately above) which collectively yield up to an aggregate of one million dollars ($1,000,000) in gross proceeds to the Company while this Note is outstanding. 5 1.26 "Restricted Payment" means (a) any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Company or any of its Subsidiaries or (b) any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any shares of any class of capital stock of the Company or any Subsidiary or any option, warrant or other right to acquire any such shares of capital stock of the Company or any Subsidiary. 1.27 "Security Agreement" means that certain Guaranty and Security Agreement, of even date herewith between the Company, Compass Holding Corp., the Lenders and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.28 "Series E Conversion Price" shall have the meaning set forth in the Series E Certificate of Determination. 1.29 "Series E Preferred Stock" means the Series E Preferred Stock, par value $0.001, of the Company. 1.30 "Subordination Agreement" shall have the meaning set forth in Section 5.3. 1.31 "Subsequent Closing Date" shall have the meaning set forth in Section 2.4(e) of the Note Purchase Agreement. 1.32 "SVB" means Silicon Valley Bank, a California chartered bank, or any Affiliates thereof. 1.33 "Ten Percent Holder" means, with respect to a class of equity securities of the Company, a Person (together with such Person's Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such class of equity securities of the Company, as defined by Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 1.34 "UCC" shall have the meaning set forth in Section 5.4. 2. Interest. Simple interest shall accrue at the rate of ten percent (10%) per annum (or such lesser amount as shall equal the highest rate of interest allowable under applicable law) (the "Interest Rate"), on the outstanding principal of this Note from the date of this Note until the Maturity Date or the date this Note is otherwise repaid. The Company shall not be obligated to make any payments of interest which shall have accrued under this Note prior to the Maturity Date. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. In the event that the principal amount of this Note, any interest, or any amount payable hereunder is not paid in full when such amount becomes due and payable, or upon the occurrence of an Event of Default, interest shall accrue at the lesser of (a) the initial Interest Rate plus five percent (5%) per annum or (b) the highest rate of interest allowable under applicable law, 6 on the balance of all amounts outstanding until such overdue amounts are paid or the Event of Default is cured, and such interest shall be payable on demand. 3. Conversion. 3.1 Conversion. (a) On the Conversion Date, the principal amount of this Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall be automatically converted into the number of fully paid and nonassessable shares of Series E Preferred Stock equal to the quotient obtained by dividing (a) the entire principal amount of this Note plus the Interest Amount by (b) the Price Per Share. (b) In the event that the Conversion Date has not occurred on or prior to April 30, 2004 (the "Common Conversion Date"), then, following the Common Conversion Date, the principal amount of this Note plus the Interest Amount shall be convertible, at the option of Holder and from time to time, into Common Stock at a conversion price per share equal to $1.65, as adjusted for any stock dividends, stock splits or similar consolidations or subdivisions, following the date hereof; provided, however, that Holder shall not be permitted to convert any portion of the principal of this Note or the Interest Amount into Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion, the conversion would cause Holder to be a Ten Percent Holder. 3.2 Notice of Conversion. Upon conversion of this Note as provided in Section 3.1, Holder shall surrender this Note to the Company and shall state the name or names in which the certificate or certificates for such shares of Series E Preferred Stock or Common Stock, as the case may be, are to be issued. The Person or Persons entitled to receive the shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion shall be treated for all purposes as the record holder or holders (a) of such shares of Series E Preferred Stock as of the Conversion Date and (b) of such shares of Common Stock as of the date of any conversion pursuant to Section 3.1(b). 3.3 Delivery of Stock Certificates. Upon conversion of this Note as provided in Section 3.1, the Company at its expense will issue and deliver to Holder of this Note a certificate or certificates (bearing such legends as are required by applicable state and federal securities laws in the opinion of counsel to the Company) for the number of full shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion. 3.4 Mechanics and Effect of Conversion. No fractional shares of Series E Preferred Stock or Common Stock, as the case may be, shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to Holder upon the conversion of this Note, the Company shall pay to Holder the amount of outstanding principal and interest that is not so converted. Upon conversion of all amounts due under this Note, the Company shall be released from all of its obligations under this Note. 7 4. Adjustments. The number of shares of Series E Preferred Stock or Common Stock convertible hereunder are subject to adjustment from time to time as follows: 4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at any time while this Note remains outstanding and unexpired there shall be (a) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (b) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise or (c) a sale or transfer of the Company's stock, properties or assets as, or substantially as, an entirety to any other Person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that Holder shall thereafter be entitled to receive by converting this Note the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon conversion of this Note would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Note had been converted immediately before such reorganization, merger, consolidation, sale or transfer (notwithstanding that the Stockholder Approval may not yet have been obtained), all subject to further adjustment as provided in this Section 4. The foregoing provisions of this Section 4.1 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation. If the per share consideration payable to Holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors based on the amount the Holder would have otherwise been entitled to receive had the transaction or transactions not occurred. In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of Holder after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon conversion of this Note. The Company shall be obligated to retain and set aside, or otherwise make fair provision for exercise of the right of the Holder to receive, the shares of stock and/or other securities, cash or other property provided for in this Section 4.1. 4.2 Election of Holder upon Merger or Sale of Assets. Notwithstanding anything to the contrary contained herein, if an event shall occur as provided in Section 4.1 hereof that would otherwise result in the occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first paragraph of this Note, then the Holder may, in its sole discretion, by written notice to the Company elect to convert the principal amount of this Note plus the Interest Amount into the number of shares of stock or other securities or property described in Section 4.1, in lieu of receiving payment in full of all amounts outstanding under this Note. The number of shares of stock or other 8 securities or property to be issued upon such conversion shall be determined in accordance with Section 4.1 hereof, taking into account the occurrence of such event. 4.3 Reclassification, Etc. If the Company shall, at any time while this Note, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, change any of the securities as to which conversion rights under this Note exist into the same or a different number of securities of any other class or classes, this Note shall thereafter represent the right to acquire such number and kind of securities as would have been issuable with respect to the securities that were subject to the conversion rights under this Note immediately prior to such reclassification or other change, and the Price Per Share shall be appropriately adjusted, all subject to further adjustment as provided in this Section 4. 4.4 Split, Subdivision or Combination of Shares. If the Company at any time while this Note, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the shares of Series E Preferred Stock or Common Stock into a different number of securities of the same class, the Price Per Share or conversion price, as the case may be, shall be proportionately adjusted. 4.5 Series E Adjustments. The initial Series E Conversion Price of the shares of Series E Preferred Stock issued upon conversion of this Note pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on the Conversion Date, subject to the adjustment of such Series E Conversion Price from time to time thereafter as provided in the Series E Certificate of Determination. 4.6 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 4, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. 4.7 No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 5. Covenants. The Company covenants and agrees that until the earlier of (i) the date on which all Obligations (as defined in the Security Agreement) have been paid in full or (ii) the date on which all amounts outstanding under the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b): 5.1 Financial Statements and Other Information. The Company shall deliver to the Holder of this Note the financial statements and other information required to be delivered under Section 8.1 of the Note Purchase Agreement. 9 5.2 Financial Covenants. The Company shall at all times comply with the financial and other covenants set forth in Schedule 8.5 to the Note Purchase Agreement as if such covenants were set forth herein. 5.3 Indebtedness. The Company shall not, and shall not permit any Subsidiary to, issue, incur, assume, create or have outstanding any Indebtedness, provided, however, that the foregoing shall not restrict nor operate to prevent: (a) Indebtedness in favor of the Holders under the Loan Documents; (b) Indebtedness existing on the date hereof, as set forth on Schedule 3.22 to the Note Purchase Agreement; (c) Indebtedness for accounts payable incurred in the ordinary course of business by the Company; (d) Indebtedness incurred solely for the purpose of financing the acquisition of any equipment, machinery, software, improvements or any other similar property, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, that the aggregate outstanding principal amount of all Indebtedness permitted pursuant to this clause (d) outstanding for more than sixty (60) days after the incurrence of such Indebtedness shall not at any time exceed $500,000; (e) Indebtedness of the Company evidenced by Capitalized Lease Obligations, provided, that in no event shall the aggregate principal amount of Capitalized Lease Obligations permitted by this clause (e) exceed $500,000 at any time outstanding; and (f) Any extension, renewal, refinancing, refunding, or replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and (e) above, on such terms and conditions as are, on the whole, not materially more onerous to the Company than the terms and conditions of such original Indebtedness on the date of such refinancing (including that the principal amount of such refinancing Indebtedness does not exceed the principal amount of, plus the amount of accrued and unpaid interest on, the Indebtedness so refinanced (plus the amount of reasonable premium and fees and expenses incurred in connection therewith)), provided that, in the case of a refinancing of Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall only apply to the extent consistent with the Subordination Agreement, dated as of the date hereof, by and among SVB, the Holders and the Company (the "Subordination Agreement"). 5.4 Liens. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of the Company or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or 10 assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable), or assign any right to receive income or permit the filing of any financing statement under the Uniform Commercial Code, as from time to time in effect in the relevant jurisdiction (the "UCC"), or any other similar notice of Lien under any similar recording or notice statute; provided, that the provisions of this Section 5.4 shall not prevent the creation, incurrence, assumption or existence of the following: (a) Liens arising in the ordinary course of business by statute in connection with worker's compensation, unemployment insurance, old age benefits, social security obligations, statutory obligations or other similar charges (other then Liens arising under ERISA), good faith cash deposits in connection with tenders, contracts or leases to which the Company or any Subsidiary is a party or other cash deposits required to be made in the ordinary course of business, provided, that such Liens do not have a material adverse effect on the ability of the Company to repay amounts due under the Notes; (b) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (c) Liens in respect of property or assets of the Company or its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (i) which do not in the aggregate materially detract from the value of the Company's and its Subsidiaries' property or assets taken as a whole or result in a material adverse effect on the Condition of the Company or (ii) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; (d) the pledge of assets for the purpose of securing an appeal, stay or discharge in the course of any legal proceeding, provided that the aggregate amount of liabilities of the Company and its Subsidiaries secured by a pledge of assets permitted under this subsection, including interest and penalties thereon, if any, shall not be in excess of $500,000 at any one time outstanding; (e) any interest or title of a lessor under any operating lease; (f) easements, rights-of-way, restrictions and other similar encumbrances against real property incurred in the ordinary course of business; 11 (g) the Liens existing on the date hereof identified on Schedule 3.22 to the Note Purchase Agreement; (h) Liens on cash deposited with account debtors to secure performance by the Company or any Subsidiary in the ordinary course of business subject to customary and reasonable terms; (i) Liens upon assets of the Company or its Subsidiaries subject to Capitalized Lease Obligations, provided, that (A) such Liens only serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising under such Capitalized Lease Obligation and (B) the Lien encumbering the asset giving rise to the Capitalized Lease Obligation does not encumber any other asset of the Company or its Subsidiaries; (j) Liens placed upon equipment, machinery, software, improvements or any other similar property, used in the ordinary course of business of the Company or any of its Subsidiaries at the time of the acquisition thereof by the Company or any of its Subsidiaries or within ninety (90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above; provided, that the Liens encumbering the equipment, machinery software, improvements or any other similar property so acquired do not encumber any other asset of the Company or its Subsidiaries; (k) set-off rights of depository institutions; and (l) Liens created by the Security Agreement (collectively with clauses (a) through (k) hereof, the "Permitted Liens"). 5.5 Fundamental Changes. The Company will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or a series of transactions) all or substantially all of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time and immediately after giving effect thereto no Event of Default shall have occurred and be continuing (i) the Company or any of its Subsidiaries may, with the prior written consent of the Holders, merge with or into any other Person; (ii) any wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with or into the Company or any other wholly-owned Subsidiary of the Company; (iii) any Subsidiary (other than the Guarantor, and except as otherwise prohibited by this Note) may sell, transfer, lease or otherwise dispose of its assets to the Company or to another wholly-owned Subsidiary of the Company; and (iv) any Subsidiary may liquidate or dissolve if the board of directors of the Company determine in good faith that such liquidation or dissolution is in its best interests and is not disadvantageous to the Holders. 5.6 Restricted Payments. The Company will not, and the Company will not permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that (i) any Subsidiary may make a 12 Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any Restricted Payment required by the terms of the Note Purchase Agreement and the other documents executed in connection therewith. 5.7 Transactions with Affiliates. The Company will not, and the Company will not permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions that are at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arm's length basis from unrelated third parties, (b) transactions exclusively between the Company and the Guarantor and (c) transactions under the agreements listed on Schedule 3.17 to the Note Purchase Agreement. 5.8 Investments. The Company will not, and the Company will not permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment in any Person, except for Permitted Investments. 5.9 Nature of Business. The Company will not, and the Company will not permit any Subsidiary to, engage in any business other than that conducted on the date hereof and any businesses reasonably related thereto. 5.10 Property of Existing Domestic Subsidiaries. The Company will not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise organized under the laws of the United States of America or any state thereof (a "Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease, license, purchase or otherwise acquire any personal or real property (excluding any material intellectual property) in excess of $50,000 for all property held by such Subsidiary, or $250,000 in the aggregate for all property held by all Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own or otherwise hold any rights to any material intellectual property or (iv) otherwise conduct any business or maintain operations. 5.11 Formation of Subsidiaries. The Company will not, and will not cause or permit any of its Subsidiaries to, form, acquire or permit the existence of any new domestic Subsidiary, without causing such domestic Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes and related security document, in form and substance satisfactory to the Holders. 5.12 Books and Records. The Company shall keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Company and its Subsidiaries in accordance with GAAP consistently applied. 5.13 Inspection. The Company shall, and shall cause each of its Subsidiaries to, permit representatives of the Holders to visit and inspect any of its properties, to examine its corporate, financial and operating records and make copies 13 thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with their respective directors, officers and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably requested upon notice to the Company. 5.14 Maintenance of Business. The Company shall, and shall cause each Subsidiary to, preserve and maintain its existence. The Company shall, and shall cause each Subsidiary to, preserve and keep in force and effect all licenses, permits, franchises, approvals, patents, trademarks, trade names, trade styles, copyrights, and other property rights necessary to the proper conduct of its business, except where the failure to do so could not reasonably be expected to have a material adverse effect on the Condition of the Company or on the prospects of repayment of the Notes. 5.15 Maintenance of Properties. The Company shall, and shall cause each Subsidiary to, maintain, preserve and keep its property and equipment in good repair, working order and condition (ordinary wear and tear excepted) and shall from time to time make all needful and proper repairs, renewals, replacements, additions and betterments thereto so that at all times the efficiency thereof shall by fully preserved and maintained, except in each case to the extent that, in the reasonable business judgment of such Person, any such property or equipment is no longer necessary for the proper conduct of the business of such Person. 6. The occurrence of any one or more of the following events shall constitute an "Event of Default": 6.1 Failure To Pay. (i) The failure of the Company to pay any principal due under any of the Notes when due and payable (whether by acceleration, declaration, extension or otherwise), or (ii) the failure of the Company to pay any other amounts due under any of the Notes when due and payable if such failure is not cured within five (5) days of Company's receipt of notice thereof from any of the Holders. 6.2 Financial Covenants. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2. 6.3 Other Covenants and Agreements. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the covenants of this Note, the Security Agreement or any of the other Loan Documents (other than the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2), if such failure is not cured within sixty (60) days. 6.4 Representations and Warranties. If any representation or warranty made by the Company or any of its Subsidiaries in the Loan Documents is not true and correct in all material respects on the Initial Closing Date. 14 6.5 Default on Other Obligations. The occurrence of any condition or default under any other indebtedness for borrowed money of the Company or any of its Subsidiaries with a principal amount of at least five hundred thousand dollars ($500,000) that results in the acceleration of such indebtedness which is not cured within sixty (60) days. 6.6 Involuntary Bankruptcy. There shall be filed against the Company or any of its Subsidiaries an involuntary petition or other pleading seeking the entry of a decree or order for relief under the United States Bankruptcy Code or any similar federal or state insolvency or similar laws ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a reorganization of the Company or any of its Subsidiaries or the business and affairs of the Company or any of its Subsidiaries or (c) the appointment of a receiver, liquidator, assignee, custodian, trustee or similar official for the Company or any of its Subsidiaries of the property of the Company or any of its Subsidiaries. 6.7 Voluntary Bankruptcy. The commencement by the Company or any of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any federal or state insolvency or similar laws or the consent by the Company or any of its Subsidiaries to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian or similar official for the Company or any of its Subsidiaries of any of the property of the Company or any of its Subsidiaries or the making by the Company or any of its Subsidiaries of an assignment for the benefit of creditors, or the failure by Company or any of its Subsidiaries generally to pay its debts as the debts become due. 6.8 Judgments, Awards. Any judgment or order for the payment of money is rendered against the Company or any of its Subsidiaries in an amount in excess of five hundred thousand dollars ($500,000) individually or in the aggregate and either (i) enforcement proceedings are commenced by any creditor upon such judgment or order and not stayed, or (ii) there is any period of sixty (60) consecutive days during which such judgment has not been paid in full or a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, is not in effect. 6.9 Attachment by Lenders. Any assets of the Company or any of its Subsidiaries shall be attached, levied upon, seized or repossessed, or come into the possession of a trustee, receiver or other custodian and a determination by any Holder, in good faith but in its sole discretion, that the same could have a material adverse effect on the prospect for the Holders to fully and punctually realize the full benefits conferred on the Holders by the Loan Documents. 6.10 Adverse Change in Financial Condition. Any event having a material adverse effect on the business, operations, assets, properties or condition of the Company and its Subsidiaries taken as a whole shall have occurred and be continuing or a material adverse effect on the validity or enforceability of this or any of the other Loan Documents or the rights or remedies of the Holders hereunder or thereunder. 15 7. Remedies. Upon and after the occurrence of an Event of Default, the Holder shall be entitled to the exercise the rights and remedies set forth in the Security Agreement, the other Loan Documents and under applicable law, all such rights and remedies being cumulative and enforceable alternatively, successively or concurrently. 8. Prepayment. The Company may not prepay this Note prior to the Maturity Date without the prior written consent of the Holders. 9. Seniority. (a) Except as set forth in the Subordination Agreement, the Notes will rank senior in right of payment to all other indebtedness of the Company, other than the GA Notes, with respect to which the Notes will be pari passu in right of payment in accordance with the Intercreditor Agreement. (b) Notwithstanding anything to the contrary contained in the Notes, this Note and the other Notes, and the terms and the conditions hereof and thereof, are subject to the Intercreditor Agreement. 10. Assignment. Subject to the restrictions on transfer described in Section 12 below, the rights and obligations of the Company and Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. The Company shall not be permitted to assign this Note without the prior written consent of the Holders. 11. Waiver of Notice. The Company hereby waives notice, presentment, demand, protest and notice of dishonor. 12. Transfer of This Note. With respect to any offer, sale or other disposition of this Note, Holder will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such Holder's counsel, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect); provided, that no opinion shall be required for any transfer to an Affiliate or if the transfer is made in compliance with the Securities Act, so long as the transferee can make the same representations and warranties at the time of transfer as set forth in Sections 4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly upon delivering such written notice and opinion, if so required, Holder may sell or otherwise dispose of this Note, all in accordance with the terms of the notice delivered to the Company. Each Note thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Notwithstanding the foregoing, the Holder shall not be permitted to transfer this Note to any Person who is not an Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of written notice from the 16 Company that Stockholder Approval cannot be obtained, or the occurrence of an actual vote of the Company's shareholders entitled to vote (whether by written consent or at a meeting specially called for such purpose), the result of which is a decision by a majority of the Company's shareholders entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of an Event of Default. 13. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 14. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally recognized courier service or mailed by registered or certified mail, postage prepaid, to the respective addresses of the parties as set forth on the signature pages hereto or if sent by facsimile to the respective facsimile numbers of the parties set forth on the signature pages hereto. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given and received when personally delivered or three (3) business days after deposited in the mail or one business day after sent by courier or upon confirmation of facsimile delivery in the manner set forth above. 15. No Stockholder Rights. Nothing contained in this Note shall be construed as conferring upon Holder or any other Person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. 16. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law relating to conflict of laws. 17. Amendments and Waivers. No amendments or waivers of any provision of this Note, and no consent by the Holder to any departure by the Company, shall in any event be effective unless the same shall be in writing, and signed by the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 18. Severability. Any provision of this Note that is prohibited or unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY (A) COVENANTS AND AGREES NOT TO 17 ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. 20. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except as otherwise indicated, all references herein to Sections refer to Sections hereof. [the remainder of this page intentionally left blank] 18 IN WITNESS WHEREOF, the Company has caused this Note to be issued this 16th day of January, 2004. COMPANY: CRITICAL PATH, INC., a California corporation By: /s/ William E. McGlashan, Jr. ---------------------------------------- Name: William E. McGlashan, Jr. Title: Chairman, Chief Executive Officer Critical Path, Inc. 350 The Embarcadero San Francisco, CA 94105-1204 Telecopy: (415) 541-2300 Attention: Chief Financial Officer With a copy to: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Telecopy: (415) 983-1200 Attention: Gregg Vignos, Esq. Name of Holder: ZAXIS INSTITUTIONAL PARTNERS, L.P. Address: c/o Apex Capital, LLC 25 Orinda Way, Suite 300 Orinda, CA 94563 Attention: Adam Fiore, General Counsel Telephone: (925) 253-6125 Facsimile: (925) 253-1809 EX-4.29 14 f97295exv4w29.txt EXHIBIT 4.29 EXHIBIT 4.29 THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS. CRITICAL PATH, INC. CONVERTIBLE SUBORDINATED PROMISSORY NOTE $5,250,000.00 San Francisco, California January 16, 2004 Critical Path, Inc., a California corporation (the "Company"), the principal office of which is located in San Francisco, California, for value received hereby promises to pay to the order of Zaxis Offshore Limited, or its registered assigns ("Holder"), the sum of five million two hundred fifty thousand dollars ($5,250,000), or such lesser amount as shall then equal the outstanding principal amount hereof on the terms and conditions set forth hereinafter. The outstanding principal amount hereof and all accrued and unpaid interest hereon, as set forth below, shall be due and payable on the earlier to occur of (i) January 16, 2008, (ii) when declared due and payable by Holder upon the occurrence of an Event of Default (as defined below), (iii) consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock or Stock Equivalents by the Company, any cash capital contribution from any third person or any other debt or equity financing consummated by the Company after the date of issuance of this Note which, in the case of (v), individually or in the aggregate raises proceeds of at least forty million dollars ($40,000,000) in cash or cash equivalents (the earliest of the events set forth in items (i)-(v) immediately above, the "Maturity Date"). The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. Except as otherwise defined herein, each capitalized term used herein shall have the meaning assigned to it in the Note Purchase Agreement, as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. All other references to the Note Purchase Agreement in this Note refer to the Note Purchase Agreement as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. As used in this Note, the following terms, unless the context otherwise requires, have the following 2 meanings: 1.1 "Affiliate" means any Person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended. 1.2 "Capitalized Lease Obligations" means, with respect to any Person, all rental obligations of such Person which, under GAAP, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with such principles. 1.3 "Change of Control" shall mean (i) any merger, consolidation or other business combination transaction (or series of related transactions) in which the stockholders owning a majority of the voting securities of the Company prior to such transaction do not own a majority of the voting securities of the surviving entity, (ii) any tender offer, exchange offer or other transaction whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended) (other than General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and the Affiliates of the foregoing, provided that Affiliates shall be deemed not to include any portfolio companies of any of the foregoing) obtains a majority of the outstanding shares of capital stock entitled to vote in the election of directors, (iii) any proxy contest in which a majority of the Board of Directors of the Company (or persons appointed by such Board of Directors) prior to such contest do not constitute a majority of the Company's Board of Directors after such contest or (iv) any other transaction described in any stockholder rights agreement or "poison pill," if any, to which the Company is party, which may permit the holders of any rights or similar certificates to exercise the rights evidenced thereby. 1.4 "Company" shall have the meaning set forth in the recitals hereto, and includes any corporation that shall succeed to or assume the obligations of the Company under this Note. 1.5 "Common Conversion Date" shall have the meaning set forth in Section 3.1(b) hereof. 1.6 "Common Stock" means the common stock, par value $0.001 per share, of the Company. 1.7 "Conversion Date" shall mean the Subsequent Closing Date. 1.8 "Domestic Subsidiary" shall have the meaning set forth in Section 5.10 hereof. 1.9 "Event of Default" shall have the meaning set forth in Section 6 hereof. 3 1.10 "GA Notes" shall mean the Convertible Subordinated Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP Entities pursuant to the Purchase and Exchange Agreement. 1.11 "GAP Entities" shall mean General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG. 1.12 "Guarantor" shall have the meaning set forth in the Security Agreement. 1.13 "Holder" shall mean the registered holder of this Note from time to time, and in the plural, shall mean all registered holders of Notes from time to time issued by the Company pursuant to the Note Purchase Agreement. 1.14 "Intercreditor Agreement" shall mean the Intercreditor Agreement, dated the date hereof, among the GAP Entities, Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P. 1.15 "Interest Amount" shall have the meaning set forth in Section 3.1 hereof. 1.16 "Investment" means (i) the acquisition (whether for cash, property, services, assumption of Indebtedness, securities or otherwise) of assets (other than equipment, inventory, supplies or other assets acquired in the ordinary course of business of the Company), capital stock, bonds, notes, debentures, partnership, joint venture or other ownership interests or other securities of any Person, (ii) any deposit with, or advance, loan or other extension of credit to, or on behalf of, any Person (other than deposits made in connection with the purchase of equipment, inventory, services, leases, supplies or other assets in the ordinary course of business of the Company), and (iii) any other capital contribution to or investment in any Person, including, without limitation, any guaranty obligation incurred for the benefit of any Person. For the sake of clarity, Investments shall include any transfer of property or assets by the Company to any of its Subsidiaries or by any Subsidiary of the Company to any other Subsidiary. 1.17 "Loan Documents" shall have the meaning set forth in the Security Agreement. 1.18 "Note" shall mean this note, and in the plural, shall mean all notes issued to the Lenders pursuant to the terms of the Note Purchase Agreement, including this Note, and all amendments, modifications and extensions thereto. 1.19 "Note Purchase Agreement" means that certain Convertible Note Purchase Agreement, dated January 16, 2004, among the Company, the Holder and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 4 1.20 "Permitted Investments" means (i) Investments in cash or cash equivalents, (ii) accounts receivable created, acquired or made in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (iii) Investments existing on the closing date, and listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty obligations permitted by Section 5.3 of this Agreement, (v) loans to employees, directors or officers of the Company in connection with the award of convertible bonds or capital stock under a stock incentive plan, stock option plan or other equity-based compensation plan or arrangement, (vi) other advances or loans to employees, directors, officers or agents of the Company in the ordinary course of business not to exceed $500,000 in the aggregate at any time outstanding; (vii) loans, advances and investments in foreign Subsidiaries (that are not incorporated or otherwise organized under the laws of the United States of America or any state thereof) in an amount not to exceed $1,000,000 in the aggregate at any time outstanding; (viii) any acquisition for which the prior written consent of the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement has been obtained, (ix) other loans, advances and investments of a nature not contemplated by the foregoing sections in an amount not to exceed $500,000 in the aggregate at any time outstanding or (x) Investments by the Company in the Guarantor. 1.21 "Permitted Liens" shall have the meaning set forth in Section 5.4. 1.22 "Person" means any individual, firm, corporation, partnership, trust, joint venture, joint stock company, limited liability company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. 1.23 "Price Per Share" shall have the meaning attributed to such term in the Series E Certificate of Determination, as filed with the Secretary of State of the State of California. 1.24 "Purchase and Exchange Agreement" shall mean the Convertible Note Purchase and Exchange Agreement, dated November 18, 2003, among the Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended. 1.25 "Qualified Asset Sale" means the sale, transfer or other disposition of any of the assets of the Company or any of its Subsidiaries, other than (a) sales of assets in the ordinary course of business, (b) sales of assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the sale, transfer or other disposition of assets of the Company where the proceeds are applied to the purchase price or traded in for credit against the purchase price of other assets, provided that any such purchase is made, or credit issued, within 90 days of the sale, transfer or other disposition, and (d) one or more sales of the Company's assets (other than sales otherwise included in clauses (a), (b), and (c) immediately above) which collectively yield up to an aggregate of one million dollars ($1,000,000) in gross proceeds to the Company while this Note is outstanding. 5 1.26 "Restricted Payment" means (a) any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Company or any of its Subsidiaries or (b) any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any shares of any class of capital stock of the Company or any Subsidiary or any option, warrant or other right to acquire any such shares of capital stock of the Company or any Subsidiary. 1.27 "Security Agreement" means that certain Guaranty and Security Agreement, of even date herewith between the Company, Compass Holding Corp., the Lenders and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.28 "Series E Conversion Price" shall have the meaning set forth in the Series E Certificate of Determination. 1.29 "Series E Preferred Stock" means the Series E Preferred Stock, par value $0.001, of the Company. 1.30 "Subordination Agreement" shall have the meaning set forth in Section 5.3. 1.31 "Subsequent Closing Date" shall have the meaning set forth in Section 2.4(e) of the Note Purchase Agreement. 1.32 "SVB" means Silicon Valley Bank, a California chartered bank, or any Affiliates thereof. 1.33 "Ten Percent Holder" means, with respect to a class of equity securities of the Company, a Person (together with such Person's Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such class of equity securities of the Company, as defined by Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 1.34 "UCC" shall have the meaning set forth in Section 5.4. 2. Interest. Simple interest shall accrue at the rate of ten percent (10%) per annum (or such lesser amount as shall equal the highest rate of interest allowable under applicable law) (the "Interest Rate"), on the outstanding principal of this Note from the date of this Note until the Maturity Date or the date this Note is otherwise repaid. The Company shall not be obligated to make any payments of interest which shall have accrued under this Note prior to the Maturity Date. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. In the event that the principal amount of this Note, any interest, or any amount payable hereunder is not paid in full when such amount becomes due and payable, or upon the occurrence of an Event of Default, interest shall accrue at the lesser of (a) the initial Interest Rate plus five percent (5%) per annum or (b) the highest rate of interest allowable under applicable law, 6 on the balance of all amounts outstanding until such overdue amounts are paid or the Event of Default is cured, and such interest shall be payable on demand. 3. Conversion. 3.1 Conversion. (a) On the Conversion Date, the principal amount of this Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall be automatically converted into the number of fully paid and nonassessable shares of Series E Preferred Stock equal to the quotient obtained by dividing (a) the entire principal amount of this Note plus the Interest Amount by (b) the Price Per Share. (b) In the event that the Conversion Date has not occurred on or prior to April 30, 2004 (the "Common Conversion Date"), then, following the Common Conversion Date, the principal amount of this Note plus the Interest Amount shall be convertible, at the option of Holder and from time to time, into Common Stock at a conversion price per share equal to $1.65, as adjusted for any stock dividends, stock splits or similar consolidations or subdivisions, following the date hereof; provided, however, that Holder shall not be permitted to convert any portion of the principal of this Note or the Interest Amount into Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion, the conversion would cause Holder to be a Ten Percent Holder. 3.2 Notice of Conversion. Upon conversion of this Note as provided in Section 3.1, Holder shall surrender this Note to the Company and shall state the name or names in which the certificate or certificates for such shares of Series E Preferred Stock or Common Stock, as the case may be, are to be issued. The Person or Persons entitled to receive the shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion shall be treated for all purposes as the record holder or holders (a) of such shares of Series E Preferred Stock as of the Conversion Date and (b) of such shares of Common Stock as of the date of any conversion pursuant to Section 3.1(b). 3.3 Delivery of Stock Certificates. Upon conversion of this Note as provided in Section 3.1, the Company at its expense will issue and deliver to Holder of this Note a certificate or certificates (bearing such legends as are required by applicable state and federal securities laws in the opinion of counsel to the Company) for the number of full shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion. 3.4 Mechanics and Effect of Conversion. No fractional shares of Series E Preferred Stock or Common Stock, as the case may be, shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to Holder upon the conversion of this Note, the Company shall pay to Holder the amount of outstanding principal and interest that is not so converted. Upon conversion of all amounts due under this Note, the Company shall be released from all of its obligations under this Note. 7 4. Adjustments. The number of shares of Series E Preferred Stock or Common Stock convertible hereunder are subject to adjustment from time to time as follows: 4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at any time while this Note remains outstanding and unexpired there shall be (a) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (b) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise or (c) a sale or transfer of the Company's stock, properties or assets as, or substantially as, an entirety to any other Person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that Holder shall thereafter be entitled to receive by converting this Note the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon conversion of this Note would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Note had been converted immediately before such reorganization, merger, consolidation, sale or transfer (notwithstanding that the Stockholder Approval may not yet have been obtained), all subject to further adjustment as provided in this Section 4. The foregoing provisions of this Section 4.1 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation. If the per share consideration payable to Holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors based on the amount the Holder would have otherwise been entitled to receive had the transaction or transactions not occurred. In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of Holder after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon conversion of this Note. The Company shall be obligated to retain and set aside, or otherwise make fair provision for exercise of the right of the Holder to receive, the shares of stock and/or other securities, cash or other property provided for in this Section 4.1. 4.2 Election of Holder upon Merger or Sale of Assets. Notwithstanding anything to the contrary contained herein, if an event shall occur as provided in Section 4.1 hereof that would otherwise result in the occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first paragraph of this Note, then the Holder may, in its sole discretion, by written notice to the Company elect to convert the principal amount of this Note plus the Interest Amount into the number of shares of stock or other securities or property described in Section 4.1, in lieu of receiving payment in full of all amounts outstanding under this Note. The number of shares of stock or other 8 securities or property to be issued upon such conversion shall be determined in accordance with Section 4.1 hereof, taking into account the occurrence of such event. 4.3 Reclassification, Etc. If the Company shall, at any time while this Note, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, change any of the securities as to which conversion rights under this Note exist into the same or a different number of securities of any other class or classes, this Note shall thereafter represent the right to acquire such number and kind of securities as would have been issuable with respect to the securities that were subject to the conversion rights under this Note immediately prior to such reclassification or other change, and the Price Per Share shall be appropriately adjusted, all subject to further adjustment as provided in this Section 4. 4.4 Split, Subdivision or Combination of Shares. If the Company at any time while this Note, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the shares of Series E Preferred Stock or Common Stock into a different number of securities of the same class, the Price Per Share or conversion price, as the case may be, shall be proportionately adjusted. 4.5 Series E Adjustments. The initial Series E Conversion Price of the shares of Series E Preferred Stock issued upon conversion of this Note pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on the Conversion Date, subject to the adjustment of such Series E Conversion Price from time to time thereafter as provided in the Series E Certificate of Determination. 4.6 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 4, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. 4.7 No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 5. Covenants. The Company covenants and agrees that until the earlier of (i) the date on which all Obligations (as defined in the Security Agreement) have been paid in full or (ii) the date on which all amounts outstanding under the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b): 5.1 Financial Statements and Other Information. The Company shall deliver to the Holder of this Note the financial statements and other information required to be delivered under Section 8.1 of the Note Purchase Agreement. 9 5.2 Financial Covenants. The Company shall at all times comply with the financial and other covenants set forth in Schedule 8.5 to the Note Purchase Agreement as if such covenants were set forth herein. 5.3 Indebtedness. The Company shall not, and shall not permit any Subsidiary to, issue, incur, assume, create or have outstanding any Indebtedness, provided, however, that the foregoing shall not restrict nor operate to prevent: (a) Indebtedness in favor of the Holders under the Loan Documents; (b) Indebtedness existing on the date hereof, as set forth on Schedule 3.22 to the Note Purchase Agreement; (c) Indebtedness for accounts payable incurred in the ordinary course of business by the Company; (d) Indebtedness incurred solely for the purpose of financing the acquisition of any equipment, machinery, software, improvements or any other similar property, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, that the aggregate outstanding principal amount of all Indebtedness permitted pursuant to this clause (d) outstanding for more than sixty (60) days after the incurrence of such Indebtedness shall not at any time exceed $500,000; (e) Indebtedness of the Company evidenced by Capitalized Lease Obligations, provided, that in no event shall the aggregate principal amount of Capitalized Lease Obligations permitted by this clause (e) exceed $500,000 at any time outstanding; and (f) Any extension, renewal, refinancing, refunding, or replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and (e) above, on such terms and conditions as are, on the whole, not materially more onerous to the Company than the terms and conditions of such original Indebtedness on the date of such refinancing (including that the principal amount of such refinancing Indebtedness does not exceed the principal amount of, plus the amount of accrued and unpaid interest on, the Indebtedness so refinanced (plus the amount of reasonable premium and fees and expenses incurred in connection therewith)), provided that, in the case of a refinancing of Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall only apply to the extent consistent with the Subordination Agreement, dated as of the date hereof, by and among SVB, the Holders and the Company (the "Subordination Agreement"). 5.4 Liens. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of the Company or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or 10 assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable), or assign any right to receive income or permit the filing of any financing statement under the Uniform Commercial Code, as from time to time in effect in the relevant jurisdiction (the "UCC"), or any other similar notice of Lien under any similar recording or notice statute; provided, that the provisions of this Section 5.4 shall not prevent the creation, incurrence, assumption or existence of the following: (a) Liens arising in the ordinary course of business by statute in connection with worker's compensation, unemployment insurance, old age benefits, social security obligations, statutory obligations or other similar charges (other then Liens arising under ERISA), good faith cash deposits in connection with tenders, contracts or leases to which the Company or any Subsidiary is a party or other cash deposits required to be made in the ordinary course of business, provided, that such Liens do not have a material adverse effect on the ability of the Company to repay amounts due under the Notes; (b) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (c) Liens in respect of property or assets of the Company or its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (i) which do not in the aggregate materially detract from the value of the Company's and its Subsidiaries' property or assets taken as a whole or result in a material adverse effect on the Condition of the Company or (ii) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; (d) the pledge of assets for the purpose of securing an appeal, stay or discharge in the course of any legal proceeding, provided that the aggregate amount of liabilities of the Company and its Subsidiaries secured by a pledge of assets permitted under this subsection, including interest and penalties thereon, if any, shall not be in excess of $500,000 at any one time outstanding; (e) any interest or title of a lessor under any operating lease; (f) easements, rights-of-way, restrictions and other similar encumbrances against real property incurred in the ordinary course of business; 11 (g) the Liens existing on the date hereof identified on Schedule 3.22 to the Note Purchase Agreement; (h) Liens on cash deposited with account debtors to secure performance by the Company or any Subsidiary in the ordinary course of business subject to customary and reasonable terms; (i) Liens upon assets of the Company or its Subsidiaries subject to Capitalized Lease Obligations, provided, that (A) such Liens only serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising under such Capitalized Lease Obligation and (B) the Lien encumbering the asset giving rise to the Capitalized Lease Obligation does not encumber any other asset of the Company or its Subsidiaries; (j) Liens placed upon equipment, machinery, software, improvements or any other similar property, used in the ordinary course of business of the Company or any of its Subsidiaries at the time of the acquisition thereof by the Company or any of its Subsidiaries or within ninety (90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above; provided, that the Liens encumbering the equipment, machinery software, improvements or any other similar property so acquired do not encumber any other asset of the Company or its Subsidiaries; (k) set-off rights of depository institutions; and (l) Liens created by the Security Agreement (collectively with clauses (a) through (k) hereof, the "Permitted Liens"). 5.5 Fundamental Changes. The Company will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or a series of transactions) all or substantially all of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time and immediately after giving effect thereto no Event of Default shall have occurred and be continuing (i) the Company or any of its Subsidiaries may, with the prior written consent of the Holders, merge with or into any other Person; (ii) any wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with or into the Company or any other wholly-owned Subsidiary of the Company; (iii) any Subsidiary (other than the Guarantor, and except as otherwise prohibited by this Note) may sell, transfer, lease or otherwise dispose of its assets to the Company or to another wholly-owned Subsidiary of the Company; and (iv) any Subsidiary may liquidate or dissolve if the board of directors of the Company determine in good faith that such liquidation or dissolution is in its best interests and is not disadvantageous to the Holders. 5.6 Restricted Payments. The Company will not, and the Company will not permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that (i) any Subsidiary may make a 12 Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any Restricted Payment required by the terms of the Note Purchase Agreement and the other documents executed in connection therewith. 5.7 Transactions with Affiliates. The Company will not, and the Company will not permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions that are at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arm's length basis from unrelated third parties, (b) transactions exclusively between the Company and the Guarantor and (c) transactions under the agreements listed on Schedule 3.17 to the Note Purchase Agreement. 5.8 Investments. The Company will not, and the Company will not permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment in any Person, except for Permitted Investments. 5.9 Nature of Business. The Company will not, and the Company will not permit any Subsidiary to, engage in any business other than that conducted on the date hereof and any businesses reasonably related thereto. 5.10 Property of Existing Domestic Subsidiaries. The Company will not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise organized under the laws of the United States of America or any state thereof (a "Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease, license, purchase or otherwise acquire any personal or real property (excluding any material intellectual property) in excess of $50,000 for all property held by such Subsidiary, or $250,000 in the aggregate for all property held by all Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own or otherwise hold any rights to any material intellectual property or (iv) otherwise conduct any business or maintain operations. 5.11 Formation of Subsidiaries. The Company will not, and will not cause or permit any of its Subsidiaries to, form, acquire or permit the existence of any new domestic Subsidiary, without causing such domestic Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes and related security document, in form and substance satisfactory to the Holders. 5.12 Books and Records. The Company shall keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Company and its Subsidiaries in accordance with GAAP consistently applied. 5.13 Inspection. The Company shall, and shall cause each of its Subsidiaries to, permit representatives of the Holders to visit and inspect any of its properties, to examine its corporate, financial and operating records and make copies 13 thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with their respective directors, officers and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably requested upon notice to the Company. 5.14 Maintenance of Business. The Company shall, and shall cause each Subsidiary to, preserve and maintain its existence. The Company shall, and shall cause each Subsidiary to, preserve and keep in force and effect all licenses, permits, franchises, approvals, patents, trademarks, trade names, trade styles, copyrights, and other property rights necessary to the proper conduct of its business, except where the failure to do so could not reasonably be expected to have a material adverse effect on the Condition of the Company or on the prospects of repayment of the Notes. 5.15 Maintenance of Properties. The Company shall, and shall cause each Subsidiary to, maintain, preserve and keep its property and equipment in good repair, working order and condition (ordinary wear and tear excepted) and shall from time to time make all needful and proper repairs, renewals, replacements, additions and betterments thereto so that at all times the efficiency thereof shall by fully preserved and maintained, except in each case to the extent that, in the reasonable business judgment of such Person, any such property or equipment is no longer necessary for the proper conduct of the business of such Person. 6. The occurrence of any one or more of the following events shall constitute an "Event of Default": 6.1 Failure To Pay. (i) The failure of the Company to pay any principal due under any of the Notes when due and payable (whether by acceleration, declaration, extension or otherwise), or (ii) the failure of the Company to pay any other amounts due under any of the Notes when due and payable if such failure is not cured within five (5) days of Company's receipt of notice thereof from any of the Holders. 6.2 Financial Covenants. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2. 6.3 Other Covenants and Agreements. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the covenants of this Note, the Security Agreement or any of the other Loan Documents (other than the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2), if such failure is not cured within sixty (60) days. 6.4 Representations and Warranties. If any representation or warranty made by the Company or any of its Subsidiaries in the Loan Documents is not true and correct in all material respects on the Initial Closing Date. 14 6.5 Default on Other Obligations. The occurrence of any condition or default under any other indebtedness for borrowed money of the Company or any of its Subsidiaries with a principal amount of at least five hundred thousand dollars ($500,000) that results in the acceleration of such indebtedness which is not cured within sixty (60) days. 6.6 Involuntary Bankruptcy. There shall be filed against the Company or any of its Subsidiaries an involuntary petition or other pleading seeking the entry of a decree or order for relief under the United States Bankruptcy Code or any similar federal or state insolvency or similar laws ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a reorganization of the Company or any of its Subsidiaries or the business and affairs of the Company or any of its Subsidiaries or (c) the appointment of a receiver, liquidator, assignee, custodian, trustee or similar official for the Company or any of its Subsidiaries of the property of the Company or any of its Subsidiaries. 6.7 Voluntary Bankruptcy. The commencement by the Company or any of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any federal or state insolvency or similar laws or the consent by the Company or any of its Subsidiaries to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian or similar official for the Company or any of its Subsidiaries of any of the property of the Company or any of its Subsidiaries or the making by the Company or any of its Subsidiaries of an assignment for the benefit of creditors, or the failure by Company or any of its Subsidiaries generally to pay its debts as the debts become due. 6.8 Judgments, Awards. Any judgment or order for the payment of money is rendered against the Company or any of its Subsidiaries in an amount in excess of five hundred thousand dollars ($500,000) individually or in the aggregate and either (i) enforcement proceedings are commenced by any creditor upon such judgment or order and not stayed, or (ii) there is any period of sixty (60) consecutive days during which such judgment has not been paid in full or a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, is not in effect. 6.9 Attachment by Lenders. Any assets of the Company or any of its Subsidiaries shall be attached, levied upon, seized or repossessed, or come into the possession of a trustee, receiver or other custodian and a determination by any Holder, in good faith but in its sole discretion, that the same could have a material adverse effect on the prospect for the Holders to fully and punctually realize the full benefits conferred on the Holders by the Loan Documents. 6.10 Adverse Change in Financial Condition. Any event having a material adverse effect on the business, operations, assets, properties or condition of the Company and its Subsidiaries taken as a whole shall have occurred and be continuing or a material adverse effect on the validity or enforceability of this or any of the other Loan Documents or the rights or remedies of the Holders hereunder or thereunder. 15 7. Remedies. Upon and after the occurrence of an Event of Default, the Holder shall be entitled to the exercise the rights and remedies set forth in the Security Agreement, the other Loan Documents and under applicable law, all such rights and remedies being cumulative and enforceable alternatively, successively or concurrently. 8. Prepayment. The Company may not prepay this Note prior to the Maturity Date without the prior written consent of the Holders. 9. Seniority. (a) Except as set forth in the Subordination Agreement, the Notes will rank senior in right of payment to all other indebtedness of the Company, other than the GA Notes, with respect to which the Notes will be pari passu in right of payment in accordance with the Intercreditor Agreement. (b) Notwithstanding anything to the contrary contained in the Notes, this Note and the other Notes, and the terms and the conditions hereof and thereof, are subject to the Intercreditor Agreement. 10. Assignment. Subject to the restrictions on transfer described in Section 12 below, the rights and obligations of the Company and Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. The Company shall not be permitted to assign this Note without the prior written consent of the Holders. 11. Waiver of Notice. The Company hereby waives notice, presentment, demand, protest and notice of dishonor. 12. Transfer of This Note. With respect to any offer, sale or other disposition of this Note, Holder will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such Holder's counsel, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect); provided, that no opinion shall be required for any transfer to an Affiliate or if the transfer is made in compliance with the Securities Act, so long as the transferee can make the same representations and warranties at the time of transfer as set forth in Sections 4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly upon delivering such written notice and opinion, if so required, Holder may sell or otherwise dispose of this Note, all in accordance with the terms of the notice delivered to the Company. Each Note thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Notwithstanding the foregoing, the Holder shall not be permitted to transfer this Note to any Person who is not an Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of written notice from the 16 Company that Stockholder Approval cannot be obtained, or the occurrence of an actual vote of the Company's shareholders entitled to vote (whether by written consent or at a meeting specially called for such purpose), the result of which is a decision by a majority of the Company's shareholders entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of an Event of Default. 13. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 14. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally recognized courier service or mailed by registered or certified mail, postage prepaid, to the respective addresses of the parties as set forth on the signature pages hereto or if sent by facsimile to the respective facsimile numbers of the parties set forth on the signature pages hereto. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given and received when personally delivered or three (3) business days after deposited in the mail or one business day after sent by courier or upon confirmation of facsimile delivery in the manner set forth above. 15. No Stockholder Rights. Nothing contained in this Note shall be construed as conferring upon Holder or any other Person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. 16. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law relating to conflict of laws. 17. Amendments and Waivers. No amendments or waivers of any provision of this Note, and no consent by the Holder to any departure by the Company, shall in any event be effective unless the same shall be in writing, and signed by the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 18. Severability. Any provision of this Note that is prohibited or unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY (A) COVENANTS AND AGREES NOT TO 17 ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. 20. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except as otherwise indicated, all references herein to Sections refer to Sections hereof. [the remainder of this page intentionally left blank] 18 IN WITNESS WHEREOF, the Company has caused this Note to be issued this 16th day of January, 2004. COMPANY: CRITICAL PATH, INC., a California corporation By: /s/ William E. McGlashan, Jr. ---------------------------------------- Name: William E. McGlashan, Jr. Title: Chairman, Chief Executive Officer Critical Path, Inc. 350 The Embarcadero San Francisco, CA 94105-1204 Telecopy: (415) 541-2300 Attention: Chief Financial Officer With a copy to: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Telecopy: (415) 983-1200 Attention: Gregg Vignos, Esq. Name of Holder: ZAXIS OFFSHORE LIMITED Address: c/o Apex Capital, LLC 25 Orinda Way, Suite 300 Orinda, CA 94563 Attention: Adam Fiore, General Counsel Telephone: (925) 253-6125 Facsimile: (925) 253-1809 EX-4.30 15 f97295exv4w30.txt EXHIBIT 4.30 EXHIBIT 4.30 THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS. CRITICAL PATH, INC. CONVERTIBLE SUBORDINATED PROMISSORY NOTE $1,005,000.00 San Francisco, California January 16, 2004 Critical Path, Inc., a California corporation (the "Company"), the principal office of which is located in San Francisco, California, for value received hereby promises to pay to the order of Zaxis Partners, L.P., or its registered assigns ("Holder"), the sum of one million five thousand dollars ($1,005,000), or such lesser amount as shall then equal the outstanding principal amount hereof on the terms and conditions set forth hereinafter. The outstanding principal amount hereof and all accrued and unpaid interest hereon, as set forth below, shall be due and payable on the earlier to occur of (i) January 16, 2008, (ii) when declared due and payable by Holder upon the occurrence of an Event of Default (as defined below), (iii) consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock or Stock Equivalents by the Company, any cash capital contribution from any third person or any other debt or equity financing consummated by the Company after the date of issuance of this Note which, in the case of (v), individually or in the aggregate raises proceeds of at least forty million dollars ($40,000,000) in cash or cash equivalents (the earliest of the events set forth in items (i)-(v) immediately above, the "Maturity Date"). The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. Except as otherwise defined herein, each capitalized term used herein shall have the meaning assigned to it in the Note Purchase Agreement, as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. All other references to the Note Purchase Agreement in this Note refer to the Note Purchase Agreement as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. As used in this Note, the following terms, unless the context otherwise requires, have the following 2 meanings: 1.1 "Affiliate" means any Person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended. 1.2 "Capitalized Lease Obligations" means, with respect to any Person, all rental obligations of such Person which, under GAAP, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with such principles. 1.3 "Change of Control" shall mean (i) any merger, consolidation or other business combination transaction (or series of related transactions) in which the stockholders owning a majority of the voting securities of the Company prior to such transaction do not own a majority of the voting securities of the surviving entity, (ii) any tender offer, exchange offer or other transaction whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended) (other than General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and the Affiliates of the foregoing, provided that Affiliates shall be deemed not to include any portfolio companies of any of the foregoing) obtains a majority of the outstanding shares of capital stock entitled to vote in the election of directors, (iii) any proxy contest in which a majority of the Board of Directors of the Company (or persons appointed by such Board of Directors) prior to such contest do not constitute a majority of the Company's Board of Directors after such contest or (iv) any other transaction described in any stockholder rights agreement or "poison pill," if any, to which the Company is party, which may permit the holders of any rights or similar certificates to exercise the rights evidenced thereby. 1.4 "Company" shall have the meaning set forth in the recitals hereto, and includes any corporation that shall succeed to or assume the obligations of the Company under this Note. 1.5 "Common Conversion Date" shall have the meaning set forth in Section 3.1(b) hereof. 1.6 "Common Stock" means the common stock, par value $0.001 per share, of the Company. 1.7 "Conversion Date" shall mean the Subsequent Closing Date. 1.8 "Domestic Subsidiary" shall have the meaning set forth in Section 5.10 hereof. 1.9 "Event of Default" shall have the meaning set forth in Section 6 hereof. 3 1.10 "GA Notes" shall mean the Convertible Subordinated Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP Entities pursuant to the Purchase and Exchange Agreement. 1.11 "GAP Entities" shall mean General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG. 1.12 "Guarantor" shall have the meaning set forth in the Security Agreement. 1.13 "Holder" shall mean the registered holder of this Note from time to time, and in the plural, shall mean all registered holders of Notes from time to time issued by the Company pursuant to the Note Purchase Agreement. 1.14 "Intercreditor Agreement" shall mean the Intercreditor Agreement, dated the date hereof, among the GAP Entities, Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P. 1.15 "Interest Amount" shall have the meaning set forth in Section 3.1 hereof. 1.16 "Investment" means (i) the acquisition (whether for cash, property, services, assumption of Indebtedness, securities or otherwise) of assets (other than equipment, inventory, supplies or other assets acquired in the ordinary course of business of the Company), capital stock, bonds, notes, debentures, partnership, joint venture or other ownership interests or other securities of any Person, (ii) any deposit with, or advance, loan or other extension of credit to, or on behalf of, any Person (other than deposits made in connection with the purchase of equipment, inventory, services, leases, supplies or other assets in the ordinary course of business of the Company), and (iii) any other capital contribution to or investment in any Person, including, without limitation, any guaranty obligation incurred for the benefit of any Person. For the sake of clarity, Investments shall include any transfer of property or assets by the Company to any of its Subsidiaries or by any Subsidiary of the Company to any other Subsidiary. 1.17 "Loan Documents" shall have the meaning set forth in the Security Agreement. 1.18 "Note" shall mean this note, and in the plural, shall mean all notes issued to the Lenders pursuant to the terms of the Note Purchase Agreement, including this Note, and all amendments, modifications and extensions thereto. 1.19 "Note Purchase Agreement" means that certain Convertible Note Purchase Agreement, dated January 16, 2004, among the Company, the Holder and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 4 1.20 "Permitted Investments" means (i) Investments in cash or cash equivalents, (ii) accounts receivable created, acquired or made in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (iii) Investments existing on the closing date, and listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty obligations permitted by Section 5.3 of this Agreement, (v) loans to employees, directors or officers of the Company in connection with the award of convertible bonds or capital stock under a stock incentive plan, stock option plan or other equity-based compensation plan or arrangement, (vi) other advances or loans to employees, directors, officers or agents of the Company in the ordinary course of business not to exceed $500,000 in the aggregate at any time outstanding; (vii) loans, advances and investments in foreign Subsidiaries (that are not incorporated or otherwise organized under the laws of the United States of America or any state thereof) in an amount not to exceed $1,000,000 in the aggregate at any time outstanding; (viii) any acquisition for which the prior written consent of the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement has been obtained, (ix) other loans, advances and investments of a nature not contemplated by the foregoing sections in an amount not to exceed $500,000 in the aggregate at any time outstanding or (x) Investments by the Company in the Guarantor. 1.21 "Permitted Liens" shall have the meaning set forth in Section 5.4. 1.22 "Person" means any individual, firm, corporation, partnership, trust, joint venture, joint stock company, limited liability company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. 1.23 "Price Per Share" shall have the meaning attributed to such term in the Series E Certificate of Determination, as filed with the Secretary of State of the State of California. 1.24 "Purchase and Exchange Agreement" shall mean the Convertible Note Purchase and Exchange Agreement, dated November 18, 2003, among the Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended. 1.25 "Qualified Asset Sale" means the sale, transfer or other disposition of any of the assets of the Company or any of its Subsidiaries, other than (a) sales of assets in the ordinary course of business, (b) sales of assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the sale, transfer or other disposition of assets of the Company where the proceeds are applied to the purchase price or traded in for credit against the purchase price of other assets, provided that any such purchase is made, or credit issued, within 90 days of the sale, transfer or other disposition, and (d) one or more sales of the Company's assets (other than sales otherwise included in clauses (a), (b), and (c) immediately above) which collectively yield up to an aggregate of one million dollars ($1,000,000) in gross proceeds to the Company while this Note is outstanding. 5 1.26 "Restricted Payment" means (a) any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Company or any of its Subsidiaries or (b) any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any shares of any class of capital stock of the Company or any Subsidiary or any option, warrant or other right to acquire any such shares of capital stock of the Company or any Subsidiary. 1.27 "Security Agreement" means that certain Guaranty and Security Agreement, of even date herewith between the Company, Compass Holding Corp., the Lenders and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.28 "Series E Conversion Price" shall have the meaning set forth in the Series E Certificate of Determination. 1.29 "Series E Preferred Stock" means the Series E Preferred Stock, par value $0.001, of the Company. 1.30 "Subordination Agreement" shall have the meaning set forth in Section 5.3. 1.31 "Subsequent Closing Date" shall have the meaning set forth in Section 2.4(e) of the Note Purchase Agreement. 1.32 "SVB" means Silicon Valley Bank, a California chartered bank, or any Affiliates thereof. 1.33 "Ten Percent Holder" means, with respect to a class of equity securities of the Company, a Person (together with such Person's Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such class of equity securities of the Company, as defined by Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 1.34 "UCC" shall have the meaning set forth in Section 5.4. 2. Interest. Simple interest shall accrue at the rate of ten percent (10%) per annum (or such lesser amount as shall equal the highest rate of interest allowable under applicable law) (the "Interest Rate"), on the outstanding principal of this Note from the date of this Note until the Maturity Date or the date this Note is otherwise repaid. The Company shall not be obligated to make any payments of interest which shall have accrued under this Note prior to the Maturity Date. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. In the event that the principal amount of this Note, any interest, or any amount payable hereunder is not paid in full when such amount becomes due and payable, or upon the occurrence of an Event of Default, interest shall accrue at the lesser of (a) the initial Interest Rate plus five percent (5%) per annum or (b) the highest rate of interest allowable under applicable law, 6 on the balance of all amounts outstanding until such overdue amounts are paid or the Event of Default is cured, and such interest shall be payable on demand. 3. Conversion. 3.1 Conversion. (a) On the Conversion Date, the principal amount of this Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall be automatically converted into the number of fully paid and nonassessable shares of Series E Preferred Stock equal to the quotient obtained by dividing (a) the entire principal amount of this Note plus the Interest Amount by (b) the Price Per Share. (b) In the event that the Conversion Date has not occurred on or prior to April 30, 2004 (the "Common Conversion Date"), then, following the Common Conversion Date, the principal amount of this Note plus the Interest Amount shall be convertible, at the option of Holder and from time to time, into Common Stock at a conversion price per share equal to $1.65, as adjusted for any stock dividends, stock splits or similar consolidations or subdivisions, following the date hereof; provided, however, that Holder shall not be permitted to convert any portion of the principal of this Note or the Interest Amount into Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion, the conversion would cause Holder to be a Ten Percent Holder. 3.2 Notice of Conversion. Upon conversion of this Note as provided in Section 3.1, Holder shall surrender this Note to the Company and shall state the name or names in which the certificate or certificates for such shares of Series E Preferred Stock or Common Stock, as the case may be, are to be issued. The Person or Persons entitled to receive the shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion shall be treated for all purposes as the record holder or holders (a) of such shares of Series E Preferred Stock as of the Conversion Date and (b) of such shares of Common Stock as of the date of any conversion pursuant to Section 3.1(b). 3.3 Delivery of Stock Certificates. Upon conversion of this Note as provided in Section 3.1, the Company at its expense will issue and deliver to Holder of this Note a certificate or certificates (bearing such legends as are required by applicable state and federal securities laws in the opinion of counsel to the Company) for the number of full shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion. 3.4 Mechanics and Effect of Conversion. No fractional shares of Series E Preferred Stock or Common Stock, as the case may be, shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to Holder upon the conversion of this Note, the Company shall pay to Holder the amount of outstanding principal and interest that is not so converted. Upon conversion of all amounts due under this Note, the Company shall be released from all of its obligations under this Note. 7 4. Adjustments. The number of shares of Series E Preferred Stock or Common Stock convertible hereunder are subject to adjustment from time to time as follows: 4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at any time while this Note remains outstanding and unexpired there shall be (a) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (b) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise or (c) a sale or transfer of the Company's stock, properties or assets as, or substantially as, an entirety to any other Person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that Holder shall thereafter be entitled to receive by converting this Note the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon conversion of this Note would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Note had been converted immediately before such reorganization, merger, consolidation, sale or transfer (notwithstanding that the Stockholder Approval may not yet have been obtained), all subject to further adjustment as provided in this Section 4. The foregoing provisions of this Section 4.1 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation. If the per share consideration payable to Holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors based on the amount the Holder would have otherwise been entitled to receive had the transaction or transactions not occurred. In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of Holder after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon conversion of this Note. The Company shall be obligated to retain and set aside, or otherwise make fair provision for exercise of the right of the Holder to receive, the shares of stock and/or other securities, cash or other property provided for in this Section 4.1. 4.2 Election of Holder upon Merger or Sale of Assets. Notwithstanding anything to the contrary contained herein, if an event shall occur as provided in Section 4.1 hereof that would otherwise result in the occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first paragraph of this Note, then the Holder may, in its sole discretion, by written notice to the Company elect to convert the principal amount of this Note plus the Interest Amount into the number of shares of stock or other securities or property described in Section 4.1, in lieu of receiving payment in full of all amounts outstanding under this Note. The number of shares of stock or other 8 securities or property to be issued upon such conversion shall be determined in accordance with Section 4.1 hereof, taking into account the occurrence of such event. 4.3 Reclassification, Etc. If the Company shall, at any time while this Note, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, change any of the securities as to which conversion rights under this Note exist into the same or a different number of securities of any other class or classes, this Note shall thereafter represent the right to acquire such number and kind of securities as would have been issuable with respect to the securities that were subject to the conversion rights under this Note immediately prior to such reclassification or other change, and the Price Per Share shall be appropriately adjusted, all subject to further adjustment as provided in this Section 4. 4.4 Split, Subdivision or Combination of Shares. If the Company at any time while this Note, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the shares of Series E Preferred Stock or Common Stock into a different number of securities of the same class, the Price Per Share or conversion price, as the case may be, shall be proportionately adjusted. 4.5 Series E Adjustments. The initial Series E Conversion Price of the shares of Series E Preferred Stock issued upon conversion of this Note pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on the Conversion Date, subject to the adjustment of such Series E Conversion Price from time to time thereafter as provided in the Series E Certificate of Determination. 4.6 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 4, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. 4.7 No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 5. Covenants. The Company covenants and agrees that until the earlier of (i) the date on which all Obligations (as defined in the Security Agreement) have been paid in full or (ii) the date on which all amounts outstanding under the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b): 5.1 Financial Statements and Other Information. The Company shall deliver to the Holder of this Note the financial statements and other information required to be delivered under Section 8.1 of the Note Purchase Agreement. 9 5.2 Financial Covenants. The Company shall at all times comply with the financial and other covenants set forth in Schedule 8.5 to the Note Purchase Agreement as if such covenants were set forth herein. 5.3 Indebtedness. The Company shall not, and shall not permit any Subsidiary to, issue, incur, assume, create or have outstanding any Indebtedness, provided, however, that the foregoing shall not restrict nor operate to prevent: (a) Indebtedness in favor of the Holders under the Loan Documents; (b) Indebtedness existing on the date hereof, as set forth on Schedule 3.22 to the Note Purchase Agreement; (c) Indebtedness for accounts payable incurred in the ordinary course of business by the Company; (d) Indebtedness incurred solely for the purpose of financing the acquisition of any equipment, machinery, software, improvements or any other similar property, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, that the aggregate outstanding principal amount of all Indebtedness permitted pursuant to this clause (d) outstanding for more than sixty (60) days after the incurrence of such Indebtedness shall not at any time exceed $500,000; (e) Indebtedness of the Company evidenced by Capitalized Lease Obligations, provided, that in no event shall the aggregate principal amount of Capitalized Lease Obligations permitted by this clause (e) exceed $500,000 at any time outstanding; and (f) Any extension, renewal, refinancing, refunding, or replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and (e) above, on such terms and conditions as are, on the whole, not materially more onerous to the Company than the terms and conditions of such original Indebtedness on the date of such refinancing (including that the principal amount of such refinancing Indebtedness does not exceed the principal amount of, plus the amount of accrued and unpaid interest on, the Indebtedness so refinanced (plus the amount of reasonable premium and fees and expenses incurred in connection therewith)), provided that, in the case of a refinancing of Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall only apply to the extent consistent with the Subordination Agreement, dated as of the date hereof, by and among SVB, the Holders and the Company (the "Subordination Agreement"). 5.4 Liens. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of the Company or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or 10 assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable), or assign any right to receive income or permit the filing of any financing statement under the Uniform Commercial Code, as from time to time in effect in the relevant jurisdiction (the "UCC"), or any other similar notice of Lien under any similar recording or notice statute; provided, that the provisions of this Section 5.4 shall not prevent the creation, incurrence, assumption or existence of the following: (a) Liens arising in the ordinary course of business by statute in connection with worker's compensation, unemployment insurance, old age benefits, social security obligations, statutory obligations or other similar charges (other then Liens arising under ERISA), good faith cash deposits in connection with tenders, contracts or leases to which the Company or any Subsidiary is a party or other cash deposits required to be made in the ordinary course of business, provided, that such Liens do not have a material adverse effect on the ability of the Company to repay amounts due under the Notes; (b) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (c) Liens in respect of property or assets of the Company or its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (i) which do not in the aggregate materially detract from the value of the Company's and its Subsidiaries' property or assets taken as a whole or result in a material adverse effect on the Condition of the Company or (ii) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; (d) the pledge of assets for the purpose of securing an appeal, stay or discharge in the course of any legal proceeding, provided that the aggregate amount of liabilities of the Company and its Subsidiaries secured by a pledge of assets permitted under this subsection, including interest and penalties thereon, if any, shall not be in excess of $500,000 at any one time outstanding; (e) any interest or title of a lessor under any operating lease; (f) easements, rights-of-way, restrictions and other similar encumbrances against real property incurred in the ordinary course of business; 11 (g) the Liens existing on the date hereof identified on Schedule 3.22 to the Note Purchase Agreement; (h) Liens on cash deposited with account debtors to secure performance by the Company or any Subsidiary in the ordinary course of business subject to customary and reasonable terms; (i) Liens upon assets of the Company or its Subsidiaries subject to Capitalized Lease Obligations, provided, that (A) such Liens only serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising under such Capitalized Lease Obligation and (B) the Lien encumbering the asset giving rise to the Capitalized Lease Obligation does not encumber any other asset of the Company or its Subsidiaries; (j) Liens placed upon equipment, machinery, software, improvements or any other similar property, used in the ordinary course of business of the Company or any of its Subsidiaries at the time of the acquisition thereof by the Company or any of its Subsidiaries or within ninety (90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above; provided, that the Liens encumbering the equipment, machinery software, improvements or any other similar property so acquired do not encumber any other asset of the Company or its Subsidiaries; (k) set-off rights of depository institutions; and (l) Liens created by the Security Agreement (collectively with clauses (a) through (k) hereof, the "Permitted Liens"). 5.5 Fundamental Changes. The Company will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or a series of transactions) all or substantially all of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time and immediately after giving effect thereto no Event of Default shall have occurred and be continuing (i) the Company or any of its Subsidiaries may, with the prior written consent of the Holders, merge with or into any other Person; (ii) any wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with or into the Company or any other wholly-owned Subsidiary of the Company; (iii) any Subsidiary (other than the Guarantor, and except as otherwise prohibited by this Note) may sell, transfer, lease or otherwise dispose of its assets to the Company or to another wholly-owned Subsidiary of the Company; and (iv) any Subsidiary may liquidate or dissolve if the board of directors of the Company determine in good faith that such liquidation or dissolution is in its best interests and is not disadvantageous to the Holders. 5.6 Restricted Payments. The Company will not, and the Company will not permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that (i) any Subsidiary may make a 12 Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any Restricted Payment required by the terms of the Note Purchase Agreement and the other documents executed in connection therewith. 5.7 Transactions with Affiliates. The Company will not, and the Company will not permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions that are at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arm's length basis from unrelated third parties, (b) transactions exclusively between the Company and the Guarantor and (c) transactions under the agreements listed on Schedule 3.17 to the Note Purchase Agreement. 5.8 Investments. The Company will not, and the Company will not permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment in any Person, except for Permitted Investments. 5.9 Nature of Business. The Company will not, and the Company will not permit any Subsidiary to, engage in any business other than that conducted on the date hereof and any businesses reasonably related thereto. 5.10 Property of Existing Domestic Subsidiaries. The Company will not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise organized under the laws of the United States of America or any state thereof (a "Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease, license, purchase or otherwise acquire any personal or real property (excluding any material intellectual property) in excess of $50,000 for all property held by such Subsidiary, or $250,000 in the aggregate for all property held by all Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own or otherwise hold any rights to any material intellectual property or (iv) otherwise conduct any business or maintain operations. 5.11 Formation of Subsidiaries. The Company will not, and will not cause or permit any of its Subsidiaries to, form, acquire or permit the existence of any new domestic Subsidiary, without causing such domestic Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes and related security document, in form and substance satisfactory to the Holders. 5.12 Books and Records. The Company shall keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Company and its Subsidiaries in accordance with GAAP consistently applied. 5.13 Inspection. The Company shall, and shall cause each of its Subsidiaries to, permit representatives of the Holders to visit and inspect any of its properties, to examine its corporate, financial and operating records and make copies 13 thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with their respective directors, officers and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably requested upon notice to the Company. 5.14 Maintenance of Business. The Company shall, and shall cause each Subsidiary to, preserve and maintain its existence. The Company shall, and shall cause each Subsidiary to, preserve and keep in force and effect all licenses, permits, franchises, approvals, patents, trademarks, trade names, trade styles, copyrights, and other property rights necessary to the proper conduct of its business, except where the failure to do so could not reasonably be expected to have a material adverse effect on the Condition of the Company or on the prospects of repayment of the Notes. 5.15 Maintenance of Properties. The Company shall, and shall cause each Subsidiary to, maintain, preserve and keep its property and equipment in good repair, working order and condition (ordinary wear and tear excepted) and shall from time to time make all needful and proper repairs, renewals, replacements, additions and betterments thereto so that at all times the efficiency thereof shall by fully preserved and maintained, except in each case to the extent that, in the reasonable business judgment of such Person, any such property or equipment is no longer necessary for the proper conduct of the business of such Person. 6. The occurrence of any one or more of the following events shall constitute an "Event of Default": 6.1 Failure To Pay. (i) The failure of the Company to pay any principal due under any of the Notes when due and payable (whether by acceleration, declaration, extension or otherwise), or (ii) the failure of the Company to pay any other amounts due under any of the Notes when due and payable if such failure is not cured within five (5) days of Company's receipt of notice thereof from any of the Holders. 6.2 Financial Covenants. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2. 6.3 Other Covenants and Agreements. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the covenants of this Note, the Security Agreement or any of the other Loan Documents (other than the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2), if such failure is not cured within sixty (60) days. 6.4 Representations and Warranties. If any representation or warranty made by the Company or any of its Subsidiaries in the Loan Documents is not true and correct in all material respects on the Initial Closing Date. 14 6.5 Default on Other Obligations. The occurrence of any condition or default under any other indebtedness for borrowed money of the Company or any of its Subsidiaries with a principal amount of at least five hundred thousand dollars ($500,000) that results in the acceleration of such indebtedness which is not cured within sixty (60) days. 6.6 Involuntary Bankruptcy. There shall be filed against the Company or any of its Subsidiaries an involuntary petition or other pleading seeking the entry of a decree or order for relief under the United States Bankruptcy Code or any similar federal or state insolvency or similar laws ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a reorganization of the Company or any of its Subsidiaries or the business and affairs of the Company or any of its Subsidiaries or (c) the appointment of a receiver, liquidator, assignee, custodian, trustee or similar official for the Company or any of its Subsidiaries of the property of the Company or any of its Subsidiaries. 6.7 Voluntary Bankruptcy. The commencement by the Company or any of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any federal or state insolvency or similar laws or the consent by the Company or any of its Subsidiaries to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian or similar official for the Company or any of its Subsidiaries of any of the property of the Company or any of its Subsidiaries or the making by the Company or any of its Subsidiaries of an assignment for the benefit of creditors, or the failure by Company or any of its Subsidiaries generally to pay its debts as the debts become due. 6.8 Judgments, Awards. Any judgment or order for the payment of money is rendered against the Company or any of its Subsidiaries in an amount in excess of five hundred thousand dollars ($500,000) individually or in the aggregate and either (i) enforcement proceedings are commenced by any creditor upon such judgment or order and not stayed, or (ii) there is any period of sixty (60) consecutive days during which such judgment has not been paid in full or a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, is not in effect. 6.9 Attachment by Lenders. Any assets of the Company or any of its Subsidiaries shall be attached, levied upon, seized or repossessed, or come into the possession of a trustee, receiver or other custodian and a determination by any Holder, in good faith but in its sole discretion, that the same could have a material adverse effect on the prospect for the Holders to fully and punctually realize the full benefits conferred on the Holders by the Loan Documents. 6.10 Adverse Change in Financial Condition. Any event having a material adverse effect on the business, operations, assets, properties or condition of the Company and its Subsidiaries taken as a whole shall have occurred and be continuing or a material adverse effect on the validity or enforceability of this or any of the other Loan Documents or the rights or remedies of the Holders hereunder or thereunder. 15 7. Remedies. Upon and after the occurrence of an Event of Default, the Holder shall be entitled to the exercise the rights and remedies set forth in the Security Agreement, the other Loan Documents and under applicable law, all such rights and remedies being cumulative and enforceable alternatively, successively or concurrently. 8. Prepayment. The Company may not prepay this Note prior to the Maturity Date without the prior written consent of the Holders. 9. Seniority. (a) Except as set forth in the Subordination Agreement, the Notes will rank senior in right of payment to all other indebtedness of the Company, other than the GA Notes, with respect to which the Notes will be pari passu in right of payment in accordance with the Intercreditor Agreement. (b) Notwithstanding anything to the contrary contained in the Notes, this Note and the other Notes, and the terms and the conditions hereof and thereof, are subject to the Intercreditor Agreement. 10. Assignment. Subject to the restrictions on transfer described in Section 12 below, the rights and obligations of the Company and Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. The Company shall not be permitted to assign this Note without the prior written consent of the Holders. 11. Waiver of Notice. The Company hereby waives notice, presentment, demand, protest and notice of dishonor. 12. Transfer of This Note. With respect to any offer, sale or other disposition of this Note, Holder will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such Holder's counsel, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect); provided, that no opinion shall be required for any transfer to an Affiliate or if the transfer is made in compliance with the Securities Act, so long as the transferee can make the same representations and warranties at the time of transfer as set forth in Sections 4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly upon delivering such written notice and opinion, if so required, Holder may sell or otherwise dispose of this Note, all in accordance with the terms of the notice delivered to the Company. Each Note thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Notwithstanding the foregoing, the Holder shall not be permitted to transfer this Note to any Person who is not an Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of written notice from the 16 Company that Stockholder Approval cannot be obtained, or the occurrence of an actual vote of the Company's shareholders entitled to vote (whether by written consent or at a meeting specially called for such purpose), the result of which is a decision by a majority of the Company's shareholders entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of an Event of Default. 13. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 14. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally recognized courier service or mailed by registered or certified mail, postage prepaid, to the respective addresses of the parties as set forth on the signature pages hereto or if sent by facsimile to the respective facsimile numbers of the parties set forth on the signature pages hereto. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given and received when personally delivered or three (3) business days after deposited in the mail or one business day after sent by courier or upon confirmation of facsimile delivery in the manner set forth above. 15. No Stockholder Rights. Nothing contained in this Note shall be construed as conferring upon Holder or any other Person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. 16. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law relating to conflict of laws. 17. Amendments and Waivers. No amendments or waivers of any provision of this Note, and no consent by the Holder to any departure by the Company, shall in any event be effective unless the same shall be in writing, and signed by the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 18. Severability. Any provision of this Note that is prohibited or unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY (A) COVENANTS AND AGREES NOT TO 17 ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. 20. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except as otherwise indicated, all references herein to Sections refer to Sections hereof. [the remainder of this page intentionally left blank] 18 IN WITNESS WHEREOF, the Company has caused this Note to be issued this 16th day of January, 2004. COMPANY: CRITICAL PATH, INC., a California corporation By: /s/ William E. McGlashan, Jr. ---------------------------------------- Name: William E. McGlashan, Jr. Title: Chairman, Chief Executive Officer Critical Path, Inc. 350 The Embarcadero San Francisco, CA 94105-1204 Telecopy: (415) 541-2300 Attention: Chief Financial Officer With a copy to: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Telecopy: (415) 983-1200 Attention: Gregg Vignos, Esq. Name of Holder: ZAXIS PARTNERS, L.P. Address: c/o Apex Capital, LLC 25 Orinda Way, Suite 300 Orinda, CA 94563 Attention: Adam Fiore, General Counsel Telephone: (925) 253-6125 Facsimile: (925) 253-1809 EX-4.31 16 f97295exv4w31.txt EXHIBIT 4.31 EXHIBIT 4.31 THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS. CRITICAL PATH, INC. CONVERTIBLE SUBORDINATED PROMISSORY NOTE $3,750,000.00 San Francisco, California January 16, 2004 Critical Path, Inc., a California corporation (the "Company"), the principal office of which is located in San Francisco, California, for value received hereby promises to pay to the order of Passport Master Fund, L.P., or its registered assigns ("Holder"), the sum of three million seven hundred fifty thousand dollars ($3,750,000), or such lesser amount as shall then equal the outstanding principal amount hereof on the terms and conditions set forth hereinafter. The outstanding principal amount hereof and all accrued and unpaid interest hereon, as set forth below, shall be due and payable on the earlier to occur of (i) January 16, 2008, (ii) when declared due and payable by Holder upon the occurrence of an Event of Default (as defined below), (iii) consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock or Stock Equivalents by the Company, any cash capital contribution from any third person or any other debt or equity financing consummated by the Company after the date of issuance of this Note which, in the case of (v), individually or in the aggregate raises proceeds of at least forty million dollars ($40,000,000) in cash or cash equivalents (the earliest of the events set forth in items (i)-(v) immediately above, the "Maturity Date"). The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. Except as otherwise defined herein, each capitalized term used herein shall have the meaning assigned to it in the Note Purchase Agreement, as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. All other references to the Note Purchase Agreement in this Note refer to the Note Purchase Agreement as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. As used in this Note, the following terms, unless the context otherwise requires, have the following 2 meanings: 1.1 "Affiliate" means any Person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended. 1.2 "Capitalized Lease Obligations" means, with respect to any Person, all rental obligations of such Person which, under GAAP, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with such principles. 1.3 "Change of Control" shall mean (i) any merger, consolidation or other business combination transaction (or series of related transactions) in which the stockholders owning a majority of the voting securities of the Company prior to such transaction do not own a majority of the voting securities of the surviving entity, (ii) any tender offer, exchange offer or other transaction whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended) (other than General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and the Affiliates of the foregoing, provided that Affiliates shall be deemed not to include any portfolio companies of any of the foregoing) obtains a majority of the outstanding shares of capital stock entitled to vote in the election of directors, (iii) any proxy contest in which a majority of the Board of Directors of the Company (or persons appointed by such Board of Directors) prior to such contest do not constitute a majority of the Company's Board of Directors after such contest or (iv) any other transaction described in any stockholder rights agreement or "poison pill," if any, to which the Company is party, which may permit the holders of any rights or similar certificates to exercise the rights evidenced thereby. 1.4 "Company" shall have the meaning set forth in the recitals hereto, and includes any corporation that shall succeed to or assume the obligations of the Company under this Note. 1.5 "Common Conversion Date" shall have the meaning set forth in Section 3.1(b) hereof. 1.6 "Common Stock" means the common stock, par value $0.001 per share, of the Company. 1.7 "Conversion Date" shall mean the Subsequent Closing Date. 1.8 "Domestic Subsidiary" shall have the meaning set forth in Section 5.10 hereof. 1.9 "Event of Default" shall have the meaning set forth in Section 6 hereof. 3 1.10 "GA Notes" shall mean the Convertible Subordinated Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP Entities pursuant to the Purchase and Exchange Agreement. 1.11 "GAP Entities" shall mean General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG. 1.12 "Guarantor" shall have the meaning set forth in the Security Agreement. 1.13 "Holder" shall mean the registered holder of this Note from time to time, and in the plural, shall mean all registered holders of Notes from time to time issued by the Company pursuant to the Note Purchase Agreement. 1.14 "Intercreditor Agreement" shall mean the Intercreditor Agreement, dated the date hereof, among the GAP Entities, Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P. 1.15 "Interest Amount" shall have the meaning set forth in Section 3.1 hereof. 1.16 "Investment" means (i) the acquisition (whether for cash, property, services, assumption of Indebtedness, securities or otherwise) of assets (other than equipment, inventory, supplies or other assets acquired in the ordinary course of business of the Company), capital stock, bonds, notes, debentures, partnership, joint venture or other ownership interests or other securities of any Person, (ii) any deposit with, or advance, loan or other extension of credit to, or on behalf of, any Person (other than deposits made in connection with the purchase of equipment, inventory, services, leases, supplies or other assets in the ordinary course of business of the Company), and (iii) any other capital contribution to or investment in any Person, including, without limitation, any guaranty obligation incurred for the benefit of any Person. For the sake of clarity, Investments shall include any transfer of property or assets by the Company to any of its Subsidiaries or by any Subsidiary of the Company to any other Subsidiary. 1.17 "Loan Documents" shall have the meaning set forth in the Security Agreement. 1.18 "Note" shall mean this note, and in the plural, shall mean all notes issued to the Lenders pursuant to the terms of the Note Purchase Agreement, including this Note, and all amendments, modifications and extensions thereto. 1.19 "Note Purchase Agreement" means that certain Convertible Note Purchase Agreement, dated January 16, 2004, among the Company, the Holder and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 4 1.20 "Permitted Investments" means (i) Investments in cash or cash equivalents, (ii) accounts receivable created, acquired or made in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (iii) Investments existing on the closing date, and listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty obligations permitted by Section 5.3 of this Agreement, (v) loans to employees, directors or officers of the Company in connection with the award of convertible bonds or capital stock under a stock incentive plan, stock option plan or other equity-based compensation plan or arrangement, (vi) other advances or loans to employees, directors, officers or agents of the Company in the ordinary course of business not to exceed $500,000 in the aggregate at any time outstanding; (vii) loans, advances and investments in foreign Subsidiaries (that are not incorporated or otherwise organized under the laws of the United States of America or any state thereof) in an amount not to exceed $1,000,000 in the aggregate at any time outstanding; (viii) any acquisition for which the prior written consent of the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement has been obtained, (ix) other loans, advances and investments of a nature not contemplated by the foregoing sections in an amount not to exceed $500,000 in the aggregate at any time outstanding or (x) Investments by the Company in the Guarantor. 1.21 "Permitted Liens" shall have the meaning set forth in Section 5.4. 1.22 "Person" means any individual, firm, corporation, partnership, trust, joint venture, joint stock company, limited liability company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. 1.23 "Price Per Share" shall have the meaning attributed to such term in the Series E Certificate of Determination, as filed with the Secretary of State of the State of California. 1.24 "Purchase and Exchange Agreement" shall mean the Convertible Note Purchase and Exchange Agreement, dated November 18, 2003, among the Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended. 1.25 "Qualified Asset Sale" means the sale, transfer or other disposition of any of the assets of the Company or any of its Subsidiaries, other than (a) sales of assets in the ordinary course of business, (b) sales of assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the sale, transfer or other disposition of assets of the Company where the proceeds are applied to the purchase price or traded in for credit against the purchase price of other assets, provided that any such purchase is made, or credit issued, within 90 days of the sale, transfer or other disposition, and (d) one or more sales of the Company's assets (other than sales otherwise included in clauses (a), (b), and (c) immediately above) which collectively yield up to an aggregate of one million dollars ($1,000,000) in gross proceeds to the Company while this Note is outstanding. 5 1.26 "Restricted Payment" means (a) any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Company or any of its Subsidiaries or (b) any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any shares of any class of capital stock of the Company or any Subsidiary or any option, warrant or other right to acquire any such shares of capital stock of the Company or any Subsidiary. 1.27 "Security Agreement" means that certain Guaranty and Security Agreement, of even date herewith between the Company, Compass Holding Corp., the Lenders and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.28 "Series E Conversion Price" shall have the meaning set forth in the Series E Certificate of Determination. 1.29 "Series E Preferred Stock" means the Series E Preferred Stock, par value $0.001, of the Company. 1.30 "Subordination Agreement" shall have the meaning set forth in Section 5.3. 1.31 "Subsequent Closing Date" shall have the meaning set forth in Section 2.4(e) of the Note Purchase Agreement. 1.32 "SVB" means Silicon Valley Bank, a California chartered bank, or any Affiliates thereof. 1.33 "Ten Percent Holder" means, with respect to a class of equity securities of the Company, a Person (together with such Person's Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such class of equity securities of the Company, as defined by Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 1.34 "UCC" shall have the meaning set forth in Section 5.4. 2. Interest. Simple interest shall accrue at the rate of ten percent (10%) per annum (or such lesser amount as shall equal the highest rate of interest allowable under applicable law) (the "Interest Rate"), on the outstanding principal of this Note from the date of this Note until the Maturity Date or the date this Note is otherwise repaid. The Company shall not be obligated to make any payments of interest which shall have accrued under this Note prior to the Maturity Date. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. In the event that the principal amount of this Note, any interest, or any amount payable hereunder is not paid in full when such amount becomes due and payable, or upon the occurrence of an Event of Default, interest shall accrue at the lesser of (a) the initial Interest Rate plus five percent (5%) per annum or (b) the highest rate of interest allowable under applicable law, 6 on the balance of all amounts outstanding until such overdue amounts are paid or the Event of Default is cured, and such interest shall be payable on demand. 3. Conversion. 3.1 Conversion. (a) On the Conversion Date, the principal amount of this Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall be automatically converted into the number of fully paid and nonassessable shares of Series E Preferred Stock equal to the quotient obtained by dividing (a) the entire principal amount of this Note plus the Interest Amount by (b) the Price Per Share. (b) In the event that the Conversion Date has not occurred on or prior to April 30, 2004 (the "Common Conversion Date"), then, following the Common Conversion Date, the principal amount of this Note plus the Interest Amount shall be convertible, at the option of Holder and from time to time, into Common Stock at a conversion price per share equal to $1.65, as adjusted for any stock dividends, stock splits or similar consolidations or subdivisions, following the date hereof; provided, however, that Holder shall not be permitted to convert any portion of the principal of this Note or the Interest Amount into Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion, the conversion would cause Holder to be a Ten Percent Holder. 3.2 Notice of Conversion. Upon conversion of this Note as provided in Section 3.1, Holder shall surrender this Note to the Company and shall state the name or names in which the certificate or certificates for such shares of Series E Preferred Stock or Common Stock, as the case may be, are to be issued. The Person or Persons entitled to receive the shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion shall be treated for all purposes as the record holder or holders (a) of such shares of Series E Preferred Stock as of the Conversion Date and (b) of such shares of Common Stock as of the date of any conversion pursuant to Section 3.1(b). 3.3 Delivery of Stock Certificates. Upon conversion of this Note as provided in Section 3.1, the Company at its expense will issue and deliver to Holder of this Note a certificate or certificates (bearing such legends as are required by applicable state and federal securities laws in the opinion of counsel to the Company) for the number of full shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion. 3.4 Mechanics and Effect of Conversion. No fractional shares of Series E Preferred Stock or Common Stock, as the case may be, shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to Holder upon the conversion of this Note, the Company shall pay to Holder the amount of outstanding principal and interest that is not so converted. Upon conversion of all amounts due under this Note, the Company shall be released from all of its obligations under this Note. 7 4. Adjustments. The number of shares of Series E Preferred Stock or Common Stock convertible hereunder are subject to adjustment from time to time as follows: 4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at any time while this Note remains outstanding and unexpired there shall be (a) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (b) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise or (c) a sale or transfer of the Company's stock, properties or assets as, or substantially as, an entirety to any other Person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that Holder shall thereafter be entitled to receive by converting this Note the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon conversion of this Note would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Note had been converted immediately before such reorganization, merger, consolidation, sale or transfer (notwithstanding that the Stockholder Approval may not yet have been obtained), all subject to further adjustment as provided in this Section 4. The foregoing provisions of this Section 4.1 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation. If the per share consideration payable to Holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors based on the amount the Holder would have otherwise been entitled to receive had the transaction or transactions not occurred. In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of Holder after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon conversion of this Note. The Company shall be obligated to retain and set aside, or otherwise make fair provision for exercise of the right of the Holder to receive, the shares of stock and/or other securities, cash or other property provided for in this Section 4.1. 4.2 Election of Holder upon Merger or Sale of Assets. Notwithstanding anything to the contrary contained herein, if an event shall occur as provided in Section 4.1 hereof that would otherwise result in the occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first paragraph of this Note, then the Holder may, in its sole discretion, by written notice to the Company elect to convert the principal amount of this Note plus the Interest Amount into the number of shares of stock or other securities or property described in Section 4.1, in lieu of receiving payment in full of all amounts outstanding under this Note. The number of shares of stock or other 8 securities or property to be issued upon such conversion shall be determined in accordance with Section 4.1 hereof, taking into account the occurrence of such event. 4.3 Reclassification, Etc. If the Company shall, at any time while this Note, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, change any of the securities as to which conversion rights under this Note exist into the same or a different number of securities of any other class or classes, this Note shall thereafter represent the right to acquire such number and kind of securities as would have been issuable with respect to the securities that were subject to the conversion rights under this Note immediately prior to such reclassification or other change, and the Price Per Share shall be appropriately adjusted, all subject to further adjustment as provided in this Section 4. 4.4 Split, Subdivision or Combination of Shares. If the Company at any time while this Note, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the shares of Series E Preferred Stock or Common Stock into a different number of securities of the same class, the Price Per Share or conversion price, as the case may be, shall be proportionately adjusted. 4.5 Series E Adjustments. The initial Series E Conversion Price of the shares of Series E Preferred Stock issued upon conversion of this Note pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on the Conversion Date, subject to the adjustment of such Series E Conversion Price from time to time thereafter as provided in the Series E Certificate of Determination. 4.6 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 4, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. 4.7 No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 5. Covenants. The Company covenants and agrees that until the earlier of (i) the date on which all Obligations (as defined in the Security Agreement) have been paid in full or (ii) the date on which all amounts outstanding under the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b): 5.1 Financial Statements and Other Information. The Company shall deliver to the Holder of this Note the financial statements and other information required to be delivered under Section 8.1 of the Note Purchase Agreement. 9 5.2 Financial Covenants. The Company shall at all times comply with the financial and other covenants set forth in Schedule 8.5 to the Note Purchase Agreement as if such covenants were set forth herein. 5.3 Indebtedness. The Company shall not, and shall not permit any Subsidiary to, issue, incur, assume, create or have outstanding any Indebtedness, provided, however, that the foregoing shall not restrict nor operate to prevent: (a) Indebtedness in favor of the Holders under the Loan Documents; (b) Indebtedness existing on the date hereof, as set forth on Schedule 3.22 to the Note Purchase Agreement; (c) Indebtedness for accounts payable incurred in the ordinary course of business by the Company; (d) Indebtedness incurred solely for the purpose of financing the acquisition of any equipment, machinery, software, improvements or any other similar property, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, that the aggregate outstanding principal amount of all Indebtedness permitted pursuant to this clause (d) outstanding for more than sixty (60) days after the incurrence of such Indebtedness shall not at any time exceed $500,000; (e) Indebtedness of the Company evidenced by Capitalized Lease Obligations, provided, that in no event shall the aggregate principal amount of Capitalized Lease Obligations permitted by this clause (e) exceed $500,000 at any time outstanding; and (f) Any extension, renewal, refinancing, refunding, or replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and (e) above, on such terms and conditions as are, on the whole, not materially more onerous to the Company than the terms and conditions of such original Indebtedness on the date of such refinancing (including that the principal amount of such refinancing Indebtedness does not exceed the principal amount of, plus the amount of accrued and unpaid interest on, the Indebtedness so refinanced (plus the amount of reasonable premium and fees and expenses incurred in connection therewith)), provided that, in the case of a refinancing of Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall only apply to the extent consistent with the Subordination Agreement, dated as of the date hereof, by and among SVB, the Holders and the Company (the "Subordination Agreement"). 5.4 Liens. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of the Company or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or 10 assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable), or assign any right to receive income or permit the filing of any financing statement under the Uniform Commercial Code, as from time to time in effect in the relevant jurisdiction (the "UCC"), or any other similar notice of Lien under any similar recording or notice statute; provided, that the provisions of this Section 5.4 shall not prevent the creation, incurrence, assumption or existence of the following: (a) Liens arising in the ordinary course of business by statute in connection with worker's compensation, unemployment insurance, old age benefits, social security obligations, statutory obligations or other similar charges (other then Liens arising under ERISA), good faith cash deposits in connection with tenders, contracts or leases to which the Company or any Subsidiary is a party or other cash deposits required to be made in the ordinary course of business, provided, that such Liens do not have a material adverse effect on the ability of the Company to repay amounts due under the Notes; (b) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (c) Liens in respect of property or assets of the Company or its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (i) which do not in the aggregate materially detract from the value of the Company's and its Subsidiaries' property or assets taken as a whole or result in a material adverse effect on the Condition of the Company or (ii) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; (d) the pledge of assets for the purpose of securing an appeal, stay or discharge in the course of any legal proceeding, provided that the aggregate amount of liabilities of the Company and its Subsidiaries secured by a pledge of assets permitted under this subsection, including interest and penalties thereon, if any, shall not be in excess of $500,000 at any one time outstanding; (e) any interest or title of a lessor under any operating lease; (f) easements, rights-of-way, restrictions and other similar encumbrances against real property incurred in the ordinary course of business; 11 (g) the Liens existing on the date hereof identified on Schedule 3.22 to the Note Purchase Agreement; (h) Liens on cash deposited with account debtors to secure performance by the Company or any Subsidiary in the ordinary course of business subject to customary and reasonable terms; (i) Liens upon assets of the Company or its Subsidiaries subject to Capitalized Lease Obligations, provided, that (A) such Liens only serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising under such Capitalized Lease Obligation and (B) the Lien encumbering the asset giving rise to the Capitalized Lease Obligation does not encumber any other asset of the Company or its Subsidiaries; (j) Liens placed upon equipment, machinery, software, improvements or any other similar property, used in the ordinary course of business of the Company or any of its Subsidiaries at the time of the acquisition thereof by the Company or any of its Subsidiaries or within ninety (90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above; provided, that the Liens encumbering the equipment, machinery software, improvements or any other similar property so acquired do not encumber any other asset of the Company or its Subsidiaries; (k) set-off rights of depository institutions; and (l) Liens created by the Security Agreement (collectively with clauses (a) through (k) hereof, the "Permitted Liens"). 5.5 Fundamental Changes. The Company will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or a series of transactions) all or substantially all of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time and immediately after giving effect thereto no Event of Default shall have occurred and be continuing (i) the Company or any of its Subsidiaries may, with the prior written consent of the Holders, merge with or into any other Person; (ii) any wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with or into the Company or any other wholly-owned Subsidiary of the Company; (iii) any Subsidiary (other than the Guarantor, and except as otherwise prohibited by this Note) may sell, transfer, lease or otherwise dispose of its assets to the Company or to another wholly-owned Subsidiary of the Company; and (iv) any Subsidiary may liquidate or dissolve if the board of directors of the Company determine in good faith that such liquidation or dissolution is in its best interests and is not disadvantageous to the Holders. 5.6 Restricted Payments. The Company will not, and the Company will not permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that (i) any Subsidiary may make a 12 Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any Restricted Payment required by the terms of the Note Purchase Agreement and the other documents executed in connection therewith. 5.7 Transactions with Affiliates. The Company will not, and the Company will not permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions that are at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arm's length basis from unrelated third parties, (b) transactions exclusively between the Company and the Guarantor and (c) transactions under the agreements listed on Schedule 3.17 to the Note Purchase Agreement. 5.8 Investments. The Company will not, and the Company will not permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment in any Person, except for Permitted Investments. 5.9 Nature of Business. The Company will not, and the Company will not permit any Subsidiary to, engage in any business other than that conducted on the date hereof and any businesses reasonably related thereto. 5.10 Property of Existing Domestic Subsidiaries. The Company will not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise organized under the laws of the United States of America or any state thereof (a "Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease, license, purchase or otherwise acquire any personal or real property (excluding any material intellectual property) in excess of $50,000 for all property held by such Subsidiary, or $250,000 in the aggregate for all property held by all Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own or otherwise hold any rights to any material intellectual property or (iv) otherwise conduct any business or maintain operations. 5.11 Formation of Subsidiaries. The Company will not, and will not cause or permit any of its Subsidiaries to, form, acquire or permit the existence of any new domestic Subsidiary, without causing such domestic Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes and related security document, in form and substance satisfactory to the Holders. 5.12 Books and Records. The Company shall keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Company and its Subsidiaries in accordance with GAAP consistently applied. 5.13 Inspection. The Company shall, and shall cause each of its Subsidiaries to, permit representatives of the Holders to visit and inspect any of its properties, to examine its corporate, financial and operating records and make copies 13 thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with their respective directors, officers and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably requested upon notice to the Company. 5.14 Maintenance of Business. The Company shall, and shall cause each Subsidiary to, preserve and maintain its existence. The Company shall, and shall cause each Subsidiary to, preserve and keep in force and effect all licenses, permits, franchises, approvals, patents, trademarks, trade names, trade styles, copyrights, and other property rights necessary to the proper conduct of its business, except where the failure to do so could not reasonably be expected to have a material adverse effect on the Condition of the Company or on the prospects of repayment of the Notes. 5.15 Maintenance of Properties. The Company shall, and shall cause each Subsidiary to, maintain, preserve and keep its property and equipment in good repair, working order and condition (ordinary wear and tear excepted) and shall from time to time make all needful and proper repairs, renewals, replacements, additions and betterments thereto so that at all times the efficiency thereof shall by fully preserved and maintained, except in each case to the extent that, in the reasonable business judgment of such Person, any such property or equipment is no longer necessary for the proper conduct of the business of such Person. 6. The occurrence of any one or more of the following events shall constitute an "Event of Default": 6.1 Failure To Pay. (i) The failure of the Company to pay any principal due under any of the Notes when due and payable (whether by acceleration, declaration, extension or otherwise), or (ii) the failure of the Company to pay any other amounts due under any of the Notes when due and payable if such failure is not cured within five (5) days of Company's receipt of notice thereof from any of the Holders. 6.2 Financial Covenants. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2. 6.3 Other Covenants and Agreements. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the covenants of this Note, the Security Agreement or any of the other Loan Documents (other than the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2), if such failure is not cured within sixty (60) days. 6.4 Representations and Warranties. If any representation or warranty made by the Company or any of its Subsidiaries in the Loan Documents is not true and correct in all material respects on the Initial Closing Date. 14 6.5 Default on Other Obligations. The occurrence of any condition or default under any other indebtedness for borrowed money of the Company or any of its Subsidiaries with a principal amount of at least five hundred thousand dollars ($500,000) that results in the acceleration of such indebtedness which is not cured within sixty (60) days. 6.6 Involuntary Bankruptcy. There shall be filed against the Company or any of its Subsidiaries an involuntary petition or other pleading seeking the entry of a decree or order for relief under the United States Bankruptcy Code or any similar federal or state insolvency or similar laws ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a reorganization of the Company or any of its Subsidiaries or the business and affairs of the Company or any of its Subsidiaries or (c) the appointment of a receiver, liquidator, assignee, custodian, trustee or similar official for the Company or any of its Subsidiaries of the property of the Company or any of its Subsidiaries. 6.7 Voluntary Bankruptcy. The commencement by the Company or any of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any federal or state insolvency or similar laws or the consent by the Company or any of its Subsidiaries to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian or similar official for the Company or any of its Subsidiaries of any of the property of the Company or any of its Subsidiaries or the making by the Company or any of its Subsidiaries of an assignment for the benefit of creditors, or the failure by Company or any of its Subsidiaries generally to pay its debts as the debts become due. 6.8 Judgments, Awards. Any judgment or order for the payment of money is rendered against the Company or any of its Subsidiaries in an amount in excess of five hundred thousand dollars ($500,000) individually or in the aggregate and either (i) enforcement proceedings are commenced by any creditor upon such judgment or order and not stayed, or (ii) there is any period of sixty (60) consecutive days during which such judgment has not been paid in full or a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, is not in effect. 6.9 Attachment by Lenders. Any assets of the Company or any of its Subsidiaries shall be attached, levied upon, seized or repossessed, or come into the possession of a trustee, receiver or other custodian and a determination by any Holder, in good faith but in its sole discretion, that the same could have a material adverse effect on the prospect for the Holders to fully and punctually realize the full benefits conferred on the Holders by the Loan Documents. 6.10 Adverse Change in Financial Condition. Any event having a material adverse effect on the business, operations, assets, properties or condition of the Company and its Subsidiaries taken as a whole shall have occurred and be continuing or a material adverse effect on the validity or enforceability of this or any of the other Loan Documents or the rights or remedies of the Holders hereunder or thereunder. 15 7. Remedies. Upon and after the occurrence of an Event of Default, the Holder shall be entitled to the exercise the rights and remedies set forth in the Security Agreement, the other Loan Documents and under applicable law, all such rights and remedies being cumulative and enforceable alternatively, successively or concurrently. 8. Prepayment. The Company may not prepay this Note prior to the Maturity Date without the prior written consent of the Holders. 9. Seniority. (a) Except as set forth in the Subordination Agreement, the Notes will rank senior in right of payment to all other indebtedness of the Company, other than the GA Notes, with respect to which the Notes will be pari passu in right of payment in accordance with the Intercreditor Agreement. (b) Notwithstanding anything to the contrary contained in the Notes, this Note and the other Notes, and the terms and the conditions hereof and thereof, are subject to the Intercreditor Agreement. 10. Assignment. Subject to the restrictions on transfer described in Section 12 below, the rights and obligations of the Company and Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. The Company shall not be permitted to assign this Note without the prior written consent of the Holders. 11. Waiver of Notice. The Company hereby waives notice, presentment, demand, protest and notice of dishonor. 12. Transfer of This Note. With respect to any offer, sale or other disposition of this Note, Holder will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such Holder's counsel, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect); provided, that no opinion shall be required for any transfer to an Affiliate or if the transfer is made in compliance with the Securities Act, so long as the transferee can make the same representations and warranties at the time of transfer as set forth in Sections 4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly upon delivering such written notice and opinion, if so required, Holder may sell or otherwise dispose of this Note, all in accordance with the terms of the notice delivered to the Company. Each Note thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Notwithstanding the foregoing, the Holder shall not be permitted to transfer this Note to any Person who is not an Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of written notice from the 16 Company that Stockholder Approval cannot be obtained, or the occurrence of an actual vote of the Company's shareholders entitled to vote (whether by written consent or at a meeting specially called for such purpose), the result of which is a decision by a majority of the Company's shareholders entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of an Event of Default. 13. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 14. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally recognized courier service or mailed by registered or certified mail, postage prepaid, to the respective addresses of the parties as set forth on the signature pages hereto or if sent by facsimile to the respective facsimile numbers of the parties set forth on the signature pages hereto. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given and received when personally delivered or three (3) business days after deposited in the mail or one business day after sent by courier or upon confirmation of facsimile delivery in the manner set forth above. 15. No Stockholder Rights. Nothing contained in this Note shall be construed as conferring upon Holder or any other Person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. 16. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law relating to conflict of laws. 17. Amendments and Waivers. No amendments or waivers of any provision of this Note, and no consent by the Holder to any departure by the Company, shall in any event be effective unless the same shall be in writing, and signed by the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 18. Severability. Any provision of this Note that is prohibited or unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY (A) COVENANTS AND AGREES NOT TO 17 ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. 20. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except as otherwise indicated, all references herein to Sections refer to Sections hereof. [the remainder of this page intentionally left blank] 18 IN WITNESS WHEREOF, the Company has caused this Note to be issued this 16th day of January, 2004. COMPANY: CRITICAL PATH, INC., a California corporation By: /s/ William E. McGlashan, Jr. ---------------------------------------- Name: William E. McGlashan, Jr. Title: Chairman, Chief Executive Officer Critical Path, Inc. 350 The Embarcadero San Francisco, CA 94105-1204 Telecopy: (415) 541-2300 Attention: Chief Financial Officer With a copy to: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Telecopy: (415) 983-1200 Attention: Gregg Vignos, Esq. Name of Holder: PASSPORT MASTER FUND, L.P. Address: One Sansome Street, 39th Floor San Francisco, CA 94104 Attention: John Burbank Telephone: (415)399-7600 Facsimile: (415)399-7650 EX-4.32 17 f97295exv4w32.txt EXHIBIT 4.32 EXHIBIT 4.32 THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS. CRITICAL PATH, INC. CONVERTIBLE SUBORDINATED PROMISSORY NOTE $1,325,000 San Francisco, California March 9, 2004 Critical Path, Inc., a California corporation (the "Company"), the principal office of which is located in San Francisco, California, for value received hereby promises to pay to the order of Permal U.S. Opportunities Limited, or its registered assigns ("Holder"), the sum of one million three hundred twenty-five thousand dollars ($1,325,000), or such lesser amount as shall then equal the outstanding principal amount hereof on the terms and conditions set forth hereinafter. The outstanding principal amount hereof and all accrued and unpaid interest hereon, as set forth below, shall be due and payable on the earlier to occur of (i) March 9, 2008, (ii) when declared due and payable by Holder upon the occurrence of an Event of Default (as defined below), (iii) consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock or Stock Equivalents by the Company, any cash capital contribution from any third person or any other debt or equity financing consummated by the Company after the date of issuance of this Note which, in the case of (v), individually or in the aggregate raises proceeds of at least forty million dollars ($40,000,000) in cash or cash equivalents (the earliest of the events set forth in items (i)-(v) immediately above, the "Maturity Date"). The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. Except as otherwise defined herein, each capitalized term used herein shall have the meaning assigned to it in the Note Purchase Agreement, as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. All other references to the Note Purchase Agreement in this Note refer to the Note Purchase Agreement as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. As used in this Note, the following terms, unless the context otherwise requires, have the following meanings: 1.1 "Affiliate" means any Person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended. 1.2 "Capitalized Lease Obligations" means, with respect to any Person, all rental obligations of such Person which, under GAAP, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with such principles. 1.3 "Change of Control" shall mean (i) any merger, consolidation or other business combination transaction (or series of related transactions) in which the stockholders owning a majority of the voting securities of the Company prior to such transaction do not own a majority of the voting securities of the surviving entity, (ii) any tender offer, exchange offer or other transaction whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended) (other than General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and the Affiliates of the foregoing, provided that Affiliates shall be deemed not to include any portfolio companies of any of the foregoing) obtains a majority of the outstanding shares of capital stock entitled to vote in the election of directors, (iii) any proxy contest in which a majority of the Board of Directors of the Company (or persons appointed by such Board of Directors) prior to such contest do not constitute a majority of the Company's Board of Directors after such contest or (iv) any other transaction described in any stockholder rights agreement or "poison pill," if any, to which the Company is party, which may permit the holders of any rights or similar certificates to exercise the rights evidenced thereby. 1.4 "Company" shall have the meaning set forth in the recitals hereto, and includes any corporation that shall succeed to or assume the obligations of the Company under this Note. 1.5 "Common Conversion Date" shall have the meaning set forth in Section 3.1(b) hereof. 1.6 "Common Stock" means the common stock, par value $0.001 per share, of the Company. 1.7 "Conversion Date" shall mean the Subsequent Closing Date. 1.8 "Domestic Subsidiary" shall have the meaning set forth in Section 5.10 hereof. 2 1.9 "Event of Default" shall have the meaning set forth in Section 6 hereof. 1.10 "GA Notes" shall mean the Convertible Subordinated Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP Entities pursuant to the Purchase and Exchange Agreement. 1.11 "GAP Entities" shall mean General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG. 1.12 "Guarantor" shall have the meaning set forth in the Security Agreement. 1.13 "Holder" shall mean the registered holder of this Note from time to time, and in the plural, shall mean all registered holders of Notes from time to time issued by the Company pursuant to the Note Purchase Agreement. 1.14 "Intercreditor Agreement" shall mean the Intercreditor Agreement, dated the date hereof, among the GAP Entities, the January Lenders, Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures International. 1.15 "Interest Amount" shall have the meaning set forth in Section 3.1 hereof. 1.16 "Investment" means (i) the acquisition (whether for cash, property, services, assumption of Indebtedness, securities or otherwise) of assets (other than equipment, inventory, supplies or other assets acquired in the ordinary course of business of the Company), capital stock, bonds, notes, debentures, partnership, joint venture or other ownership interests or other securities of any Person, (ii) any deposit with, or advance, loan or other extension of credit to, or on behalf of, any Person (other than deposits made in connection with the purchase of equipment, inventory, services, leases, supplies or other assets in the ordinary course of business of the Company), and (iii) any other capital contribution to or investment in any Person, including, without limitation, any guaranty obligation incurred for the benefit of any Person. For the sake of clarity, Investments shall include any transfer of property or assets by the Company to any of its Subsidiaries or by any Subsidiary of the Company to any other Subsidiary. 1.17 "January Lenders" shall mean Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P. 1.18 "January Note Agreement" shall mean the Convertible Note Purchase Agreement, dated January 16, 2004, among the January Lenders and the Company. 3 1.19 "January 2004 Notes" shall mean the Convertible Subordinated Promissory Notes, each dated January 16, 2003, issued by the Company to the January Lenders pursuant to the January Note Agreement. 1.20 "Loan Documents" shall have the meaning set forth in the Security Agreement. 1.21 "Note" shall mean this note, and in the plural, shall mean all notes issued to the Lenders pursuant to the terms of the Note Purchase Agreement, including this Note, and all amendments, modifications and extensions thereto. 1.22 "Note Purchase Agreement" means that certain Convertible Note Purchase Agreement, dated March 9, 2004, among the Company, the Holder and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.23 "Permitted Investments" means (i) Investments in cash or cash equivalents, (ii) accounts receivable created, acquired or made in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (iii) Investments existing on the closing date, and listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty obligations permitted by Section 5.3 of this Agreement, (v) loans to employees, directors or officers of the Company in connection with the award of convertible bonds or capital stock under a stock incentive plan, stock option plan or other equity-based compensation plan or arrangement, (vi) other advances or loans to employees, directors, officers or agents of the Company in the ordinary course of business not to exceed $500,000 in the aggregate at any time outstanding; (vii) loans, advances and investments in foreign Subsidiaries (that are not incorporated or otherwise organized under the laws of the United States of America or any state thereof) in an amount not to exceed $1,000,000 in the aggregate at any time outstanding; (viii) any acquisition for which the prior written consent of the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement has been obtained, (ix) other loans, advances and investments of a nature not contemplated by the foregoing sections in an amount not to exceed $500,000 in the aggregate at any time outstanding or (x) Investments by the Company in the Guarantor. 1.24 "Permitted Liens" shall have the meaning set forth in Section 5.4. 1.25 "Person" means any individual, firm, corporation, partnership, trust, joint venture, joint stock company, limited liability company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. 1.26 "Price Per Share" shall have the meaning attributed to such term in the Series E Certificate of Determination, as filed with the Secretary of State of the State of California. 4 1.27 "Purchase and Exchange Agreement" shall mean the Convertible Note Purchase and Exchange Agreement, dated November 18, 2003, among the Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended. 1.28 "Qualified Asset Sale" means the sale, transfer or other disposition of any of the assets of the Company or any of its Subsidiaries, other than (a) sales of assets in the ordinary course of business, (b) sales of assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the sale, transfer or other disposition of assets of the Company where the proceeds are applied to the purchase price or traded in for credit against the purchase price of other assets, provided that any such purchase is made, or credit issued, within 90 days of the sale, transfer or other disposition, and (d) one or more sales of the Company's assets (other than sales otherwise included in clauses (a), (b), and (c) immediately above) which collectively yield up to an aggregate of one million dollars ($1,000,000) in gross proceeds to the Company while this Note is outstanding. 1.29 "Restricted Payment" means (a) any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Company or any of its Subsidiaries or (b) any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any shares of any class of capital stock of the Company or any Subsidiary or any option, warrant or other right to acquire any such shares of capital stock of the Company or any Subsidiary. 1.30 "Security Agreement" means that certain Guaranty and Security Agreement, of even date herewith between the Company, Compass Holding Corp., the Lenders and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.31 "Series E Conversion Price" shall have the meaning set forth in the Series E Certificate of Determination. 1.32 "Series E Preferred Stock" means the Series E Preferred Stock, par value $0.001, of the Company. 1.33 "Subordination Agreement" shall have the meaning set forth in Section 5.3. 1.34 "Subsequent Closing Date" shall have the meaning set forth in Section 2.4(e) of the Note Purchase Agreement. 1.35 "SVB" means Silicon Valley Bank, a California chartered bank, or any Affiliates thereof. 1.36 "Ten Percent Holder" means, with respect to a class of equity securities of the Company, a Person (together with such Person's Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such class of equity securities of 5 the Company, as defined by Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 1.37 "UCC" shall have the meaning set forth in Section 5.4. 2. Interest. Simple interest shall accrue at the rate of ten percent (10%) per annum (or such lesser amount as shall equal the highest rate of interest allowable under applicable law) (the "Interest Rate"), on the outstanding principal of this Note from the date of this Note until the Maturity Date or the date this Note is otherwise repaid. The Company shall not be obligated to make any payments of interest which shall have accrued under this Note prior to the Maturity Date. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. In the event that the principal amount of this Note, any interest, or any amount payable hereunder is not paid in full when such amount becomes due and payable, or upon the occurrence of an Event of Default, interest shall accrue at the lesser of (a) the initial Interest Rate plus five percent (5%) per annum or (b) the highest rate of interest allowable under applicable law, on the balance of all amounts outstanding until such overdue amounts are paid or the Event of Default is cured, and such interest shall be payable on demand. 3. Conversion. 3.1 Conversion. (a) On the Conversion Date, the principal amount of this Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall be automatically converted into the number of fully paid and nonassessable shares of Series E Preferred Stock equal to the quotient obtained by dividing (a) the entire principal amount of this Note plus the Interest Amount by (b) the Price Per Share. (b) In the event that the Conversion Date has not occurred on or prior to August 15, 2004 (the "Common Conversion Date"), then, following the Common Conversion Date, the principal amount of this Note plus the Interest Amount shall be convertible, at the option of Holder and from time to time, only into Common Stock at a conversion price per share equal to $2.18, as adjusted for any stock dividends, stock splits or similar consolidations or subdivisions, following the date hereof; provided, however, that Holder shall not be permitted to convert any portion of the principal of this Note or the Interest Amount into Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion, the conversion would cause Holder to be a Ten Percent Holder. 3.2 Notice of Conversion. Upon conversion of this Note as provided in Section 3.1, Holder shall surrender this Note to the Company and shall state the name or names in which the certificate or certificates for such shares of Series E Preferred Stock or Common Stock, as the case may be, are to be issued. The Person or Persons entitled to receive the shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion shall be treated for all purposes as the record holder or holders (a) of such shares of Series E Preferred Stock as of the 6 Conversion Date and (b) of such shares of Common Stock as of the date of any conversion pursuant to Section 3.1(b). 3.3 Delivery of Stock Certificates. Upon conversion of this Note as provided in Section 3.1, the Company at its expense will issue and deliver to Holder of this Note a certificate or certificates (bearing such legends as are required by applicable state and federal securities laws in the opinion of counsel to the Company) for the number of full shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion. 3.4 Mechanics and Effect of Conversion. No fractional shares of Series E Preferred Stock or Common Stock, as the case may be, shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to Holder upon the conversion of this Note, the Company shall pay to Holder the amount of outstanding principal and interest that is not so converted. Upon conversion of all amounts due under this Note, the Company shall be released from all of its obligations under this Note. 4. Adjustments. The number of shares of Series E Preferred Stock or Common Stock convertible hereunder are subject to adjustment from time to time as follows: 4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at any time while this Note remains outstanding and unexpired there shall be (a) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (b) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise or (c) a sale or transfer of the Company's stock, properties or assets as, or substantially as, an entirety to any other Person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that Holder shall thereafter be entitled to receive by converting this Note the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon conversion of this Note would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Note had been converted immediately before such reorganization, merger, consolidation, sale or transfer (notwithstanding that the Stockholder Approval may not yet have been obtained), all subject to further adjustment as provided in this Section 4. The foregoing provisions of this Section 4.1 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation. If the per share consideration payable to Holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors based on the amount the Holder would have otherwise been entitled to receive had the transaction or transactions not occurred. 7 In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of Holder after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon conversion of this Note. The Company shall be obligated to retain and set aside, or otherwise make fair provision for exercise of the right of the Holder to receive, the shares of stock and/or other securities, cash or other property provided for in this Section 4.1. 4.2 Election of Holder upon Merger or Sale of Assets. Notwithstanding anything to the contrary contained herein, if an event shall occur as provided in Section 4.1 hereof that would otherwise result in the occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first paragraph of this Note, then the Holder may, in its sole discretion, by written notice to the Company elect to convert the principal amount of this Note plus the Interest Amount into the number of shares of stock or other securities or property described in Section 4.1, in lieu of receiving payment in full of all amounts outstanding under this Note. The number of shares of stock or other securities or property to be issued upon such conversion shall be determined in accordance with Section 4.1 hereof, taking into account the occurrence of such event. 4.3 Reclassification, Etc. If the Company shall, at any time while this Note, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, change any of the securities as to which conversion rights under this Note exist into the same or a different number of securities of any other class or classes, this Note shall thereafter represent the right to acquire such number and kind of securities as would have been issuable with respect to the securities that were subject to the conversion rights under this Note immediately prior to such reclassification or other change, and the Price Per Share shall be appropriately adjusted, all subject to further adjustment as provided in this Section 4. 4.4 Split, Subdivision or Combination of Shares. If the Company at any time while this Note, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the shares of Series E Preferred Stock or Common Stock into a different number of securities of the same class, the Price Per Share or conversion price, as the case may be, shall be proportionately adjusted. 4.5 Series E Adjustments. The initial Series E Conversion Price of the shares of Series E Preferred Stock issued upon conversion of this Note pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on the Conversion Date, subject to the adjustment of such Series E Conversion Price from time to time thereafter as provided in the Series E Certificate of Determination. 4.6 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 4, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. 8 4.7 No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 5. Covenants. The Company covenants and agrees that until the earlier of (i) the date on which all Obligations (as defined in the Security Agreement) have been paid in full or (ii) the date on which all amounts outstanding under the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b): 5.1 Financial Statements and Other Information. The Company shall deliver to the Holder of this Note the financial statements and other information required to be delivered under Section 8.1 of the Note Purchase Agreement. 5.2 Financial Covenants. The Company shall at all times comply with the financial and other covenants set forth in Schedule 8.5 to the Note Purchase Agreement as if such covenants were set forth herein. 5.3 Indebtedness. The Company shall not, and shall not permit any Subsidiary to, issue, incur, assume, create or have outstanding any Indebtedness, provided, however, that the foregoing shall not restrict nor operate to prevent: (a) Indebtedness in favor of the Holders under the Loan Documents; (b) Indebtedness existing on the date hereof, as set forth on Schedule 3.22 to the Note Purchase Agreement; (c) Indebtedness for accounts payable incurred in the ordinary course of business by the Company; (d) Indebtedness incurred solely for the purpose of financing the acquisition of any equipment, machinery, software, improvements or any other similar property, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, that the aggregate outstanding principal amount of all Indebtedness permitted pursuant to this clause (d) outstanding for more than sixty (60) days after the incurrence of such Indebtedness shall not at any time exceed $500,000; (e) Indebtedness of the Company evidenced by Capitalized Lease Obligations, provided, that in no event shall the aggregate principal amount of Capitalized Lease Obligations permitted by this clause (e) exceed $500,000 at any time outstanding; and 9 (f) Any extension, renewal, refinancing, refunding, or replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and (e) above, on such terms and conditions as are, on the whole, not materially more onerous to the Company than the terms and conditions of such original Indebtedness on the date of such refinancing (including that the principal amount of such refinancing Indebtedness does not exceed the principal amount of, plus the amount of accrued and unpaid interest on, the Indebtedness so refinanced (plus the amount of reasonable premium and fees and expenses incurred in connection therewith)), provided that, in the case of a refinancing of Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall only apply to the extent consistent with the Subordination Agreement, dated as of the date hereof, by and among SVB, the Holders and the Company (the "Subordination Agreement"). 5.4 Liens. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of the Company or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable), or assign any right to receive income or permit the filing of any financing statement under the Uniform Commercial Code, as from time to time in effect in the relevant jurisdiction (the "UCC"), or any other similar notice of Lien under any similar recording or notice statute; provided, that the provisions of this Section 5.4 shall not prevent the creation, incurrence, assumption or existence of the following: (a) Liens arising in the ordinary course of business by statute in connection with worker's compensation, unemployment insurance, old age benefits, social security obligations, statutory obligations or other similar charges (other then Liens arising under ERISA), good faith cash deposits in connection with tenders, contracts or leases to which the Company or any Subsidiary is a party or other cash deposits required to be made in the ordinary course of business, provided, that such Liens do not have a material adverse effect on the ability of the Company to repay amounts due under the Notes; (b) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (c) Liens in respect of property or assets of the Company or its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (i) which do not in the aggregate materially detract from the value of the Company's and its Subsidiaries' property or assets taken as a whole or result in a material adverse effect on the Condition of the Company or (ii) which are 10 being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; (d) the pledge of assets for the purpose of securing an appeal, stay or discharge in the course of any legal proceeding, provided that the aggregate amount of liabilities of the Company and its Subsidiaries secured by a pledge of assets permitted under this subsection, including interest and penalties thereon, if any, shall not be in excess of $500,000 at any one time outstanding; (e) any interest or title of a lessor under any operating lease; (f) easements, rights-of-way, restrictions and other similar encumbrances against real property incurred in the ordinary course of business; (g) the Liens existing on the date hereof identified on Schedule 3.22 to the Note Purchase Agreement; (h) Liens on cash deposited with account debtors to secure performance by the Company or any Subsidiary in the ordinary course of business subject to customary and reasonable terms; (i) Liens upon assets of the Company or its Subsidiaries subject to Capitalized Lease Obligations, provided, that (A) such Liens only serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising under such Capitalized Lease Obligation and (B) the Lien encumbering the asset giving rise to the Capitalized Lease Obligation does not encumber any other asset of the Company or its Subsidiaries; (j) Liens placed upon equipment, machinery, software, improvements or any other similar property, used in the ordinary course of business of the Company or any of its Subsidiaries at the time of the acquisition thereof by the Company or any of its Subsidiaries or within ninety (90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above; provided, that the Liens encumbering the equipment, machinery software, improvements or any other similar property so acquired do not encumber any other asset of the Company or its Subsidiaries; (k) set-off rights of depository institutions; and (l) Liens created by the Security Agreement (collectively with clauses (a) through (k) hereof, the "Permitted Liens"). 5.5 Fundamental Changes. The Company will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or a series of transactions) all or substantially all of its 11 assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time and immediately after giving effect thereto no Event of Default shall have occurred and be continuing (i) the Company or any of its Subsidiaries may, with the prior written consent of the Holders, merge with or into any other Person; (ii) any wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with or into the Company or any other wholly-owned Subsidiary of the Company; (iii) any Subsidiary (other than the Guarantor, and except as otherwise prohibited by this Note) may sell, transfer, lease or otherwise dispose of its assets to the Company or to another wholly-owned Subsidiary of the Company; and (iv) any Subsidiary may liquidate or dissolve if the board of directors of the Company determine in good faith that such liquidation or dissolution is in its best interests and is not disadvantageous to the Holders. 5.6 Restricted Payments. The Company will not, and the Company will not permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that (i) any Subsidiary may make a Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any Restricted Payment required by the terms of the Note Purchase Agreement and the other documents executed in connection therewith. 5.7 Transactions with Affiliates. The Company will not, and the Company will not permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions that are at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arm's length basis from unrelated third parties, (b) transactions exclusively between the Company and the Guarantor and (c) transactions under the agreements listed on Schedule 3.17 to the Note Purchase Agreement. 5.8 Investments. The Company will not, and the Company will not permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment in any Person, except for Permitted Investments. 5.9 Nature of Business. The Company will not, and the Company will not permit any Subsidiary to, engage in any business other than that conducted on the date hereof and any businesses reasonably related thereto. 5.10 Property of Existing Domestic Subsidiaries. The Company will not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise organized under the laws of the United States of America or any state thereof (a "Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease, license, purchase or otherwise acquire any personal or real property (excluding any material intellectual property) in excess of $50,000 for all property held by such Subsidiary, or $250,000 in the aggregate for all property held by all Domestic Subsidiaries (ii) maintain 12 any deposit account in its name, (iii) own or otherwise hold any rights to any material intellectual property or (iv) otherwise conduct any business or maintain operations. 5.11 Formation of Subsidiaries. The Company will not, and will not cause or permit any of its Subsidiaries to, form, acquire or permit the existence of any new domestic Subsidiary, without causing such domestic Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes and related security document, in form and substance satisfactory to the Holders. 5.12 Books and Records. The Company shall keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Company and its Subsidiaries in accordance with GAAP consistently applied. 5.13 Inspection. The Company shall, and shall cause each of its Subsidiaries to, permit representatives of the Holders to visit and inspect any of its properties, to examine its corporate, financial and operating records and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with their respective directors, officers and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably requested upon notice to the Company. 5.14 Maintenance of Business. The Company shall, and shall cause each Subsidiary to, preserve and maintain its existence. The Company shall, and shall cause each Subsidiary to, preserve and keep in force and effect all licenses, permits, franchises, approvals, patents, trademarks, trade names, trade styles, copyrights, and other property rights necessary to the proper conduct of its business, except where the failure to do so could not reasonably be expected to have a material adverse effect on the Condition of the Company or on the prospects of repayment of the Notes. 5.15 Maintenance of Properties. The Company shall, and shall cause each Subsidiary to, maintain, preserve and keep its property and equipment in good repair, working order and condition (ordinary wear and tear excepted) and shall from time to time make all needful and proper repairs, renewals, replacements, additions and betterments thereto so that at all times the efficiency thereof shall by fully preserved and maintained, except in each case to the extent that, in the reasonable business judgment of such Person, any such property or equipment is no longer necessary for the proper conduct of the business of such Person. 6. The occurrence of any one or more of the following events shall constitute an "Event of Default": 6.1 Failure To Pay. (i) The failure of the Company to pay any principal due under any of the Notes when due and payable (whether by acceleration, declaration, extension or otherwise), or (ii) the failure of the Company to pay any other amounts due under any of the Notes when due and payable if such failure is not cured within five (5) days of Company's receipt of notice thereof from any of the Holders. 13 6.2 Financial Covenants. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2. 6.3 Other Covenants and Agreements. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the covenants of this Note, the Security Agreement or any of the other Loan Documents (other than the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2), if such failure is not cured within sixty (60) days. 6.4 Representations and Warranties. If any representation or warranty made by the Company or any of its Subsidiaries in the Loan Documents is not true and correct in all material respects on the Initial Closing Date. 6.5 Default on Other Obligations. The occurrence of any condition or default under any other indebtedness for borrowed money of the Company or any of its Subsidiaries with a principal amount of at least five hundred thousand dollars ($500,000) that results in the acceleration of such indebtedness which is not cured within sixty (60) days. 6.6 Involuntary Bankruptcy. There shall be filed against the Company or any of its Subsidiaries an involuntary petition or other pleading seeking the entry of a decree or order for relief under the United States Bankruptcy Code or any similar federal or state insolvency or similar laws ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a reorganization of the Company or any of its Subsidiaries or the business and affairs of the Company or any of its Subsidiaries or (c) the appointment of a receiver, liquidator, assignee, custodian, trustee or similar official for the Company or any of its Subsidiaries of the property of the Company or any of its Subsidiaries. 6.7 Voluntary Bankruptcy. The commencement by the Company or any of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any federal or state insolvency or similar laws or the consent by the Company or any of its Subsidiaries to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian or similar official for the Company or any of its Subsidiaries of any of the property of the Company or any of its Subsidiaries or the making by the Company or any of its Subsidiaries of an assignment for the benefit of creditors, or the failure by Company or any of its Subsidiaries generally to pay its debts as the debts become due. 6.8 Judgments, Awards. Any judgment or order for the payment of money is rendered against the Company or any of its Subsidiaries in an amount in excess of five hundred thousand dollars ($500,000) individually or in the aggregate and either (i) enforcement proceedings are commenced by any creditor upon such judgment or order and not stayed, or (ii) there is any period of sixty (60) consecutive 14 days during which such judgment has not been paid in full or a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, is not in effect. 6.9 Attachment by Lenders. Any assets of the Company or any of its Subsidiaries shall be attached, levied upon, seized or repossessed, or come into the possession of a trustee, receiver or other custodian and a determination by any Holder, in good faith but in its sole discretion, that the same could have a material adverse effect on the prospect for the Holders to fully and punctually realize the full benefits conferred on the Holders by the Loan Documents. 6.10 Adverse Change in Financial Condition. Any event having a material adverse effect on the business, operations, assets, properties or condition of the Company and its Subsidiaries taken as a whole shall have occurred and be continuing or a material adverse effect on the validity or enforceability of this or any of the other Loan Documents or the rights or remedies of the Holders hereunder or thereunder. 7. Remedies. Upon and after the occurrence of an Event of Default, the Holder shall be entitled to the exercise the rights and remedies set forth in the Security Agreement, the other Loan Documents and under applicable law, all such rights and remedies being cumulative and enforceable alternatively, successively or concurrently. 8. Prepayment. The Company may not prepay this Note prior to the Maturity Date without the prior written consent of the Holders. 9. Seniority. (a) Except as set forth in the Subordination Agreement, the Notes will rank senior in right of payment to all other indebtedness of the Company, other than the GA Notes and the January 2004 Notes, with respect to which the Notes will be pari passu in right of payment in accordance with the Intercreditor Agreement. (b) Notwithstanding anything to the contrary contained in the Notes, this Note and the other Notes, and the terms and the conditions hereof and thereof, are subject to the Intercreditor Agreement. 10. Assignment. Subject to the restrictions on transfer described in Section 12 below, the rights and obligations of the Company and Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. The Company shall not be permitted to assign this Note without the prior written consent of the Holders. 11. Waiver of Notice. The Company hereby waives notice, presentment, demand, protest and notice of dishonor. 12. Transfer of This Note. With respect to any offer, sale or other disposition of this Note, Holder will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such Holder's 15 counsel, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect); provided, that no opinion shall be required for any transfer to an Affiliate or if the transfer is made in compliance with the Securities Act, so long as the transferee can make the same representations and warranties at the time of transfer as set forth in Sections 4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly upon delivering such written notice and opinion, if so required, Holder may sell or otherwise dispose of this Note, all in accordance with the terms of the notice delivered to the Company. Each Note thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Notwithstanding the foregoing, the Holder shall not be permitted to transfer this Note to any Person who is not an Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of written notice from the Company that Stockholder Approval cannot be obtained, or the occurrence of an actual vote of the Company's shareholders entitled to vote (whether by written consent or at a meeting specially called for such purpose), the result of which is a decision by a majority of the Company's shareholders entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of an Event of Default. This Note is registered as to both principal and stated interest with the Company (or its agent) within the meaning of section 1.871-14(c)(1)(i) of the Income Tax Regulations. Accordingly, notwithstanding anything to the contrary in this paragraph, this Note, together with any interest thereon, may be transferred only (i) upon surrender of the Note by the transferor to the Company (or its agent) and the reissuance of the Note (or the issuance of a new Note) to the transferee, or (ii) by transfer of the right to principal and interest through a book-entry system meeting the requirements of section 1.871-14(c)(1)(i)(B) of the Income Tax Regulations that is maintained by the Company (or its agent). In the case of a Holder that is not a "United States person" within the meaning of section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the "Code"), so long as an exception under section 871(h) or section 881(c) of the Code does not apply, the Company (or its agent) shall not withhold any U.S. federal income tax with respect to such Holder provided that the Holder timely provides the Company (or its agent) with a statement that meets the requirements of section 871(h)(5) of the Code. 13. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 14. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally recognized courier service or mailed by registered or certified mail, postage prepaid, to the respective addresses of the parties as set forth on the signature pages hereto or if sent by facsimile to the respective facsimile numbers of the parties set forth on the signature pages hereto. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively 16 be deemed to have been given and received when personally delivered or three (3) business days after deposited in the mail or one business day after sent by courier or upon confirmation of facsimile delivery in the manner set forth above. 15. No Stockholder Rights. Nothing contained in this Note shall be construed as conferring upon Holder or any other Person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. 16. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law relating to conflict of laws. 17. Amendments and Waivers. No amendments or waivers of any provision of this Note, and no consent by the Holder to any departure by the Company, shall in any event be effective unless the same shall be in writing, and signed by the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 18. Severability. Any provision of this Note that is prohibited or unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE COMPANY AND THE 17 HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. 20. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except as otherwise indicated, all references herein to Sections refer to Sections hereof. [the remainder of this page intentionally left blank] 18 IN WITNESS WHEREOF, the Company has caused this Note to be issued this 9th day of March, 2004. COMPANY: CRITICAL PATH, INC., a California corporation By: /s/ William E. McGlashan, Jr. -------------------------------------- Name: William E. McGlashan, Jr. Title: Chairman, Chief Executive Officer Critical Path, Inc. 350 The Embarcadero San Francisco, CA 94105-1204 Telecopy: (415) 541-2300 Attention: Chief Financial Officer With a copy to: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Telecopy: (415) 983-1200 Attention: Gregg Vignos, Esq. Name of Holder: PERMAL U.S. OPPORTUNITIES LIMITED Address: c/o Apex Capital, LLC 25 Orinda Way, Suite 300 Orinda, CA 94563 Attention: Adam Fiore, General Counsel Telephone: (925) 253-6125 Facsimile: (925) 253-1809 EX-4.33 18 f97295exv4w33.txt EXHIBIT 4.33 EXHIBIT 4.33 THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS. CRITICAL PATH, INC. CONVERTIBLE SUBORDINATED PROMISSORY NOTE $220,000 San Francisco, California March 9, 2004 Critical Path, Inc., a California corporation (the "Company"), the principal office of which is located in San Francisco, California, for value received hereby promises to pay to the order of Zaxis Equity Neutral, L.P., or its registered assigns ("Holder"), the sum of two hundred twenty thousand dollars ($220,000), or such lesser amount as shall then equal the outstanding principal amount hereof on the terms and conditions set forth hereinafter. The outstanding principal amount hereof and all accrued and unpaid interest hereon, as set forth below, shall be due and payable on the earlier to occur of (i) March 9, 2008, (ii) when declared due and payable by Holder upon the occurrence of an Event of Default (as defined below), (iii) consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock or Stock Equivalents by the Company, any cash capital contribution from any third person or any other debt or equity financing consummated by the Company after the date of issuance of this Note which, in the case of (v), individually or in the aggregate raises proceeds of at least forty million dollars ($40,000,000) in cash or cash equivalents (the earliest of the events set forth in items (i)-(v) immediately above, the "Maturity Date"). The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. Except as otherwise defined herein, each capitalized term used herein shall have the meaning assigned to it in the Note Purchase Agreement, as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. All other references to the Note Purchase Agreement in this Note refer to the Note Purchase Agreement as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. As used in this Note, the following terms, unless the context otherwise requires, have the following meanings: 1.1 "Affiliate" means any Person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended. 1.2 "Capitalized Lease Obligations" means, with respect to any Person, all rental obligations of such Person which, under GAAP, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with such principles. 1.3 "Change of Control" shall mean (i) any merger, consolidation or other business combination transaction (or series of related transactions) in which the stockholders owning a majority of the voting securities of the Company prior to such transaction do not own a majority of the voting securities of the surviving entity, (ii) any tender offer, exchange offer or other transaction whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended) (other than General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and the Affiliates of the foregoing, provided that Affiliates shall be deemed not to include any portfolio companies of any of the foregoing) obtains a majority of the outstanding shares of capital stock entitled to vote in the election of directors, (iii) any proxy contest in which a majority of the Board of Directors of the Company (or persons appointed by such Board of Directors) prior to such contest do not constitute a majority of the Company's Board of Directors after such contest or (iv) any other transaction described in any stockholder rights agreement or "poison pill," if any, to which the Company is party, which may permit the holders of any rights or similar certificates to exercise the rights evidenced thereby. 1.4 "Company" shall have the meaning set forth in the recitals hereto, and includes any corporation that shall succeed to or assume the obligations of the Company under this Note. 1.5 "Common Conversion Date" shall have the meaning set forth in Section 3.1(b) hereof. 1.6 "Common Stock" means the common stock, par value $0.001 per share, of the Company. 1.7 "Conversion Date" shall mean the Subsequent Closing Date. 1.8 "Domestic Subsidiary" shall have the meaning set forth in Section 5.10 hereof. 1.9 "Event of Default" shall have the meaning set forth in Section 6 hereof. 2 1.10 "GA Notes" shall mean the Convertible Subordinated Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP Entities pursuant to the Purchase and Exchange Agreement. 1.11 "GAP Entities" shall mean General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG. 1.12 "Guarantor" shall have the meaning set forth in the Security Agreement. 1.13 "Holder" shall mean the registered holder of this Note from time to time, and in the plural, shall mean all registered holders of Notes from time to time issued by the Company pursuant to the Note Purchase Agreement. 1.14 "Intercreditor Agreement" shall mean the Intercreditor Agreement, dated the date hereof, among the GAP Entities, the January Lenders, Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures International. 1.15 "Interest Amount" shall have the meaning set forth in Section 3.1 hereof. 1.16 "Investment" means (i) the acquisition (whether for cash, property, services, assumption of Indebtedness, securities or otherwise) of assets (other than equipment, inventory, supplies or other assets acquired in the ordinary course of business of the Company), capital stock, bonds, notes, debentures, partnership, joint venture or other ownership interests or other securities of any Person, (ii) any deposit with, or advance, loan or other extension of credit to, or on behalf of, any Person (other than deposits made in connection with the purchase of equipment, inventory, services, leases, supplies or other assets in the ordinary course of business of the Company), and (iii) any other capital contribution to or investment in any Person, including, without limitation, any guaranty obligation incurred for the benefit of any Person. For the sake of clarity, Investments shall include any transfer of property or assets by the Company to any of its Subsidiaries or by any Subsidiary of the Company to any other Subsidiary. 1.17 "January Lenders" shall mean Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P. 1.18 "January Note Agreement" shall mean the Convertible Note Purchase Agreement, dated January 16, 2004, among the January Lenders and the Company. 1.19 "January 2004 Notes" shall mean the Convertible Subordinated Promissory Notes, each dated January 16, 2003, issued by the Company to the January Lenders pursuant to the January Note Agreement. 3 1.20 "Loan Documents" shall have the meaning set forth in the Security Agreement. 1.21 "Note" shall mean this note, and in the plural, shall mean all notes issued to the Lenders pursuant to the terms of the Note Purchase Agreement, including this Note, and all amendments, modifications and extensions thereto. 1.22 "Note Purchase Agreement" means that certain Convertible Note Purchase Agreement, dated March 9, 2004, among the Company, the Holder and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.23 "Permitted Investments" means (i) Investments in cash or cash equivalents, (ii) accounts receivable created, acquired or made in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (iii) Investments existing on the closing date, and listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty obligations permitted by Section 5.3 of this Agreement, (v) loans to employees, directors or officers of the Company in connection with the award of convertible bonds or capital stock under a stock incentive plan, stock option plan or other equity-based compensation plan or arrangement, (vi) other advances or loans to employees, directors, officers or agents of the Company in the ordinary course of business not to exceed $500,000 in the aggregate at any time outstanding; (vii) loans, advances and investments in foreign Subsidiaries (that are not incorporated or otherwise organized under the laws of the United States of America or any state thereof) in an amount not to exceed $1,000,000 in the aggregate at any time outstanding; (viii) any acquisition for which the prior written consent of the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement has been obtained, (ix) other loans, advances and investments of a nature not contemplated by the foregoing sections in an amount not to exceed $500,000 in the aggregate at any time outstanding or (x) Investments by the Company in the Guarantor. 1.24 "Permitted Liens" shall have the meaning set forth in Section 5.4. 1.25 "Person" means any individual, firm, corporation, partnership, trust, joint venture, joint stock company, limited liability company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. 1.26 "Price Per Share" shall have the meaning attributed to such term in the Series E Certificate of Determination, as filed with the Secretary of State of the State of California. 1.27 "Purchase and Exchange Agreement" shall mean the Convertible Note Purchase and Exchange Agreement, dated November 18, 2003, among the Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended. 4 1.28 "Qualified Asset Sale" means the sale, transfer or other disposition of any of the assets of the Company or any of its Subsidiaries, other than (a) sales of assets in the ordinary course of business, (b) sales of assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the sale, transfer or other disposition of assets of the Company where the proceeds are applied to the purchase price or traded in for credit against the purchase price of other assets, provided that any such purchase is made, or credit issued, within 90 days of the sale, transfer or other disposition, and (d) one or more sales of the Company's assets (other than sales otherwise included in clauses (a), (b), and (c) immediately above) which collectively yield up to an aggregate of one million dollars ($1,000,000) in gross proceeds to the Company while this Note is outstanding. 1.29 "Restricted Payment" means (a) any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Company or any of its Subsidiaries or (b) any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any shares of any class of capital stock of the Company or any Subsidiary or any option, warrant or other right to acquire any such shares of capital stock of the Company or any Subsidiary. 1.30 "Security Agreement" means that certain Guaranty and Security Agreement, of even date herewith between the Company, Compass Holding Corp., the Lenders and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.31 "Series E Conversion Price" shall have the meaning set forth in the Series E Certificate of Determination. 1.32 "Series E Preferred Stock" means the Series E Preferred Stock, par value $0.001, of the Company. 1.33 "Subordination Agreement" shall have the meaning set forth in Section 5.3. 1.34 "Subsequent Closing Date" shall have the meaning set forth in Section 2.4(e) of the Note Purchase Agreement. 1.35 "SVB" means Silicon Valley Bank, a California chartered bank, or any Affiliates thereof. 1.36 "Ten Percent Holder" means, with respect to a class of equity securities of the Company, a Person (together with such Person's Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such class of equity securities of the Company, as defined by Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 1.37 "UCC" shall have the meaning set forth in Section 5.4. 5 2. Interest. Simple interest shall accrue at the rate of ten percent (10%) per annum (or such lesser amount as shall equal the highest rate of interest allowable under applicable law) (the "Interest Rate"), on the outstanding principal of this Note from the date of this Note until the Maturity Date or the date this Note is otherwise repaid. The Company shall not be obligated to make any payments of interest which shall have accrued under this Note prior to the Maturity Date. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. In the event that the principal amount of this Note, any interest, or any amount payable hereunder is not paid in full when such amount becomes due and payable, or upon the occurrence of an Event of Default, interest shall accrue at the lesser of (a) the initial Interest Rate plus five percent (5%) per annum or (b) the highest rate of interest allowable under applicable law, on the balance of all amounts outstanding until such overdue amounts are paid or the Event of Default is cured, and such interest shall be payable on demand. 3. Conversion. 3.1 Conversion. (a) On the Conversion Date, the principal amount of this Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall be automatically converted into the number of fully paid and nonassessable shares of Series E Preferred Stock equal to the quotient obtained by dividing (a) the entire principal amount of this Note plus the Interest Amount by (b) the Price Per Share. (b) In the event that the Conversion Date has not occurred on or prior to August 15, 2004 (the "Common Conversion Date"), then, following the Common Conversion Date, the principal amount of this Note plus the Interest Amount shall be convertible, at the option of Holder and from time to time, only into Common Stock at a conversion price per share equal to $2.18, as adjusted for any stock dividends, stock splits or similar consolidations or subdivisions, following the date hereof; provided, however, that Holder shall not be permitted to convert any portion of the principal of this Note or the Interest Amount into Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion, the conversion would cause Holder to be a Ten Percent Holder. 3.2 Notice of Conversion. Upon conversion of this Note as provided in Section 3.1, Holder shall surrender this Note to the Company and shall state the name or names in which the certificate or certificates for such shares of Series E Preferred Stock or Common Stock, as the case may be, are to be issued. The Person or Persons entitled to receive the shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion shall be treated for all purposes as the record holder or holders (a) of such shares of Series E Preferred Stock as of the Conversion Date and (b) of such shares of Common Stock as of the date of any conversion pursuant to Section 3.1(b). 3.3 Delivery of Stock Certificates. Upon conversion of this Note as provided in Section 3.1, the Company at its expense will issue and deliver to 6 Holder of this Note a certificate or certificates (bearing such legends as are required by applicable state and federal securities laws in the opinion of counsel to the Company) for the number of full shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion. 3.4 Mechanics and Effect of Conversion. No fractional shares of Series E Preferred Stock or Common Stock, as the case may be, shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to Holder upon the conversion of this Note, the Company shall pay to Holder the amount of outstanding principal and interest that is not so converted. Upon conversion of all amounts due under this Note, the Company shall be released from all of its obligations under this Note. 4. Adjustments. The number of shares of Series E Preferred Stock or Common Stock convertible hereunder are subject to adjustment from time to time as follows: 4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at any time while this Note remains outstanding and unexpired there shall be (a) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (b) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise or (c) a sale or transfer of the Company's stock, properties or assets as, or substantially as, an entirety to any other Person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that Holder shall thereafter be entitled to receive by converting this Note the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon conversion of this Note would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Note had been converted immediately before such reorganization, merger, consolidation, sale or transfer (notwithstanding that the Stockholder Approval may not yet have been obtained), all subject to further adjustment as provided in this Section 4. The foregoing provisions of this Section 4.1 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation. If the per share consideration payable to Holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors based on the amount the Holder would have otherwise been entitled to receive had the transaction or transactions not occurred. In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of Holder after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon conversion of 7 this Note. The Company shall be obligated to retain and set aside, or otherwise make fair provision for exercise of the right of the Holder to receive, the shares of stock and/or other securities, cash or other property provided for in this Section 4.1. 4.2 Election of Holder upon Merger or Sale of Assets. Notwithstanding anything to the contrary contained herein, if an event shall occur as provided in Section 4.1 hereof that would otherwise result in the occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first paragraph of this Note, then the Holder may, in its sole discretion, by written notice to the Company elect to convert the principal amount of this Note plus the Interest Amount into the number of shares of stock or other securities or property described in Section 4.1, in lieu of receiving payment in full of all amounts outstanding under this Note. The number of shares of stock or other securities or property to be issued upon such conversion shall be determined in accordance with Section 4.1 hereof, taking into account the occurrence of such event. 4.3 Reclassification, Etc. If the Company shall, at any time while this Note, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, change any of the securities as to which conversion rights under this Note exist into the same or a different number of securities of any other class or classes, this Note shall thereafter represent the right to acquire such number and kind of securities as would have been issuable with respect to the securities that were subject to the conversion rights under this Note immediately prior to such reclassification or other change, and the Price Per Share shall be appropriately adjusted, all subject to further adjustment as provided in this Section 4. 4.4 Split, Subdivision or Combination of Shares. If the Company at any time while this Note, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the shares of Series E Preferred Stock or Common Stock into a different number of securities of the same class, the Price Per Share or conversion price, as the case may be, shall be proportionately adjusted. 4.5 Series E Adjustments. The initial Series E Conversion Price of the shares of Series E Preferred Stock issued upon conversion of this Note pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on the Conversion Date, subject to the adjustment of such Series E Conversion Price from time to time thereafter as provided in the Series E Certificate of Determination. 4.6 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 4, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. 4.7 No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all 8 such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 5. Covenants. The Company covenants and agrees that until the earlier of (i) the date on which all Obligations (as defined in the Security Agreement) have been paid in full or (ii) the date on which all amounts outstanding under the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b): 5.1 Financial Statements and Other Information. The Company shall deliver to the Holder of this Note the financial statements and other information required to be delivered under Section 8.1 of the Note Purchase Agreement. 5.2 Financial Covenants. The Company shall at all times comply with the financial and other covenants set forth in Schedule 8.5 to the Note Purchase Agreement as if such covenants were set forth herein. 5.3 Indebtedness. The Company shall not, and shall not permit any Subsidiary to, issue, incur, assume, create or have outstanding any Indebtedness, provided, however, that the foregoing shall not restrict nor operate to prevent: (a) Indebtedness in favor of the Holders under the Loan Documents; (b) Indebtedness existing on the date hereof, as set forth on Schedule 3.22 to the Note Purchase Agreement; (c) Indebtedness for accounts payable incurred in the ordinary course of business by the Company; (d) Indebtedness incurred solely for the purpose of financing the acquisition of any equipment, machinery, software, improvements or any other similar property, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, that the aggregate outstanding principal amount of all Indebtedness permitted pursuant to this clause (d) outstanding for more than sixty (60) days after the incurrence of such Indebtedness shall not at any time exceed $500,000; (e) Indebtedness of the Company evidenced by Capitalized Lease Obligations, provided, that in no event shall the aggregate principal amount of Capitalized Lease Obligations permitted by this clause (e) exceed $500,000 at any time outstanding; and (f) Any extension, renewal, refinancing, refunding, or replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and (e) above, on such terms and conditions as are, on the whole, not materially more onerous to the Company than the terms and conditions of such original Indebtedness on the date of such refinancing (including that the principal amount of such refinancing Indebtedness 9 does not exceed the principal amount of, plus the amount of accrued and unpaid interest on, the Indebtedness so refinanced (plus the amount of reasonable premium and fees and expenses incurred in connection therewith)), provided that, in the case of a refinancing of Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall only apply to the extent consistent with the Subordination Agreement, dated as of the date hereof, by and among SVB, the Holders and the Company (the "Subordination Agreement"). 5.4 Liens. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of the Company or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable), or assign any right to receive income or permit the filing of any financing statement under the Uniform Commercial Code, as from time to time in effect in the relevant jurisdiction (the "UCC"), or any other similar notice of Lien under any similar recording or notice statute; provided, that the provisions of this Section 5.4 shall not prevent the creation, incurrence, assumption or existence of the following: (a) Liens arising in the ordinary course of business by statute in connection with worker's compensation, unemployment insurance, old age benefits, social security obligations, statutory obligations or other similar charges (other then Liens arising under ERISA), good faith cash deposits in connection with tenders, contracts or leases to which the Company or any Subsidiary is a party or other cash deposits required to be made in the ordinary course of business, provided, that such Liens do not have a material adverse effect on the ability of the Company to repay amounts due under the Notes; (b) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (c) Liens in respect of property or assets of the Company or its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (i) which do not in the aggregate materially detract from the value of the Company's and its Subsidiaries' property or assets taken as a whole or result in a material adverse effect on the Condition of the Company or (ii) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; 10 (d) the pledge of assets for the purpose of securing an appeal, stay or discharge in the course of any legal proceeding, provided that the aggregate amount of liabilities of the Company and its Subsidiaries secured by a pledge of assets permitted under this subsection, including interest and penalties thereon, if any, shall not be in excess of $500,000 at any one time outstanding; (e) any interest or title of a lessor under any operating lease; (f) easements, rights-of-way, restrictions and other similar encumbrances against real property incurred in the ordinary course of business; (g) the Liens existing on the date hereof identified on Schedule 3.22 to the Note Purchase Agreement; (h) Liens on cash deposited with account debtors to secure performance by the Company or any Subsidiary in the ordinary course of business subject to customary and reasonable terms; (i) Liens upon assets of the Company or its Subsidiaries subject to Capitalized Lease Obligations, provided, that (A) such Liens only serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising under such Capitalized Lease Obligation and (B) the Lien encumbering the asset giving rise to the Capitalized Lease Obligation does not encumber any other asset of the Company or its Subsidiaries; (j) Liens placed upon equipment, machinery, software, improvements or any other similar property, used in the ordinary course of business of the Company or any of its Subsidiaries at the time of the acquisition thereof by the Company or any of its Subsidiaries or within ninety (90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above; provided, that the Liens encumbering the equipment, machinery software, improvements or any other similar property so acquired do not encumber any other asset of the Company or its Subsidiaries; (k) set-off rights of depository institutions; and (l) Liens created by the Security Agreement (collectively with clauses (a) through (k) hereof, the "Permitted Liens"). 5.5 Fundamental Changes. The Company will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or a series of transactions) all or substantially all of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time and immediately after giving effect thereto no Event of Default shall have occurred and be continuing (i) the Company or any of its Subsidiaries may, with the prior written 11 consent of the Holders, merge with or into any other Person; (ii) any wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with or into the Company or any other wholly-owned Subsidiary of the Company; (iii) any Subsidiary (other than the Guarantor, and except as otherwise prohibited by this Note) may sell, transfer, lease or otherwise dispose of its assets to the Company or to another wholly-owned Subsidiary of the Company; and (iv) any Subsidiary may liquidate or dissolve if the board of directors of the Company determine in good faith that such liquidation or dissolution is in its best interests and is not disadvantageous to the Holders. 5.6 Restricted Payments. The Company will not, and the Company will not permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that (i) any Subsidiary may make a Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any Restricted Payment required by the terms of the Note Purchase Agreement and the other documents executed in connection therewith. 5.7 Transactions with Affiliates. The Company will not, and the Company will not permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions that are at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arm's length basis from unrelated third parties, (b) transactions exclusively between the Company and the Guarantor and (c) transactions under the agreements listed on Schedule 3.17 to the Note Purchase Agreement. 5.8 Investments. The Company will not, and the Company will not permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment in any Person, except for Permitted Investments. 5.9 Nature of Business. The Company will not, and the Company will not permit any Subsidiary to, engage in any business other than that conducted on the date hereof and any businesses reasonably related thereto. 5.10 Property of Existing Domestic Subsidiaries. The Company will not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise organized under the laws of the United States of America or any state thereof (a "Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease, license, purchase or otherwise acquire any personal or real property (excluding any material intellectual property) in excess of $50,000 for all property held by such Subsidiary, or $250,000 in the aggregate for all property held by all Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own or otherwise hold any rights to any material intellectual property or (iv) otherwise conduct any business or maintain operations. 5.11 Formation of Subsidiaries. The Company will not, and will not cause or permit any of its Subsidiaries to, form, acquire or permit the existence of any 12 new domestic Subsidiary, without causing such domestic Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes and related security document, in form and substance satisfactory to the Holders. 5.12 Books and Records. The Company shall keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Company and its Subsidiaries in accordance with GAAP consistently applied. 5.13 Inspection. The Company shall, and shall cause each of its Subsidiaries to, permit representatives of the Holders to visit and inspect any of its properties, to examine its corporate, financial and operating records and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with their respective directors, officers and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably requested upon notice to the Company. 5.14 Maintenance of Business. The Company shall, and shall cause each Subsidiary to, preserve and maintain its existence. The Company shall, and shall cause each Subsidiary to, preserve and keep in force and effect all licenses, permits, franchises, approvals, patents, trademarks, trade names, trade styles, copyrights, and other property rights necessary to the proper conduct of its business, except where the failure to do so could not reasonably be expected to have a material adverse effect on the Condition of the Company or on the prospects of repayment of the Notes. 5.15 Maintenance of Properties. The Company shall, and shall cause each Subsidiary to, maintain, preserve and keep its property and equipment in good repair, working order and condition (ordinary wear and tear excepted) and shall from time to time make all needful and proper repairs, renewals, replacements, additions and betterments thereto so that at all times the efficiency thereof shall by fully preserved and maintained, except in each case to the extent that, in the reasonable business judgment of such Person, any such property or equipment is no longer necessary for the proper conduct of the business of such Person. 6. The occurrence of any one or more of the following events shall constitute an "Event of Default": 6.1 Failure To Pay. (i) The failure of the Company to pay any principal due under any of the Notes when due and payable (whether by acceleration, declaration, extension or otherwise), or (ii) the failure of the Company to pay any other amounts due under any of the Notes when due and payable if such failure is not cured within five (5) days of Company's receipt of notice thereof from any of the Holders. 6.2 Financial Covenants. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2. 13 6.3 Other Covenants and Agreements. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the covenants of this Note, the Security Agreement or any of the other Loan Documents (other than the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2), if such failure is not cured within sixty (60) days. 6.4 Representations and Warranties. If any representation or warranty made by the Company or any of its Subsidiaries in the Loan Documents is not true and correct in all material respects on the Initial Closing Date. 6.5 Default on Other Obligations. The occurrence of any condition or default under any other indebtedness for borrowed money of the Company or any of its Subsidiaries with a principal amount of at least five hundred thousand dollars ($500,000) that results in the acceleration of such indebtedness which is not cured within sixty (60) days. 6.6 Involuntary Bankruptcy. There shall be filed against the Company or any of its Subsidiaries an involuntary petition or other pleading seeking the entry of a decree or order for relief under the United States Bankruptcy Code or any similar federal or state insolvency or similar laws ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a reorganization of the Company or any of its Subsidiaries or the business and affairs of the Company or any of its Subsidiaries or (c) the appointment of a receiver, liquidator, assignee, custodian, trustee or similar official for the Company or any of its Subsidiaries of the property of the Company or any of its Subsidiaries. 6.7 Voluntary Bankruptcy. The commencement by the Company or any of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any federal or state insolvency or similar laws or the consent by the Company or any of its Subsidiaries to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian or similar official for the Company or any of its Subsidiaries of any of the property of the Company or any of its Subsidiaries or the making by the Company or any of its Subsidiaries of an assignment for the benefit of creditors, or the failure by Company or any of its Subsidiaries generally to pay its debts as the debts become due. 6.8 Judgments, Awards. Any judgment or order for the payment of money is rendered against the Company or any of its Subsidiaries in an amount in excess of five hundred thousand dollars ($500,000) individually or in the aggregate and either (i) enforcement proceedings are commenced by any creditor upon such judgment or order and not stayed, or (ii) there is any period of sixty (60) consecutive days during which such judgment has not been paid in full or a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, is not in effect. 6.9 Attachment by Lenders. Any assets of the Company or any of its Subsidiaries shall be attached, levied upon, seized or repossessed, or come into the 14 possession of a trustee, receiver or other custodian and a determination by any Holder, in good faith but in its sole discretion, that the same could have a material adverse effect on the prospect for the Holders to fully and punctually realize the full benefits conferred on the Holders by the Loan Documents. 6.10 Adverse Change in Financial Condition. Any event having a material adverse effect on the business, operations, assets, properties or condition of the Company and its Subsidiaries taken as a whole shall have occurred and be continuing or a material adverse effect on the validity or enforceability of this or any of the other Loan Documents or the rights or remedies of the Holders hereunder or thereunder. 7. Remedies. Upon and after the occurrence of an Event of Default, the Holder shall be entitled to the exercise the rights and remedies set forth in the Security Agreement, the other Loan Documents and under applicable law, all such rights and remedies being cumulative and enforceable alternatively, successively or concurrently. 8. Prepayment. The Company may not prepay this Note prior to the Maturity Date without the prior written consent of the Holders. 9. Seniority. (a) Except as set forth in the Subordination Agreement, the Notes will rank senior in right of payment to all other indebtedness of the Company, other than the GA Notes and the January 2004 Notes, with respect to which the Notes will be pari passu in right of payment in accordance with the Intercreditor Agreement. (b) Notwithstanding anything to the contrary contained in the Notes, this Note and the other Notes, and the terms and the conditions hereof and thereof, are subject to the Intercreditor Agreement. 10. Assignment. Subject to the restrictions on transfer described in Section 12 below, the rights and obligations of the Company and Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. The Company shall not be permitted to assign this Note without the prior written consent of the Holders. 11. Waiver of Notice. The Company hereby waives notice, presentment, demand, protest and notice of dishonor. 12. Transfer of This Note. With respect to any offer, sale or other disposition of this Note, Holder will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such Holder's counsel, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect); provided, that no opinion shall be required for any transfer to an Affiliate or if the transfer is made in compliance with the Securities Act, so long as the transferee can make the same representations and warranties at the time of transfer as set forth in Sections 4.5, 4.6, 4.7, 15 4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly upon delivering such written notice and opinion, if so required, Holder may sell or otherwise dispose of this Note, all in accordance with the terms of the notice delivered to the Company. Each Note thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Notwithstanding the foregoing, the Holder shall not be permitted to transfer this Note to any Person who is not an Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of written notice from the Company that Stockholder Approval cannot be obtained, or the occurrence of an actual vote of the Company's shareholders entitled to vote (whether by written consent or at a meeting specially called for such purpose), the result of which is a decision by a majority of the Company's shareholders entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of an Event of Default. This Note is registered as to both principal and stated interest with the Company (or its agent) within the meaning of section 1.871-14(c)(1)(i) of the Income Tax Regulations. Accordingly, notwithstanding anything to the contrary in this paragraph, this Note, together with any interest thereon, may be transferred only (i) upon surrender of the Note by the transferor to the Company (or its agent) and the reissuance of the Note (or the issuance of a new Note) to the transferee, or (ii) by transfer of the right to principal and interest through a book-entry system meeting the requirements of section 1.871-14(c)(1)(i)(B) of the Income Tax Regulations that is maintained by the Company (or its agent). In the case of a Holder that is not a "United States person" within the meaning of section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the "Code"), so long as an exception under section 871(h) or section 881(c) of the Code does not apply, the Company (or its agent) shall not withhold any U.S. federal income tax with respect to such Holder provided that the Holder timely provides the Company (or its agent) with a statement that meets the requirements of section 871(h)(5) of the Code. 13. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 14. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally recognized courier service or mailed by registered or certified mail, postage prepaid, to the respective addresses of the parties as set forth on the signature pages hereto or if sent by facsimile to the respective facsimile numbers of the parties set forth on the signature pages hereto. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given and received when personally delivered or three (3) business days after deposited in the mail or one business day after sent by courier or upon confirmation of facsimile delivery in the manner set forth above. 16 15. No Stockholder Rights. Nothing contained in this Note shall be construed as conferring upon Holder or any other Person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. 16. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law relating to conflict of laws. 17. Amendments and Waivers. No amendments or waivers of any provision of this Note, and no consent by the Holder to any departure by the Company, shall in any event be effective unless the same shall be in writing, and signed by the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 18. Severability. Any provision of this Note that is prohibited or unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF 17 THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. 20. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except as otherwise indicated, all references herein to Sections refer to Sections hereof. [the remainder of this page intentionally left blank] 18 IN WITNESS WHEREOF, the Company has caused this Note to be issued this 9th day of March, 2004. COMPANY: CRITICAL PATH, INC., a California corporation By: /s/ William E. McGlashan, Jr. ----------------------------------------- Name: William E. McGlashan, Jr. Title: Chairman, Chief Executive Officer Critical Path, Inc. 350 The Embarcadero San Francisco, CA 94105-1204 Telecopy: (415) 541-2300 Attention: Chief Financial Officer With a copy to: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Telecopy: (415) 983-1200 Attention: Gregg Vignos, Esq. Name of Holder: ZAXIS EQUITY NEUTRAL, L.P. Address: c/o Apex Capital, LLC 25 Orinda Way, Suite 300 Orinda, CA 94563 Attention: Adam Fiore, General Counsel Telephone: (925) 253-6125 Facsimile: (925) 253-1809 EX-4.34 19 f97295exv4w34.txt EXHIBIT 4.34 EXHIBIT 4.34 THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS. CRITICAL PATH, INC. CONVERTIBLE SUBORDINATED PROMISSORY NOTE $370,000 San Francisco, California March 9, 2004 Critical Path, Inc., a California corporation (the "Company"), the principal office of which is located in San Francisco, California, for value received hereby promises to pay to the order of Zaxis Institutional Partners, L.P., or its registered assigns ("Holder"), the sum of three hundred seventy thousand dollars ($370,000), or such lesser amount as shall then equal the outstanding principal amount hereof on the terms and conditions set forth hereinafter. The outstanding principal amount hereof and all accrued and unpaid interest hereon, as set forth below, shall be due and payable on the earlier to occur of (i) March 9, 2008, (ii) when declared due and payable by Holder upon the occurrence of an Event of Default (as defined below), (iii) consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock or Stock Equivalents by the Company, any cash capital contribution from any third person or any other debt or equity financing consummated by the Company after the date of issuance of this Note which, in the case of (v), individually or in the aggregate raises proceeds of at least forty million dollars ($40,000,000) in cash or cash equivalents (the earliest of the events set forth in items (i)-(v) immediately above, the "Maturity Date"). The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. Except as otherwise defined herein, each capitalized term used herein shall have the meaning assigned to it in the Note Purchase Agreement, as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. All other references to the Note Purchase Agreement in this Note refer to the Note Purchase Agreement as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. As used in this Note, the following terms, unless the context otherwise requires, have the following meanings: 1.1 "Affiliate" means any Person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended. 1.2 "Capitalized Lease Obligations" means, with respect to any Person, all rental obligations of such Person which, under GAAP, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with such principles. 1.3 "Change of Control" shall mean (i) any merger, consolidation or other business combination transaction (or series of related transactions) in which the stockholders owning a majority of the voting securities of the Company prior to such transaction do not own a majority of the voting securities of the surviving entity, (ii) any tender offer, exchange offer or other transaction whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended) (other than General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and the Affiliates of the foregoing, provided that Affiliates shall be deemed not to include any portfolio companies of any of the foregoing) obtains a majority of the outstanding shares of capital stock entitled to vote in the election of directors, (iii) any proxy contest in which a majority of the Board of Directors of the Company (or persons appointed by such Board of Directors) prior to such contest do not constitute a majority of the Company's Board of Directors after such contest or (iv) any other transaction described in any stockholder rights agreement or "poison pill," if any, to which the Company is party, which may permit the holders of any rights or similar certificates to exercise the rights evidenced thereby. 1.4 "Company" shall have the meaning set forth in the recitals hereto, and includes any corporation that shall succeed to or assume the obligations of the Company under this Note. 1.5 "Common Conversion Date" shall have the meaning set forth in Section 3.1(b) hereof. 1.6 "Common Stock" means the common stock, par value $0.001 per share, of the Company. 1.7 "Conversion Date" shall mean the Subsequent Closing Date. 1.8 "Domestic Subsidiary" shall have the meaning set forth in Section 5.10 hereof. 1.9 "Event of Default" shall have the meaning set forth in Section 6 hereof. 2 1.10 "GA Notes" shall mean the Convertible Subordinated Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP Entities pursuant to the Purchase and Exchange Agreement. 1.11 "GAP Entities" shall mean General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG. 1.12 "Guarantor" shall have the meaning set forth in the Security Agreement. 1.13 "Holder" shall mean the registered holder of this Note from time to time, and in the plural, shall mean all registered holders of Notes from time to time issued by the Company pursuant to the Note Purchase Agreement. 1.14 "Intercreditor Agreement" shall mean the Intercreditor Agreement, dated the date hereof, among the GAP Entities, the January Lenders, Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures International. 1.15 "Interest Amount" shall have the meaning set forth in Section 3.1 hereof. 1.16 "Investment" means (i) the acquisition (whether for cash, property, services, assumption of Indebtedness, securities or otherwise) of assets (other than equipment, inventory, supplies or other assets acquired in the ordinary course of business of the Company), capital stock, bonds, notes, debentures, partnership, joint venture or other ownership interests or other securities of any Person, (ii) any deposit with, or advance, loan or other extension of credit to, or on behalf of, any Person (other than deposits made in connection with the purchase of equipment, inventory, services, leases, supplies or other assets in the ordinary course of business of the Company), and (iii) any other capital contribution to or investment in any Person, including, without limitation, any guaranty obligation incurred for the benefit of any Person. For the sake of clarity, Investments shall include any transfer of property or assets by the Company to any of its Subsidiaries or by any Subsidiary of the Company to any other Subsidiary. 1.17 "January Lenders" shall mean Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P. 1.18 "January Note Agreement" shall mean the Convertible Note Purchase Agreement, dated January 16, 2004, among the January Lenders and the Company. 1.19 "January 2004 Notes" shall mean the Convertible Subordinated Promissory Notes, each dated January 16, 2003, issued by the Company to the January Lenders pursuant to the January Note Agreement. 3 1.20 "Loan Documents" shall have the meaning set forth in the Security Agreement. 1.21 "Note" shall mean this note, and in the plural, shall mean all notes issued to the Lenders pursuant to the terms of the Note Purchase Agreement, including this Note, and all amendments, modifications and extensions thereto. 1.22 "Note Purchase Agreement" means that certain Convertible Note Purchase Agreement, dated March 9, 2004, among the Company, the Holder and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.23 "Permitted Investments" means (i) Investments in cash or cash equivalents, (ii) accounts receivable created, acquired or made in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (iii) Investments existing on the closing date, and listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty obligations permitted by Section 5.3 of this Agreement, (v) loans to employees, directors or officers of the Company in connection with the award of convertible bonds or capital stock under a stock incentive plan, stock option plan or other equity-based compensation plan or arrangement, (vi) other advances or loans to employees, directors, officers or agents of the Company in the ordinary course of business not to exceed $500,000 in the aggregate at any time outstanding; (vii) loans, advances and investments in foreign Subsidiaries (that are not incorporated or otherwise organized under the laws of the United States of America or any state thereof) in an amount not to exceed $1,000,000 in the aggregate at any time outstanding; (viii) any acquisition for which the prior written consent of the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement has been obtained, (ix) other loans, advances and investments of a nature not contemplated by the foregoing sections in an amount not to exceed $500,000 in the aggregate at any time outstanding or (x) Investments by the Company in the Guarantor. 1.24 "Permitted Liens" shall have the meaning set forth in Section 5.4. 1.25 "Person" means any individual, firm, corporation, partnership, trust, joint venture, joint stock company, limited liability company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. 1.26 "Price Per Share" shall have the meaning attributed to such term in the Series E Certificate of Determination, as filed with the Secretary of State of the State of California. 1.27 "Purchase and Exchange Agreement" shall mean the Convertible Note Purchase and Exchange Agreement, dated November 18, 2003, among the Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended. 4 1.28 "Qualified Asset Sale" means the sale, transfer or other disposition of any of the assets of the Company or any of its Subsidiaries, other than (a) sales of assets in the ordinary course of business, (b) sales of assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the sale, transfer or other disposition of assets of the Company where the proceeds are applied to the purchase price or traded in for credit against the purchase price of other assets, provided that any such purchase is made, or credit issued, within 90 days of the sale, transfer or other disposition, and (d) one or more sales of the Company's assets (other than sales otherwise included in clauses (a), (b), and (c) immediately above) which collectively yield up to an aggregate of one million dollars ($1,000,000) in gross proceeds to the Company while this Note is outstanding. 1.29 "Restricted Payment" means (a) any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Company or any of its Subsidiaries or (b) any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any shares of any class of capital stock of the Company or any Subsidiary or any option, warrant or other right to acquire any such shares of capital stock of the Company or any Subsidiary. 1.30 "Security Agreement" means that certain Guaranty and Security Agreement, of even date herewith between the Company, Compass Holding Corp., the Lenders and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.31 "Series E Conversion Price" shall have the meaning set forth in the Series E Certificate of Determination. 1.32 "Series E Preferred Stock" means the Series E Preferred Stock, par value $0.001, of the Company. 1.33 "Subordination Agreement" shall have the meaning set forth in Section 5.3. 1.34 "Subsequent Closing Date" shall have the meaning set forth in Section 2.4(e) of the Note Purchase Agreement. 1.35 "SVB" means Silicon Valley Bank, a California chartered bank, or any Affiliates thereof. 1.36 "Ten Percent Holder" means, with respect to a class of equity securities of the Company, a Person (together with such Person's Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such class of equity securities of the Company, as defined by Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 1.37 "UCC" shall have the meaning set forth in Section 5.4. 5 2. Interest. Simple interest shall accrue at the rate of ten percent (10%) per annum (or such lesser amount as shall equal the highest rate of interest allowable under applicable law) (the "Interest Rate"), on the outstanding principal of this Note from the date of this Note until the Maturity Date or the date this Note is otherwise repaid. The Company shall not be obligated to make any payments of interest which shall have accrued under this Note prior to the Maturity Date. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. In the event that the principal amount of this Note, any interest, or any amount payable hereunder is not paid in full when such amount becomes due and payable, or upon the occurrence of an Event of Default, interest shall accrue at the lesser of (a) the initial Interest Rate plus five percent (5%) per annum or (b) the highest rate of interest allowable under applicable law, on the balance of all amounts outstanding until such overdue amounts are paid or the Event of Default is cured, and such interest shall be payable on demand. 3. Conversion. 3.1 Conversion. (a) On the Conversion Date, the principal amount of this Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall be automatically converted into the number of fully paid and nonassessable shares of Series E Preferred Stock equal to the quotient obtained by dividing (a) the entire principal amount of this Note plus the Interest Amount by (b) the Price Per Share. (b) In the event that the Conversion Date has not occurred on or prior to August 15, 2004 (the "Common Conversion Date"), then, following the Common Conversion Date, the principal amount of this Note plus the Interest Amount shall be convertible, at the option of Holder and from time to time, only into Common Stock at a conversion price per share equal to $2.18, as adjusted for any stock dividends, stock splits or similar consolidations or subdivisions, following the date hereof; provided, however, that Holder shall not be permitted to convert any portion of the principal of this Note or the Interest Amount into Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion, the conversion would cause Holder to be a Ten Percent Holder. 3.2 Notice of Conversion. Upon conversion of this Note as provided in Section 3.1, Holder shall surrender this Note to the Company and shall state the name or names in which the certificate or certificates for such shares of Series E Preferred Stock or Common Stock, as the case may be, are to be issued. The Person or Persons entitled to receive the shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion shall be treated for all purposes as the record holder or holders (a) of such shares of Series E Preferred Stock as of the Conversion Date and (b) of such shares of Common Stock as of the date of any conversion pursuant to Section 3.1(b). 3.3 Delivery of Stock Certificates. Upon conversion of this Note as provided in Section 3.1, the Company at its expense will issue and deliver to 6 Holder of this Note a certificate or certificates (bearing such legends as are required by applicable state and federal securities laws in the opinion of counsel to the Company) for the number of full shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion. 3.4 Mechanics and Effect of Conversion. No fractional shares of Series E Preferred Stock or Common Stock, as the case may be, shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to Holder upon the conversion of this Note, the Company shall pay to Holder the amount of outstanding principal and interest that is not so converted. Upon conversion of all amounts due under this Note, the Company shall be released from all of its obligations under this Note. 4. Adjustments. The number of shares of Series E Preferred Stock or Common Stock convertible hereunder are subject to adjustment from time to time as follows: 4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at any time while this Note remains outstanding and unexpired there shall be (a) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (b) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise or (c) a sale or transfer of the Company's stock, properties or assets as, or substantially as, an entirety to any other Person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that Holder shall thereafter be entitled to receive by converting this Note the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon conversion of this Note would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Note had been converted immediately before such reorganization, merger, consolidation, sale or transfer (notwithstanding that the Stockholder Approval may not yet have been obtained), all subject to further adjustment as provided in this Section 4. The foregoing provisions of this Section 4.1 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation. If the per share consideration payable to Holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors based on the amount the Holder would have otherwise been entitled to receive had the transaction or transactions not occurred. In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of Holder after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon conversion of 7 this Note. The Company shall be obligated to retain and set aside, or otherwise make fair provision for exercise of the right of the Holder to receive, the shares of stock and/or other securities, cash or other property provided for in this Section 4.1. 4.2 Election of Holder upon Merger or Sale of Assets. Notwithstanding anything to the contrary contained herein, if an event shall occur as provided in Section 4.1 hereof that would otherwise result in the occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first paragraph of this Note, then the Holder may, in its sole discretion, by written notice to the Company elect to convert the principal amount of this Note plus the Interest Amount into the number of shares of stock or other securities or property described in Section 4.1, in lieu of receiving payment in full of all amounts outstanding under this Note. The number of shares of stock or other securities or property to be issued upon such conversion shall be determined in accordance with Section 4.1 hereof, taking into account the occurrence of such event. 4.3 Reclassification, Etc. If the Company shall, at any time while this Note, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, change any of the securities as to which conversion rights under this Note exist into the same or a different number of securities of any other class or classes, this Note shall thereafter represent the right to acquire such number and kind of securities as would have been issuable with respect to the securities that were subject to the conversion rights under this Note immediately prior to such reclassification or other change, and the Price Per Share shall be appropriately adjusted, all subject to further adjustment as provided in this Section 4. 4.4 Split, Subdivision or Combination of Shares. If the Company at any time while this Note, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the shares of Series E Preferred Stock or Common Stock into a different number of securities of the same class, the Price Per Share or conversion price, as the case may be, shall be proportionately adjusted. 4.5 Series E Adjustments. The initial Series E Conversion Price of the shares of Series E Preferred Stock issued upon conversion of this Note pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on the Conversion Date, subject to the adjustment of such Series E Conversion Price from time to time thereafter as provided in the Series E Certificate of Determination. 4.6 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 4, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. 4.7 No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all 8 such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 5. Covenants. The Company covenants and agrees that until the earlier of (i) the date on which all Obligations (as defined in the Security Agreement) have been paid in full or (ii) the date on which all amounts outstanding under the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b): 5.1 Financial Statements and Other Information. The Company shall deliver to the Holder of this Note the financial statements and other information required to be delivered under Section 8.1 of the Note Purchase Agreement. 5.2 Financial Covenants. The Company shall at all times comply with the financial and other covenants set forth in Schedule 8.5 to the Note Purchase Agreement as if such covenants were set forth herein. 5.3 Indebtedness. The Company shall not, and shall not permit any Subsidiary to, issue, incur, assume, create or have outstanding any Indebtedness, provided, however, that the foregoing shall not restrict nor operate to prevent: (a) Indebtedness in favor of the Holders under the Loan Documents; (b) Indebtedness existing on the date hereof, as set forth on Schedule 3.22 to the Note Purchase Agreement; (c) Indebtedness for accounts payable incurred in the ordinary course of business by the Company; (d) Indebtedness incurred solely for the purpose of financing the acquisition of any equipment, machinery, software, improvements or any other similar property, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, that the aggregate outstanding principal amount of all Indebtedness permitted pursuant to this clause (d) outstanding for more than sixty (60) days after the incurrence of such Indebtedness shall not at any time exceed $500,000; (e) Indebtedness of the Company evidenced by Capitalized Lease Obligations, provided, that in no event shall the aggregate principal amount of Capitalized Lease Obligations permitted by this clause (e) exceed $500,000 at any time outstanding; and (f) Any extension, renewal, refinancing, refunding, or replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and (e) above, on such terms and conditions as are, on the whole, not materially more onerous to the Company than the terms and conditions of such original Indebtedness on the date of such refinancing (including that the principal amount of such refinancing Indebtedness 9 does not exceed the principal amount of, plus the amount of accrued and unpaid interest on, the Indebtedness so refinanced (plus the amount of reasonable premium and fees and expenses incurred in connection therewith)), provided that, in the case of a refinancing of Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall only apply to the extent consistent with the Subordination Agreement, dated as of the date hereof, by and among SVB, the Holders and the Company (the "Subordination Agreement"). 5.4 Liens. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of the Company or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable), or assign any right to receive income or permit the filing of any financing statement under the Uniform Commercial Code, as from time to time in effect in the relevant jurisdiction (the "UCC"), or any other similar notice of Lien under any similar recording or notice statute; provided, that the provisions of this Section 5.4 shall not prevent the creation, incurrence, assumption or existence of the following: (a) Liens arising in the ordinary course of business by statute in connection with worker's compensation, unemployment insurance, old age benefits, social security obligations, statutory obligations or other similar charges (other then Liens arising under ERISA), good faith cash deposits in connection with tenders, contracts or leases to which the Company or any Subsidiary is a party or other cash deposits required to be made in the ordinary course of business, provided, that such Liens do not have a material adverse effect on the ability of the Company to repay amounts due under the Notes; (b) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (c) Liens in respect of property or assets of the Company or its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (i) which do not in the aggregate materially detract from the value of the Company's and its Subsidiaries' property or assets taken as a whole or result in a material adverse effect on the Condition of the Company or (ii) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; 10 (d) the pledge of assets for the purpose of securing an appeal, stay or discharge in the course of any legal proceeding, provided that the aggregate amount of liabilities of the Company and its Subsidiaries secured by a pledge of assets permitted under this subsection, including interest and penalties thereon, if any, shall not be in excess of $500,000 at any one time outstanding; (e) any interest or title of a lessor under any operating lease; (f) easements, rights-of-way, restrictions and other similar encumbrances against real property incurred in the ordinary course of business; (g) the Liens existing on the date hereof identified on Schedule 3.22 to the Note Purchase Agreement; (h) Liens on cash deposited with account debtors to secure performance by the Company or any Subsidiary in the ordinary course of business subject to customary and reasonable terms; (i) Liens upon assets of the Company or its Subsidiaries subject to Capitalized Lease Obligations, provided, that (A) such Liens only serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising under such Capitalized Lease Obligation and (B) the Lien encumbering the asset giving rise to the Capitalized Lease Obligation does not encumber any other asset of the Company or its Subsidiaries; (j) Liens placed upon equipment, machinery, software, improvements or any other similar property, used in the ordinary course of business of the Company or any of its Subsidiaries at the time of the acquisition thereof by the Company or any of its Subsidiaries or within ninety (90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above; provided, that the Liens encumbering the equipment, machinery software, improvements or any other similar property so acquired do not encumber any other asset of the Company or its Subsidiaries; (k) set-off rights of depository institutions; and (l) Liens created by the Security Agreement (collectively with clauses (a) through (k) hereof, the "Permitted Liens"). 5.5 Fundamental Changes. The Company will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or a series of transactions) all or substantially all of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time and immediately after giving effect thereto no Event of Default shall have occurred and be continuing (i) the Company or any of its Subsidiaries may, with the prior written 11 consent of the Holders, merge with or into any other Person; (ii) any wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with or into the Company or any other wholly-owned Subsidiary of the Company; (iii) any Subsidiary (other than the Guarantor, and except as otherwise prohibited by this Note) may sell, transfer, lease or otherwise dispose of its assets to the Company or to another wholly-owned Subsidiary of the Company; and (iv) any Subsidiary may liquidate or dissolve if the board of directors of the Company determine in good faith that such liquidation or dissolution is in its best interests and is not disadvantageous to the Holders. 5.6 Restricted Payments. The Company will not, and the Company will not permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that (i) any Subsidiary may make a Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any Restricted Payment required by the terms of the Note Purchase Agreement and the other documents executed in connection therewith. 5.7 Transactions with Affiliates. The Company will not, and the Company will not permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions that are at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arm's length basis from unrelated third parties, (b) transactions exclusively between the Company and the Guarantor and (c) transactions under the agreements listed on Schedule 3.17 to the Note Purchase Agreement. 5.8 Investments. The Company will not, and the Company will not permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment in any Person, except for Permitted Investments. 5.9 Nature of Business. The Company will not, and the Company will not permit any Subsidiary to, engage in any business other than that conducted on the date hereof and any businesses reasonably related thereto. 5.10 Property of Existing Domestic Subsidiaries. The Company will not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise organized under the laws of the United States of America or any state thereof (a "Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease, license, purchase or otherwise acquire any personal or real property (excluding any material intellectual property) in excess of $50,000 for all property held by such Subsidiary, or $250,000 in the aggregate for all property held by all Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own or otherwise hold any rights to any material intellectual property or (iv) otherwise conduct any business or maintain operations. 5.11 Formation of Subsidiaries. The Company will not, and will not cause or permit any of its Subsidiaries to, form, acquire or permit the existence of any 12 new domestic Subsidiary, without causing such domestic Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes and related security document, in form and substance satisfactory to the Holders. 5.12 Books and Records. The Company shall keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Company and its Subsidiaries in accordance with GAAP consistently applied. 5.13 Inspection. The Company shall, and shall cause each of its Subsidiaries to, permit representatives of the Holders to visit and inspect any of its properties, to examine its corporate, financial and operating records and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with their respective directors, officers and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably requested upon notice to the Company. 5.14 Maintenance of Business. The Company shall, and shall cause each Subsidiary to, preserve and maintain its existence. The Company shall, and shall cause each Subsidiary to, preserve and keep in force and effect all licenses, permits, franchises, approvals, patents, trademarks, trade names, trade styles, copyrights, and other property rights necessary to the proper conduct of its business, except where the failure to do so could not reasonably be expected to have a material adverse effect on the Condition of the Company or on the prospects of repayment of the Notes. 5.15 Maintenance of Properties. The Company shall, and shall cause each Subsidiary to, maintain, preserve and keep its property and equipment in good repair, working order and condition (ordinary wear and tear excepted) and shall from time to time make all needful and proper repairs, renewals, replacements, additions and betterments thereto so that at all times the efficiency thereof shall by fully preserved and maintained, except in each case to the extent that, in the reasonable business judgment of such Person, any such property or equipment is no longer necessary for the proper conduct of the business of such Person. 6. The occurrence of any one or more of the following events shall constitute an "Event of Default": 6.1 Failure To Pay. (i) The failure of the Company to pay any principal due under any of the Notes when due and payable (whether by acceleration, declaration, extension or otherwise), or (ii) the failure of the Company to pay any other amounts due under any of the Notes when due and payable if such failure is not cured within five (5) days of Company's receipt of notice thereof from any of the Holders. 6.2 Financial Covenants. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2. 13 6.3 Other Covenants and Agreements. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the covenants of this Note, the Security Agreement or any of the other Loan Documents (other than the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2), if such failure is not cured within sixty (60) days. 6.4 Representations and Warranties. If any representation or warranty made by the Company or any of its Subsidiaries in the Loan Documents is not true and correct in all material respects on the Initial Closing Date. 6.5 Default on Other Obligations. The occurrence of any condition or default under any other indebtedness for borrowed money of the Company or any of its Subsidiaries with a principal amount of at least five hundred thousand dollars ($500,000) that results in the acceleration of such indebtedness which is not cured within sixty (60) days. 6.6 Involuntary Bankruptcy. There shall be filed against the Company or any of its Subsidiaries an involuntary petition or other pleading seeking the entry of a decree or order for relief under the United States Bankruptcy Code or any similar federal or state insolvency or similar laws ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a reorganization of the Company or any of its Subsidiaries or the business and affairs of the Company or any of its Subsidiaries or (c) the appointment of a receiver, liquidator, assignee, custodian, trustee or similar official for the Company or any of its Subsidiaries of the property of the Company or any of its Subsidiaries. 6.7 Voluntary Bankruptcy. The commencement by the Company or any of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any federal or state insolvency or similar laws or the consent by the Company or any of its Subsidiaries to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian or similar official for the Company or any of its Subsidiaries of any of the property of the Company or any of its Subsidiaries or the making by the Company or any of its Subsidiaries of an assignment for the benefit of creditors, or the failure by Company or any of its Subsidiaries generally to pay its debts as the debts become due. 6.8 Judgments, Awards. Any judgment or order for the payment of money is rendered against the Company or any of its Subsidiaries in an amount in excess of five hundred thousand dollars ($500,000) individually or in the aggregate and either (i) enforcement proceedings are commenced by any creditor upon such judgment or order and not stayed, or (ii) there is any period of sixty (60) consecutive days during which such judgment has not been paid in full or a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, is not in effect. 6.9 Attachment by Lenders. Any assets of the Company or any of its Subsidiaries shall be attached, levied upon, seized or repossessed, or come into the 14 possession of a trustee, receiver or other custodian and a determination by any Holder, in good faith but in its sole discretion, that the same could have a material adverse effect on the prospect for the Holders to fully and punctually realize the full benefits conferred on the Holders by the Loan Documents. 6.10 Adverse Change in Financial Condition. Any event having a material adverse effect on the business, operations, assets, properties or condition of the Company and its Subsidiaries taken as a whole shall have occurred and be continuing or a material adverse effect on the validity or enforceability of this or any of the other Loan Documents or the rights or remedies of the Holders hereunder or thereunder. 7. Remedies. Upon and after the occurrence of an Event of Default, the Holder shall be entitled to the exercise the rights and remedies set forth in the Security Agreement, the other Loan Documents and under applicable law, all such rights and remedies being cumulative and enforceable alternatively, successively or concurrently. 8. Prepayment. The Company may not prepay this Note prior to the Maturity Date without the prior written consent of the Holders. 9. Seniority. (a) Except as set forth in the Subordination Agreement, the Notes will rank senior in right of payment to all other indebtedness of the Company, other than the GA Notes and the January 2004 Notes, with respect to which the Notes will be pari passu in right of payment in accordance with the Intercreditor Agreement. (b) Notwithstanding anything to the contrary contained in the Notes, this Note and the other Notes, and the terms and the conditions hereof and thereof, are subject to the Intercreditor Agreement. 10. Assignment. Subject to the restrictions on transfer described in Section 12 below, the rights and obligations of the Company and Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. The Company shall not be permitted to assign this Note without the prior written consent of the Holders. 11. Waiver of Notice. The Company hereby waives notice, presentment, demand, protest and notice of dishonor. 12. Transfer of This Note. With respect to any offer, sale or other disposition of this Note, Holder will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such Holder's counsel, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect); provided, that no opinion shall be required for any transfer to an Affiliate or if the transfer is made in compliance with the Securities Act, so long as the transferee can make the same representations and warranties at the time of transfer as set forth in Sections 4.5, 4.6, 4.7, 15 4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly upon delivering such written notice and opinion, if so required, Holder may sell or otherwise dispose of this Note, all in accordance with the terms of the notice delivered to the Company. Each Note thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Notwithstanding the foregoing, the Holder shall not be permitted to transfer this Note to any Person who is not an Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of written notice from the Company that Stockholder Approval cannot be obtained, or the occurrence of an actual vote of the Company's shareholders entitled to vote (whether by written consent or at a meeting specially called for such purpose), the result of which is a decision by a majority of the Company's shareholders entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of an Event of Default. This Note is registered as to both principal and stated interest with the Company (or its agent) within the meaning of section 1.871-14(c)(1)(i) of the Income Tax Regulations. Accordingly, notwithstanding anything to the contrary in this paragraph, this Note, together with any interest thereon, may be transferred only (i) upon surrender of the Note by the transferor to the Company (or its agent) and the reissuance of the Note (or the issuance of a new Note) to the transferee, or (ii) by transfer of the right to principal and interest through a book-entry system meeting the requirements of section 1.871-14(c)(1)(i)(B) of the Income Tax Regulations that is maintained by the Company (or its agent). In the case of a Holder that is not a "United States person" within the meaning of section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the "Code"), so long as an exception under section 871(h) or section 881(c) of the Code does not apply, the Company (or its agent) shall not withhold any U.S. federal income tax with respect to such Holder provided that the Holder timely provides the Company (or its agent) with a statement that meets the requirements of section 871(h)(5) of the Code. 13. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 14. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally recognized courier service or mailed by registered or certified mail, postage prepaid, to the respective addresses of the parties as set forth on the signature pages hereto or if sent by facsimile to the respective facsimile numbers of the parties set forth on the signature pages hereto. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given and received when personally delivered or three (3) business days after deposited in the mail or one business day after sent by courier or upon confirmation of facsimile delivery in the manner set forth above. 16 15. No Stockholder Rights. Nothing contained in this Note shall be construed as conferring upon Holder or any other Person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. 16. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law relating to conflict of laws. 17. Amendments and Waivers. No amendments or waivers of any provision of this Note, and no consent by the Holder to any departure by the Company, shall in any event be effective unless the same shall be in writing, and signed by the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 18. Severability. Any provision of this Note that is prohibited or unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF 17 THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. 20. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except as otherwise indicated, all references herein to Sections refer to Sections hereof. [the remainder of this page intentionally left blank] 18 IN WITNESS WHEREOF, the Company has caused this Note to be issued this 9th day of March, 2004. COMPANY: CRITICAL PATH, INC., a California corporation By: /s/ William E. McGlashan, Jr. ---------------------------------- Name: William E. McGlashan, Jr. Title: Chairman, Chief Executive Officer Critical Path, Inc. 350 The Embarcadero San Francisco, CA 94105-1204 Telecopy: (415) 541-2300 Attention: Chief Financial Officer With a copy to: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Telecopy: (415) 983-1200 Attention: Gregg Vignos, Esq. Name of Holder: ZAXIS INSTITUTIONAL PARTNERS, L.P. Address: c/o Apex Capital, LLC 25 Orinda Way, Suite 300 Orinda, CA 94563 Attention: Adam Fiore, General Counsel Telephone: (925) 253-6125 Facsimile: (925) 253-1809 EX-4.35 20 f97295exv4w35.txt EXHIBIT 4.35 EXHIBIT 4.35 THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS. CRITICAL PATH, INC. CONVERTIBLE SUBORDINATED PROMISSORY NOTE $1,765,000 San Francisco, California March 9, 2004 Critical Path, Inc., a California corporation (the "Company"), the principal office of which is located in San Francisco, California, for value received hereby promises to pay to the order of Zaxis Offshore Limited, or its registered assigns ("Holder"), the sum of one million seven hundred sixty-five thousand dollars ($1,765,000), or such lesser amount as shall then equal the outstanding principal amount hereof on the terms and conditions set forth hereinafter. The outstanding principal amount hereof and all accrued and unpaid interest hereon, as set forth below, shall be due and payable on the earlier to occur of (i) March 9, 2008, (ii) when declared due and payable by Holder upon the occurrence of an Event of Default (as defined below), (iii) consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock or Stock Equivalents by the Company, any cash capital contribution from any third person or any other debt or equity financing consummated by the Company after the date of issuance of this Note which, in the case of (v), individually or in the aggregate raises proceeds of at least forty million dollars ($40,000,000) in cash or cash equivalents (the earliest of the events set forth in items (i)-(v) immediately above, the "Maturity Date"). The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. Except as otherwise defined herein, each capitalized term used herein shall have the meaning assigned to it in the Note Purchase Agreement, as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. All other references to the Note Purchase Agreement in this Note refer to the Note Purchase Agreement as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. As used in this Note, the following terms, unless the context otherwise requires, have the following meanings: 1.1 "Affiliate" means any Person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended. 1.2 "Capitalized Lease Obligations" means, with respect to any Person, all rental obligations of such Person which, under GAAP, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with such principles. 1.3 "Change of Control" shall mean (i) any merger, consolidation or other business combination transaction (or series of related transactions) in which the stockholders owning a majority of the voting securities of the Company prior to such transaction do not own a majority of the voting securities of the surviving entity, (ii) any tender offer, exchange offer or other transaction whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended) (other than General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and the Affiliates of the foregoing, provided that Affiliates shall be deemed not to include any portfolio companies of any of the foregoing) obtains a majority of the outstanding shares of capital stock entitled to vote in the election of directors, (iii) any proxy contest in which a majority of the Board of Directors of the Company (or persons appointed by such Board of Directors) prior to such contest do not constitute a majority of the Company's Board of Directors after such contest or (iv) any other transaction described in any stockholder rights agreement or "poison pill," if any, to which the Company is party, which may permit the holders of any rights or similar certificates to exercise the rights evidenced thereby. 1.4 "Company" shall have the meaning set forth in the recitals hereto, and includes any corporation that shall succeed to or assume the obligations of the Company under this Note. 1.5 "Common Conversion Date" shall have the meaning set forth in Section 3.1(b) hereof. 1.6 "Common Stock" means the common stock, par value $0.001 per share, of the Company. 1.7 "Conversion Date" shall mean the Subsequent Closing Date. 1.8 "Domestic Subsidiary" shall have the meaning set forth in Section 5.10 hereof. 2 1.9 "Event of Default" shall have the meaning set forth in Section 6 hereof. 1.10 "GA Notes" shall mean the Convertible Subordinated Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP Entities pursuant to the Purchase and Exchange Agreement. 1.11 "GAP Entities" shall mean General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG. 1.12 "Guarantor" shall have the meaning set forth in the Security Agreement. 1.13 "Holder" shall mean the registered holder of this Note from time to time, and in the plural, shall mean all registered holders of Notes from time to time issued by the Company pursuant to the Note Purchase Agreement. 1.14 "Intercreditor Agreement" shall mean the Intercreditor Agreement, dated the date hereof, among the GAP Entities, the January Lenders, Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures International. 1.15 "Interest Amount" shall have the meaning set forth in Section 3.1 hereof. 1.16 "Investment" means (i) the acquisition (whether for cash, property, services, assumption of Indebtedness, securities or otherwise) of assets (other than equipment, inventory, supplies or other assets acquired in the ordinary course of business of the Company), capital stock, bonds, notes, debentures, partnership, joint venture or other ownership interests or other securities of any Person, (ii) any deposit with, or advance, loan or other extension of credit to, or on behalf of, any Person (other than deposits made in connection with the purchase of equipment, inventory, services, leases, supplies or other assets in the ordinary course of business of the Company), and (iii) any other capital contribution to or investment in any Person, including, without limitation, any guaranty obligation incurred for the benefit of any Person. For the sake of clarity, Investments shall include any transfer of property or assets by the Company to any of its Subsidiaries or by any Subsidiary of the Company to any other Subsidiary. 1.17 "January Lenders" shall mean Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P. 1.18 "January Note Agreement" shall mean the Convertible Note Purchase Agreement, dated January 16, 2004, among the January Lenders and the Company. 3 1.19 "January 2004 Notes" shall mean the Convertible Subordinated Promissory Notes, each dated January 16, 2003, issued by the Company to the January Lenders pursuant to the January Note Agreement. 1.20 "Loan Documents" shall have the meaning set forth in the Security Agreement. 1.21 "Note" shall mean this note, and in the plural, shall mean all notes issued to the Lenders pursuant to the terms of the Note Purchase Agreement, including this Note, and all amendments, modifications and extensions thereto. 1.22 "Note Purchase Agreement" means that certain Convertible Note Purchase Agreement, dated March 9, 2004, among the Company, the Holder and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.23 "Permitted Investments" means (i) Investments in cash or cash equivalents, (ii) accounts receivable created, acquired or made in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (iii) Investments existing on the closing date, and listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty obligations permitted by Section 5.3 of this Agreement, (v) loans to employees, directors or officers of the Company in connection with the award of convertible bonds or capital stock under a stock incentive plan, stock option plan or other equity-based compensation plan or arrangement, (vi) other advances or loans to employees, directors, officers or agents of the Company in the ordinary course of business not to exceed $500,000 in the aggregate at any time outstanding; (vii) loans, advances and investments in foreign Subsidiaries (that are not incorporated or otherwise organized under the laws of the United States of America or any state thereof) in an amount not to exceed $1,000,000 in the aggregate at any time outstanding; (viii) any acquisition for which the prior written consent of the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement has been obtained, (ix) other loans, advances and investments of a nature not contemplated by the foregoing sections in an amount not to exceed $500,000 in the aggregate at any time outstanding or (x) Investments by the Company in the Guarantor. 1.24 "Permitted Liens" shall have the meaning set forth in Section 5.4. 1.25 "Person" means any individual, firm, corporation, partnership, trust, joint venture, joint stock company, limited liability company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. 1.26 "Price Per Share" shall have the meaning attributed to such term in the Series E Certificate of Determination, as filed with the Secretary of State of the State of California. 4 1.27 "Purchase and Exchange Agreement" shall mean the Convertible Note Purchase and Exchange Agreement, dated November 18, 2003, among the Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended. 1.28 "Qualified Asset Sale" means the sale, transfer or other disposition of any of the assets of the Company or any of its Subsidiaries, other than (a) sales of assets in the ordinary course of business, (b) sales of assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the sale, transfer or other disposition of assets of the Company where the proceeds are applied to the purchase price or traded in for credit against the purchase price of other assets, provided that any such purchase is made, or credit issued, within 90 days of the sale, transfer or other disposition, and (d) one or more sales of the Company's assets (other than sales otherwise included in clauses (a), (b), and (c) immediately above) which collectively yield up to an aggregate of one million dollars ($1,000,000) in gross proceeds to the Company while this Note is outstanding. 1.29 "Restricted Payment" means (a) any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Company or any of its Subsidiaries or (b) any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any shares of any class of capital stock of the Company or any Subsidiary or any option, warrant or other right to acquire any such shares of capital stock of the Company or any Subsidiary. 1.30 "Security Agreement" means that certain Guaranty and Security Agreement, of even date herewith between the Company, Compass Holding Corp., the Lenders and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.31 "Series E Conversion Price" shall have the meaning set forth in the Series E Certificate of Determination. 1.32 "Series E Preferred Stock" means the Series E Preferred Stock, par value $0.001, of the Company. 1.33 "Subordination Agreement" shall have the meaning set forth in Section 5.3. 1.34 "Subsequent Closing Date" shall have the meaning set forth in Section 2.4(e) of the Note Purchase Agreement. 1.35 "SVB" means Silicon Valley Bank, a California chartered bank, or any Affiliates thereof. 1.36 "Ten Percent Holder" means, with respect to a class of equity securities of the Company, a Person (together with such Person's Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such class of equity securities of 5 the Company, as defined by Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 1.37 "UCC" shall have the meaning set forth in Section 5.4. 2. Interest. Simple interest shall accrue at the rate of ten percent (10%) per annum (or such lesser amount as shall equal the highest rate of interest allowable under applicable law) (the "Interest Rate"), on the outstanding principal of this Note from the date of this Note until the Maturity Date or the date this Note is otherwise repaid. The Company shall not be obligated to make any payments of interest which shall have accrued under this Note prior to the Maturity Date. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. In the event that the principal amount of this Note, any interest, or any amount payable hereunder is not paid in full when such amount becomes due and payable, or upon the occurrence of an Event of Default, interest shall accrue at the lesser of (a) the initial Interest Rate plus five percent (5%) per annum or (b) the highest rate of interest allowable under applicable law, on the balance of all amounts outstanding until such overdue amounts are paid or the Event of Default is cured, and such interest shall be payable on demand. 3. Conversion. 3.1 Conversion. (a) On the Conversion Date, the principal amount of this Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall be automatically converted into the number of fully paid and nonassessable shares of Series E Preferred Stock equal to the quotient obtained by dividing (a) the entire principal amount of this Note plus the Interest Amount by (b) the Price Per Share. (b) In the event that the Conversion Date has not occurred on or prior to August 15, 2004 (the "Common Conversion Date"), then, following the Common Conversion Date, the principal amount of this Note plus the Interest Amount shall be convertible, at the option of Holder and from time to time, only into Common Stock at a conversion price per share equal to $2.18, as adjusted for any stock dividends, stock splits or similar consolidations or subdivisions, following the date hereof; provided, however, that Holder shall not be permitted to convert any portion of the principal of this Note or the Interest Amount into Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion, the conversion would cause Holder to be a Ten Percent Holder. 3.2 Notice of Conversion. Upon conversion of this Note as provided in Section 3.1, Holder shall surrender this Note to the Company and shall state the name or names in which the certificate or certificates for such shares of Series E Preferred Stock or Common Stock, as the case may be, are to be issued. The Person or Persons entitled to receive the shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion shall be treated for all purposes as the record holder or holders (a) of such shares of Series E Preferred Stock as of the 6 Conversion Date and (b) of such shares of Common Stock as of the date of any conversion pursuant to Section 3.1(b). 3.3 Delivery of Stock Certificates. Upon conversion of this Note as provided in Section 3.1, the Company at its expense will issue and deliver to Holder of this Note a certificate or certificates (bearing such legends as are required by applicable state and federal securities laws in the opinion of counsel to the Company) for the number of full shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion. 3.4 Mechanics and Effect of Conversion. No fractional shares of Series E Preferred Stock or Common Stock, as the case may be, shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to Holder upon the conversion of this Note, the Company shall pay to Holder the amount of outstanding principal and interest that is not so converted. Upon conversion of all amounts due under this Note, the Company shall be released from all of its obligations under this Note. 4. Adjustments. The number of shares of Series E Preferred Stock or Common Stock convertible hereunder are subject to adjustment from time to time as follows: 4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at any time while this Note remains outstanding and unexpired there shall be (a) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (b) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise or (c) a sale or transfer of the Company's stock, properties or assets as, or substantially as, an entirety to any other Person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that Holder shall thereafter be entitled to receive by converting this Note the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon conversion of this Note would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Note had been converted immediately before such reorganization, merger, consolidation, sale or transfer (notwithstanding that the Stockholder Approval may not yet have been obtained), all subject to further adjustment as provided in this Section 4. The foregoing provisions of this Section 4.1 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation. If the per share consideration payable to Holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors based on the amount the Holder would have otherwise been entitled to receive had the transaction or transactions not occurred. 7 In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of Holder after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon conversion of this Note. The Company shall be obligated to retain and set aside, or otherwise make fair provision for exercise of the right of the Holder to receive, the shares of stock and/or other securities, cash or other property provided for in this Section 4.1. 4.2 Election of Holder upon Merger or Sale of Assets. Notwithstanding anything to the contrary contained herein, if an event shall occur as provided in Section 4.1 hereof that would otherwise result in the occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first paragraph of this Note, then the Holder may, in its sole discretion, by written notice to the Company elect to convert the principal amount of this Note plus the Interest Amount into the number of shares of stock or other securities or property described in Section 4.1, in lieu of receiving payment in full of all amounts outstanding under this Note. The number of shares of stock or other securities or property to be issued upon such conversion shall be determined in accordance with Section 4.1 hereof, taking into account the occurrence of such event. 4.3 Reclassification, Etc. If the Company shall, at any time while this Note, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, change any of the securities as to which conversion rights under this Note exist into the same or a different number of securities of any other class or classes, this Note shall thereafter represent the right to acquire such number and kind of securities as would have been issuable with respect to the securities that were subject to the conversion rights under this Note immediately prior to such reclassification or other change, and the Price Per Share shall be appropriately adjusted, all subject to further adjustment as provided in this Section 4. 4.4 Split, Subdivision or Combination of Shares. If the Company at any time while this Note, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the shares of Series E Preferred Stock or Common Stock into a different number of securities of the same class, the Price Per Share or conversion price, as the case may be, shall be proportionately adjusted. 4.5 Series E Adjustments. The initial Series E Conversion Price of the shares of Series E Preferred Stock issued upon conversion of this Note pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on the Conversion Date, subject to the adjustment of such Series E Conversion Price from time to time thereafter as provided in the Series E Certificate of Determination. 4.6 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 4, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. 8 4.7 No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 5. Covenants. The Company covenants and agrees that until the earlier of (i) the date on which all Obligations (as defined in the Security Agreement) have been paid in full or (ii) the date on which all amounts outstanding under the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b): 5.1 Financial Statements and Other Information. The Company shall deliver to the Holder of this Note the financial statements and other information required to be delivered under Section 8.1 of the Note Purchase Agreement. 5.2 Financial Covenants. The Company shall at all times comply with the financial and other covenants set forth in Schedule 8.5 to the Note Purchase Agreement as if such covenants were set forth herein. 5.3 Indebtedness. The Company shall not, and shall not permit any Subsidiary to, issue, incur, assume, create or have outstanding any Indebtedness, provided, however, that the foregoing shall not restrict nor operate to prevent: (a) Indebtedness in favor of the Holders under the Loan Documents; (b) Indebtedness existing on the date hereof, as set forth on Schedule 3.22 to the Note Purchase Agreement; (c) Indebtedness for accounts payable incurred in the ordinary course of business by the Company; (d) Indebtedness incurred solely for the purpose of financing the acquisition of any equipment, machinery, software, improvements or any other similar property, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, that the aggregate outstanding principal amount of all Indebtedness permitted pursuant to this clause (d) outstanding for more than sixty (60) days after the incurrence of such Indebtedness shall not at any time exceed $500,000; (e) Indebtedness of the Company evidenced by Capitalized Lease Obligations, provided, that in no event shall the aggregate principal amount of Capitalized Lease Obligations permitted by this clause (e) exceed $500,000 at any time outstanding; and 9 (f) Any extension, renewal, refinancing, refunding, or replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and (e) above, on such terms and conditions as are, on the whole, not materially more onerous to the Company than the terms and conditions of such original Indebtedness on the date of such refinancing (including that the principal amount of such refinancing Indebtedness does not exceed the principal amount of, plus the amount of accrued and unpaid interest on, the Indebtedness so refinanced (plus the amount of reasonable premium and fees and expenses incurred in connection therewith)), provided that, in the case of a refinancing of Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall only apply to the extent consistent with the Subordination Agreement, dated as of the date hereof, by and among SVB, the Holders and the Company (the "Subordination Agreement"). 5.4 Liens. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of the Company or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable), or assign any right to receive income or permit the filing of any financing statement under the Uniform Commercial Code, as from time to time in effect in the relevant jurisdiction (the "UCC"), or any other similar notice of Lien under any similar recording or notice statute; provided, that the provisions of this Section 5.4 shall not prevent the creation, incurrence, assumption or existence of the following: (a) Liens arising in the ordinary course of business by statute in connection with worker's compensation, unemployment insurance, old age benefits, social security obligations, statutory obligations or other similar charges (other then Liens arising under ERISA), good faith cash deposits in connection with tenders, contracts or leases to which the Company or any Subsidiary is a party or other cash deposits required to be made in the ordinary course of business, provided, that such Liens do not have a material adverse effect on the ability of the Company to repay amounts due under the Notes; (b) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (c) Liens in respect of property or assets of the Company or its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (i) which do not in the aggregate materially detract from the value of the Company's and its Subsidiaries' property or assets taken as a whole or result in a material adverse effect on the Condition of the Company or (ii) which are 10 being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; (d) the pledge of assets for the purpose of securing an appeal, stay or discharge in the course of any legal proceeding, provided that the aggregate amount of liabilities of the Company and its Subsidiaries secured by a pledge of assets permitted under this subsection, including interest and penalties thereon, if any, shall not be in excess of $500,000 at any one time outstanding; (e) any interest or title of a lessor under any operating lease; (f) easements, rights-of-way, restrictions and other similar encumbrances against real property incurred in the ordinary course of business; (g) the Liens existing on the date hereof identified on Schedule 3.22 to the Note Purchase Agreement; (h) Liens on cash deposited with account debtors to secure performance by the Company or any Subsidiary in the ordinary course of business subject to customary and reasonable terms; (i) Liens upon assets of the Company or its Subsidiaries subject to Capitalized Lease Obligations, provided, that (A) such Liens only serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising under such Capitalized Lease Obligation and (B) the Lien encumbering the asset giving rise to the Capitalized Lease Obligation does not encumber any other asset of the Company or its Subsidiaries; (j) Liens placed upon equipment, machinery, software, improvements or any other similar property, used in the ordinary course of business of the Company or any of its Subsidiaries at the time of the acquisition thereof by the Company or any of its Subsidiaries or within ninety (90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above; provided, that the Liens encumbering the equipment, machinery software, improvements or any other similar property so acquired do not encumber any other asset of the Company or its Subsidiaries; (k) set-off rights of depository institutions; and (l) Liens created by the Security Agreement (collectively with clauses (a) through (k) hereof, the "Permitted Liens"). 5.5 Fundamental Changes. The Company will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or a series of transactions) all or substantially all of its 11 assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time and immediately after giving effect thereto no Event of Default shall have occurred and be continuing (i) the Company or any of its Subsidiaries may, with the prior written consent of the Holders, merge with or into any other Person; (ii) any wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with or into the Company or any other wholly-owned Subsidiary of the Company; (iii) any Subsidiary (other than the Guarantor, and except as otherwise prohibited by this Note) may sell, transfer, lease or otherwise dispose of its assets to the Company or to another wholly-owned Subsidiary of the Company; and (iv) any Subsidiary may liquidate or dissolve if the board of directors of the Company determine in good faith that such liquidation or dissolution is in its best interests and is not disadvantageous to the Holders. 5.6 Restricted Payments. The Company will not, and the Company will not permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that (i) any Subsidiary may make a Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any Restricted Payment required by the terms of the Note Purchase Agreement and the other documents executed in connection therewith. 5.7 Transactions with Affiliates. The Company will not, and the Company will not permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions that are at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arm's length basis from unrelated third parties, (b) transactions exclusively between the Company and the Guarantor and (c) transactions under the agreements listed on Schedule 3.17 to the Note Purchase Agreement. 5.8 Investments. The Company will not, and the Company will not permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment in any Person, except for Permitted Investments. 5.9 Nature of Business. The Company will not, and the Company will not permit any Subsidiary to, engage in any business other than that conducted on the date hereof and any businesses reasonably related thereto. 5.10 Property of Existing Domestic Subsidiaries. The Company will not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise organized under the laws of the United States of America or any state thereof (a "Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease, license, purchase or otherwise acquire any personal or real property (excluding any material intellectual property) in excess of $50,000 for all property held by such Subsidiary, or $250,000 in the aggregate for all property held by all Domestic Subsidiaries (ii) maintain 12 any deposit account in its name, (iii) own or otherwise hold any rights to any material intellectual property or (iv) otherwise conduct any business or maintain operations. 5.11 Formation of Subsidiaries. The Company will not, and will not cause or permit any of its Subsidiaries to, form, acquire or permit the existence of any new domestic Subsidiary, without causing such domestic Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes and related security document, in form and substance satisfactory to the Holders. 5.12 Books and Records. The Company shall keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Company and its Subsidiaries in accordance with GAAP consistently applied. 5.13 Inspection. The Company shall, and shall cause each of its Subsidiaries to, permit representatives of the Holders to visit and inspect any of its properties, to examine its corporate, financial and operating records and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with their respective directors, officers and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably requested upon notice to the Company. 5.14 Maintenance of Business. The Company shall, and shall cause each Subsidiary to, preserve and maintain its existence. The Company shall, and shall cause each Subsidiary to, preserve and keep in force and effect all licenses, permits, franchises, approvals, patents, trademarks, trade names, trade styles, copyrights, and other property rights necessary to the proper conduct of its business, except where the failure to do so could not reasonably be expected to have a material adverse effect on the Condition of the Company or on the prospects of repayment of the Notes. 5.15 Maintenance of Properties. The Company shall, and shall cause each Subsidiary to, maintain, preserve and keep its property and equipment in good repair, working order and condition (ordinary wear and tear excepted) and shall from time to time make all needful and proper repairs, renewals, replacements, additions and betterments thereto so that at all times the efficiency thereof shall by fully preserved and maintained, except in each case to the extent that, in the reasonable business judgment of such Person, any such property or equipment is no longer necessary for the proper conduct of the business of such Person. 6. The occurrence of any one or more of the following events shall constitute an "Event of Default": 6.1 Failure To Pay. (i) The failure of the Company to pay any principal due under any of the Notes when due and payable (whether by acceleration, declaration, extension or otherwise), or (ii) the failure of the Company to pay any other amounts due under any of the Notes when due and payable if such failure is not cured within five (5) days of Company's receipt of notice thereof from any of the Holders. 13 6.2 Financial Covenants. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2. 6.3 Other Covenants and Agreements. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the covenants of this Note, the Security Agreement or any of the other Loan Documents (other than the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2), if such failure is not cured within sixty (60) days. 6.4 Representations and Warranties. If any representation or warranty made by the Company or any of its Subsidiaries in the Loan Documents is not true and correct in all material respects on the Initial Closing Date. 6.5 Default on Other Obligations. The occurrence of any condition or default under any other indebtedness for borrowed money of the Company or any of its Subsidiaries with a principal amount of at least five hundred thousand dollars ($500,000) that results in the acceleration of such indebtedness which is not cured within sixty (60) days. 6.6 Involuntary Bankruptcy. There shall be filed against the Company or any of its Subsidiaries an involuntary petition or other pleading seeking the entry of a decree or order for relief under the United States Bankruptcy Code or any similar federal or state insolvency or similar laws ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a reorganization of the Company or any of its Subsidiaries or the business and affairs of the Company or any of its Subsidiaries or (c) the appointment of a receiver, liquidator, assignee, custodian, trustee or similar official for the Company or any of its Subsidiaries of the property of the Company or any of its Subsidiaries. 6.7 Voluntary Bankruptcy. The commencement by the Company or any of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any federal or state insolvency or similar laws or the consent by the Company or any of its Subsidiaries to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian or similar official for the Company or any of its Subsidiaries of any of the property of the Company or any of its Subsidiaries or the making by the Company or any of its Subsidiaries of an assignment for the benefit of creditors, or the failure by Company or any of its Subsidiaries generally to pay its debts as the debts become due. 6.8 Judgments, Awards. Any judgment or order for the payment of money is rendered against the Company or any of its Subsidiaries in an amount in excess of five hundred thousand dollars ($500,000) individually or in the aggregate and either (i) enforcement proceedings are commenced by any creditor upon such judgment or order and not stayed, or (ii) there is any period of sixty (60) consecutive 14 days during which such judgment has not been paid in full or a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, is not in effect. 6.9 Attachment by Lenders. Any assets of the Company or any of its Subsidiaries shall be attached, levied upon, seized or repossessed, or come into the possession of a trustee, receiver or other custodian and a determination by any Holder, in good faith but in its sole discretion, that the same could have a material adverse effect on the prospect for the Holders to fully and punctually realize the full benefits conferred on the Holders by the Loan Documents. 6.10 Adverse Change in Financial Condition. Any event having a material adverse effect on the business, operations, assets, properties or condition of the Company and its Subsidiaries taken as a whole shall have occurred and be continuing or a material adverse effect on the validity or enforceability of this or any of the other Loan Documents or the rights or remedies of the Holders hereunder or thereunder. 7. Remedies. Upon and after the occurrence of an Event of Default, the Holder shall be entitled to the exercise the rights and remedies set forth in the Security Agreement, the other Loan Documents and under applicable law, all such rights and remedies being cumulative and enforceable alternatively, successively or concurrently. 8. Prepayment. The Company may not prepay this Note prior to the Maturity Date without the prior written consent of the Holders. 9. Seniority. (a) Except as set forth in the Subordination Agreement, the Notes will rank senior in right of payment to all other indebtedness of the Company, other than the GA Notes and the January 2004 Notes, with respect to which the Notes will be pari passu in right of payment in accordance with the Intercreditor Agreement. (b) Notwithstanding anything to the contrary contained in the Notes, this Note and the other Notes, and the terms and the conditions hereof and thereof, are subject to the Intercreditor Agreement. 10. Assignment. Subject to the restrictions on transfer described in Section 12 below, the rights and obligations of the Company and Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. The Company shall not be permitted to assign this Note without the prior written consent of the Holders. 11. Waiver of Notice. The Company hereby waives notice, presentment, demand, protest and notice of dishonor. 12. Transfer of This Note. With respect to any offer, sale or other disposition of this Note, Holder will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such Holder's 15 counsel, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect); provided, that no opinion shall be required for any transfer to an Affiliate or if the transfer is made in compliance with the Securities Act, so long as the transferee can make the same representations and warranties at the time of transfer as set forth in Sections 4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly upon delivering such written notice and opinion, if so required, Holder may sell or otherwise dispose of this Note, all in accordance with the terms of the notice delivered to the Company. Each Note thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Notwithstanding the foregoing, the Holder shall not be permitted to transfer this Note to any Person who is not an Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of written notice from the Company that Stockholder Approval cannot be obtained, or the occurrence of an actual vote of the Company's shareholders entitled to vote (whether by written consent or at a meeting specially called for such purpose), the result of which is a decision by a majority of the Company's shareholders entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of an Event of Default. This Note is registered as to both principal and stated interest with the Company (or its agent) within the meaning of section 1.871-14(c)(1)(i) of the Income Tax Regulations. Accordingly, notwithstanding anything to the contrary in this paragraph, this Note, together with any interest thereon, may be transferred only (i) upon surrender of the Note by the transferor to the Company (or its agent) and the reissuance of the Note (or the issuance of a new Note) to the transferee, or (ii) by transfer of the right to principal and interest through a book-entry system meeting the requirements of section 1.871-14(c)(1)(i)(B) of the Income Tax Regulations that is maintained by the Company (or its agent). In the case of a Holder that is not a "United States person" within the meaning of section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the "Code"), so long as an exception under section 871(h) or section 881(c) of the Code does not apply, the Company (or its agent) shall not withhold any U.S. federal income tax with respect to such Holder provided that the Holder timely provides the Company (or its agent) with a statement that meets the requirements of section 871(h)(5) of the Code. 13. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 14. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally recognized courier service or mailed by registered or certified mail, postage prepaid, to the respective addresses of the parties as set forth on the signature pages hereto or if sent by facsimile to the respective facsimile numbers of the parties set forth on the signature pages hereto. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively 16 be deemed to have been given and received when personally delivered or three (3) business days after deposited in the mail or one business day after sent by courier or upon confirmation of facsimile delivery in the manner set forth above. 15. No Stockholder Rights. Nothing contained in this Note shall be construed as conferring upon Holder or any other Person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. 16. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law relating to conflict of laws. 17. Amendments and Waivers. No amendments or waivers of any provision of this Note, and no consent by the Holder to any departure by the Company, shall in any event be effective unless the same shall be in writing, and signed by the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 18. Severability. Any provision of this Note that is prohibited or unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE COMPANY AND THE 17 HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. 20. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except as otherwise indicated, all references herein to Sections refer to Sections hereof. [the remainder of this page intentionally left blank] 18 IN WITNESS WHEREOF, the Company has caused this Note to be issued this 9th day of March, 2004. COMPANY: CRITICAL PATH, INC., a California corporation By: /s/ William E. McGlashan, Jr. --------------------------------------------- Name: William E. McGlashan, Jr. Title: Chairman, Chief Executive Officer Critical Path, Inc. 350 The Embarcadero San Francisco, CA 94105-1204 Telecopy: (415) 541-2300 Attention: Chief Financial Officer With a copy to: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Telecopy: (415) 983-1200 Attention: Gregg Vignos, Esq. Name of Holder: ZAXIS OFFSHORE LIMITED Address: c/o Apex Capital, LLC 25 Orinda Way, Suite 300 Orinda, CA 94563 Attention: Adam Fiore, General Counsel Telephone: (925) 253-6125 Facsimile: (925) 253-1809 EX-4.36 21 f97295exv4w36.txt EXHIBIT 4.36 EXHIBIT 4.36 THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS. CRITICAL PATH, INC. CONVERTIBLE SUBORDINATED PROMISSORY NOTE $645,000 San Francisco, California March 9, 2004 Critical Path, Inc., a California corporation (the "Company"), the principal office of which is located in San Francisco, California, for value received hereby promises to pay to the order of Zaxis Partners, L.P., or its registered assigns ("Holder"), the sum of six hundred forty-five thousand dollars ($645,000), or such lesser amount as shall then equal the outstanding principal amount hereof on the terms and conditions set forth hereinafter. The outstanding principal amount hereof and all accrued and unpaid interest hereon, as set forth below, shall be due and payable on the earlier to occur of (i) March 9, 2008, (ii) when declared due and payable by Holder upon the occurrence of an Event of Default (as defined below), (iii) consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock or Stock Equivalents by the Company, any cash capital contribution from any third person or any other debt or equity financing consummated by the Company after the date of issuance of this Note which, in the case of (v), individually or in the aggregate raises proceeds of at least forty million dollars ($40,000,000) in cash or cash equivalents (the earliest of the events set forth in items (i)-(v) immediately above, the "Maturity Date"). The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. Except as otherwise defined herein, each capitalized term used herein shall have the meaning assigned to it in the Note Purchase Agreement, as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. All other references to the Note Purchase Agreement in this Note refer to the Note Purchase Agreement as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. As used in this Note, the following terms, unless the context otherwise requires, have the following meanings: 1.1 "Affiliate" means any Person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended. 1.2 "Capitalized Lease Obligations" means, with respect to any Person, all rental obligations of such Person which, under GAAP, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with such principles. 1.3 "Change of Control" shall mean (i) any merger, consolidation or other business combination transaction (or series of related transactions) in which the stockholders owning a majority of the voting securities of the Company prior to such transaction do not own a majority of the voting securities of the surviving entity, (ii) any tender offer, exchange offer or other transaction whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended) (other than General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and the Affiliates of the foregoing, provided that Affiliates shall be deemed not to include any portfolio companies of any of the foregoing) obtains a majority of the outstanding shares of capital stock entitled to vote in the election of directors, (iii) any proxy contest in which a majority of the Board of Directors of the Company (or persons appointed by such Board of Directors) prior to such contest do not constitute a majority of the Company's Board of Directors after such contest or (iv) any other transaction described in any stockholder rights agreement or "poison pill," if any, to which the Company is party, which may permit the holders of any rights or similar certificates to exercise the rights evidenced thereby. 1.4 "Company" shall have the meaning set forth in the recitals hereto, and includes any corporation that shall succeed to or assume the obligations of the Company under this Note. 1.5 "Common Conversion Date" shall have the meaning set forth in Section 3.1(b) hereof. 1.6 "Common Stock" means the common stock, par value $0.001 per share, of the Company. 1.7 "Conversion Date" shall mean the Subsequent Closing Date. 1.8 "Domestic Subsidiary" shall have the meaning set forth in Section 5.10 hereof. 1.9 "Event of Default" shall have the meaning set forth in Section 6 hereof. 2 1.10 "GA Notes" shall mean the Convertible Subordinated Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP Entities pursuant to the Purchase and Exchange Agreement. 1.11 "GAP Entities" shall mean General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG. 1.12 "Guarantor" shall have the meaning set forth in the Security Agreement. 1.13 "Holder" shall mean the registered holder of this Note from time to time, and in the plural, shall mean all registered holders of Notes from time to time issued by the Company pursuant to the Note Purchase Agreement. 1.14 "Intercreditor Agreement" shall mean the Intercreditor Agreement, dated the date hereof, among the GAP Entities, the January Lenders, Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures International. 1.15 "Interest Amount" shall have the meaning set forth in Section 3.1 hereof. 1.16 "Investment" means (i) the acquisition (whether for cash, property, services, assumption of Indebtedness, securities or otherwise) of assets (other than equipment, inventory, supplies or other assets acquired in the ordinary course of business of the Company), capital stock, bonds, notes, debentures, partnership, joint venture or other ownership interests or other securities of any Person, (ii) any deposit with, or advance, loan or other extension of credit to, or on behalf of, any Person (other than deposits made in connection with the purchase of equipment, inventory, services, leases, supplies or other assets in the ordinary course of business of the Company), and (iii) any other capital contribution to or investment in any Person, including, without limitation, any guaranty obligation incurred for the benefit of any Person. For the sake of clarity, Investments shall include any transfer of property or assets by the Company to any of its Subsidiaries or by any Subsidiary of the Company to any other Subsidiary. 1.17 "January Lenders" shall mean Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P. 1.18 "January Note Agreement" shall mean the Convertible Note Purchase Agreement, dated January 16, 2004, among the January Lenders and the Company. 1.19 "January 2004 Notes" shall mean the Convertible Subordinated Promissory Notes, each dated January 16, 2003, issued by the Company to the January Lenders pursuant to the January Note Agreement. 3 1.20 "Loan Documents" shall have the meaning set forth in the Security Agreement. 1.21 "Note" shall mean this note, and in the plural, shall mean all notes issued to the Lenders pursuant to the terms of the Note Purchase Agreement, including this Note, and all amendments, modifications and extensions thereto. 1.22 "Note Purchase Agreement" means that certain Convertible Note Purchase Agreement, dated March 9, 2004, among the Company, the Holder and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.23 "Permitted Investments" means (i) Investments in cash or cash equivalents, (ii) accounts receivable created, acquired or made in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (iii) Investments existing on the closing date, and listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty obligations permitted by Section 5.3 of this Agreement, (v) loans to employees, directors or officers of the Company in connection with the award of convertible bonds or capital stock under a stock incentive plan, stock option plan or other equity-based compensation plan or arrangement, (vi) other advances or loans to employees, directors, officers or agents of the Company in the ordinary course of business not to exceed $500,000 in the aggregate at any time outstanding; (vii) loans, advances and investments in foreign Subsidiaries (that are not incorporated or otherwise organized under the laws of the United States of America or any state thereof) in an amount not to exceed $1,000,000 in the aggregate at any time outstanding; (viii) any acquisition for which the prior written consent of the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement has been obtained, (ix) other loans, advances and investments of a nature not contemplated by the foregoing sections in an amount not to exceed $500,000 in the aggregate at any time outstanding or (x) Investments by the Company in the Guarantor. 1.24 "Permitted Liens" shall have the meaning set forth in Section 5.4. 1.25 "Person" means any individual, firm, corporation, partnership, trust, joint venture, joint stock company, limited liability company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. 1.26 "Price Per Share" shall have the meaning attributed to such term in the Series E Certificate of Determination, as filed with the Secretary of State of the State of California. 1.27 "Purchase and Exchange Agreement" shall mean the Convertible Note Purchase and Exchange Agreement, dated November 18, 2003, among the Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended. 4 1.28 "Qualified Asset Sale" means the sale, transfer or other disposition of any of the assets of the Company or any of its Subsidiaries, other than (a) sales of assets in the ordinary course of business, (b) sales of assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the sale, transfer or other disposition of assets of the Company where the proceeds are applied to the purchase price or traded in for credit against the purchase price of other assets, provided that any such purchase is made, or credit issued, within 90 days of the sale, transfer or other disposition, and (d) one or more sales of the Company's assets (other than sales otherwise included in clauses (a), (b), and (c) immediately above) which collectively yield up to an aggregate of one million dollars ($1,000,000) in gross proceeds to the Company while this Note is outstanding. 1.29 "Restricted Payment" means (a) any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Company or any of its Subsidiaries or (b) any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any shares of any class of capital stock of the Company or any Subsidiary or any option, warrant or other right to acquire any such shares of capital stock of the Company or any Subsidiary. 1.30 "Security Agreement" means that certain Guaranty and Security Agreement, of even date herewith between the Company, Compass Holding Corp., the Lenders and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.31 "Series E Conversion Price" shall have the meaning set forth in the Series E Certificate of Determination. 1.32 "Series E Preferred Stock" means the Series E Preferred Stock, par value $0.001, of the Company. 1.33 "Subordination Agreement" shall have the meaning set forth in Section 5.3. 1.34 "Subsequent Closing Date" shall have the meaning set forth in Section 2.4(e) of the Note Purchase Agreement. 1.35 "SVB" means Silicon Valley Bank, a California chartered bank, or any Affiliates thereof. 1.36 "Ten Percent Holder" means, with respect to a class of equity securities of the Company, a Person (together with such Person's Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such class of equity securities of the Company, as defined by Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 1.37 "UCC" shall have the meaning set forth in Section 5.4. 5 2. Interest. Simple interest shall accrue at the rate of ten percent (10%) per annum (or such lesser amount as shall equal the highest rate of interest allowable under applicable law) (the "Interest Rate"), on the outstanding principal of this Note from the date of this Note until the Maturity Date or the date this Note is otherwise repaid. The Company shall not be obligated to make any payments of interest which shall have accrued under this Note prior to the Maturity Date. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. In the event that the principal amount of this Note, any interest, or any amount payable hereunder is not paid in full when such amount becomes due and payable, or upon the occurrence of an Event of Default, interest shall accrue at the lesser of (a) the initial Interest Rate plus five percent (5%) per annum or (b) the highest rate of interest allowable under applicable law, on the balance of all amounts outstanding until such overdue amounts are paid or the Event of Default is cured, and such interest shall be payable on demand. 3. Conversion. 3.1 Conversion. (a) On the Conversion Date, the principal amount of this Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall be automatically converted into the number of fully paid and nonassessable shares of Series E Preferred Stock equal to the quotient obtained by dividing (a) the entire principal amount of this Note plus the Interest Amount by (b) the Price Per Share. (b) In the event that the Conversion Date has not occurred on or prior to August 15, 2004 (the "Common Conversion Date"), then, following the Common Conversion Date, the principal amount of this Note plus the Interest Amount shall be convertible, at the option of Holder and from time to time, only into Common Stock at a conversion price per share equal to $2.18, as adjusted for any stock dividends, stock splits or similar consolidations or subdivisions, following the date hereof; provided, however, that Holder shall not be permitted to convert any portion of the principal of this Note or the Interest Amount into Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion, the conversion would cause Holder to be a Ten Percent Holder. 3.2 Notice of Conversion. Upon conversion of this Note as provided in Section 3.1, Holder shall surrender this Note to the Company and shall state the name or names in which the certificate or certificates for such shares of Series E Preferred Stock or Common Stock, as the case may be, are to be issued. The Person or Persons entitled to receive the shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion shall be treated for all purposes as the record holder or holders (a) of such shares of Series E Preferred Stock as of the Conversion Date and (b) of such shares of Common Stock as of the date of any conversion pursuant to Section 3.1(b). 3.3 Delivery of Stock Certificates. Upon conversion of this Note as provided in Section 3.1, the Company at its expense will issue and deliver to 6 Holder of this Note a certificate or certificates (bearing such legends as are required by applicable state and federal securities laws in the opinion of counsel to the Company) for the number of full shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion. 3.4 Mechanics and Effect of Conversion. No fractional shares of Series E Preferred Stock or Common Stock, as the case may be, shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to Holder upon the conversion of this Note, the Company shall pay to Holder the amount of outstanding principal and interest that is not so converted. Upon conversion of all amounts due under this Note, the Company shall be released from all of its obligations under this Note. 4. Adjustments. The number of shares of Series E Preferred Stock or Common Stock convertible hereunder are subject to adjustment from time to time as follows: 4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at any time while this Note remains outstanding and unexpired there shall be (a) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (b) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise or (c) a sale or transfer of the Company's stock, properties or assets as, or substantially as, an entirety to any other Person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that Holder shall thereafter be entitled to receive by converting this Note the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon conversion of this Note would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Note had been converted immediately before such reorganization, merger, consolidation, sale or transfer (notwithstanding that the Stockholder Approval may not yet have been obtained), all subject to further adjustment as provided in this Section 4. The foregoing provisions of this Section 4.1 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation. If the per share consideration payable to Holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors based on the amount the Holder would have otherwise been entitled to receive had the transaction or transactions not occurred. In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of Holder after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon conversion of 7 this Note. The Company shall be obligated to retain and set aside, or otherwise make fair provision for exercise of the right of the Holder to receive, the shares of stock and/or other securities, cash or other property provided for in this Section 4.1. 4.2 Election of Holder upon Merger or Sale of Assets. Notwithstanding anything to the contrary contained herein, if an event shall occur as provided in Section 4.1 hereof that would otherwise result in the occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first paragraph of this Note, then the Holder may, in its sole discretion, by written notice to the Company elect to convert the principal amount of this Note plus the Interest Amount into the number of shares of stock or other securities or property described in Section 4.1, in lieu of receiving payment in full of all amounts outstanding under this Note. The number of shares of stock or other securities or property to be issued upon such conversion shall be determined in accordance with Section 4.1 hereof, taking into account the occurrence of such event. 4.3 Reclassification, Etc. If the Company shall, at any time while this Note, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, change any of the securities as to which conversion rights under this Note exist into the same or a different number of securities of any other class or classes, this Note shall thereafter represent the right to acquire such number and kind of securities as would have been issuable with respect to the securities that were subject to the conversion rights under this Note immediately prior to such reclassification or other change, and the Price Per Share shall be appropriately adjusted, all subject to further adjustment as provided in this Section 4. 4.4 Split, Subdivision or Combination of Shares. If the Company at any time while this Note, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the shares of Series E Preferred Stock or Common Stock into a different number of securities of the same class, the Price Per Share or conversion price, as the case may be, shall be proportionately adjusted. 4.5 Series E Adjustments. The initial Series E Conversion Price of the shares of Series E Preferred Stock issued upon conversion of this Note pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on the Conversion Date, subject to the adjustment of such Series E Conversion Price from time to time thereafter as provided in the Series E Certificate of Determination. 4.6 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 4, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. 4.7 No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all 8 such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 5. Covenants. The Company covenants and agrees that until the earlier of (i) the date on which all Obligations (as defined in the Security Agreement) have been paid in full or (ii) the date on which all amounts outstanding under the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b): 5.1 Financial Statements and Other Information. The Company shall deliver to the Holder of this Note the financial statements and other information required to be delivered under Section 8.1 of the Note Purchase Agreement. 5.2 Financial Covenants. The Company shall at all times comply with the financial and other covenants set forth in Schedule 8.5 to the Note Purchase Agreement as if such covenants were set forth herein. 5.3 Indebtedness. The Company shall not, and shall not permit any Subsidiary to, issue, incur, assume, create or have outstanding any Indebtedness, provided, however, that the foregoing shall not restrict nor operate to prevent: (a) Indebtedness in favor of the Holders under the Loan Documents; (b) Indebtedness existing on the date hereof, as set forth on Schedule 3.22 to the Note Purchase Agreement; (c) Indebtedness for accounts payable incurred in the ordinary course of business by the Company; (d) Indebtedness incurred solely for the purpose of financing the acquisition of any equipment, machinery, software, improvements or any other similar property, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, that the aggregate outstanding principal amount of all Indebtedness permitted pursuant to this clause (d) outstanding for more than sixty (60) days after the incurrence of such Indebtedness shall not at any time exceed $500,000; (e) Indebtedness of the Company evidenced by Capitalized Lease Obligations, provided, that in no event shall the aggregate principal amount of Capitalized Lease Obligations permitted by this clause (e) exceed $500,000 at any time outstanding; and (f) Any extension, renewal, refinancing, refunding, or replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and (e) above, on such terms and conditions as are, on the whole, not materially more onerous to the Company than the terms and conditions of such original Indebtedness on the date of such refinancing (including that the principal amount of such refinancing Indebtedness 9 does not exceed the principal amount of, plus the amount of accrued and unpaid interest on, the Indebtedness so refinanced (plus the amount of reasonable premium and fees and expenses incurred in connection therewith)), provided that, in the case of a refinancing of Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall only apply to the extent consistent with the Subordination Agreement, dated as of the date hereof, by and among SVB, the Holders and the Company (the "Subordination Agreement"). 5.4 Liens. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of the Company or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable), or assign any right to receive income or permit the filing of any financing statement under the Uniform Commercial Code, as from time to time in effect in the relevant jurisdiction (the "UCC"), or any other similar notice of Lien under any similar recording or notice statute; provided, that the provisions of this Section 5.4 shall not prevent the creation, incurrence, assumption or existence of the following: (a) Liens arising in the ordinary course of business by statute in connection with worker's compensation, unemployment insurance, old age benefits, social security obligations, statutory obligations or other similar charges (other then Liens arising under ERISA), good faith cash deposits in connection with tenders, contracts or leases to which the Company or any Subsidiary is a party or other cash deposits required to be made in the ordinary course of business, provided, that such Liens do not have a material adverse effect on the ability of the Company to repay amounts due under the Notes; (b) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (c) Liens in respect of property or assets of the Company or its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (i) which do not in the aggregate materially detract from the value of the Company's and its Subsidiaries' property or assets taken as a whole or result in a material adverse effect on the Condition of the Company or (ii) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; 10 (d) the pledge of assets for the purpose of securing an appeal, stay or discharge in the course of any legal proceeding, provided that the aggregate amount of liabilities of the Company and its Subsidiaries secured by a pledge of assets permitted under this subsection, including interest and penalties thereon, if any, shall not be in excess of $500,000 at any one time outstanding; (e) any interest or title of a lessor under any operating lease; (f) easements, rights-of-way, restrictions and other similar encumbrances against real property incurred in the ordinary course of business; (g) the Liens existing on the date hereof identified on Schedule 3.22 to the Note Purchase Agreement; (h) Liens on cash deposited with account debtors to secure performance by the Company or any Subsidiary in the ordinary course of business subject to customary and reasonable terms; (i) Liens upon assets of the Company or its Subsidiaries subject to Capitalized Lease Obligations, provided, that (A) such Liens only serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising under such Capitalized Lease Obligation and (B) the Lien encumbering the asset giving rise to the Capitalized Lease Obligation does not encumber any other asset of the Company or its Subsidiaries; (j) Liens placed upon equipment, machinery, software, improvements or any other similar property, used in the ordinary course of business of the Company or any of its Subsidiaries at the time of the acquisition thereof by the Company or any of its Subsidiaries or within ninety (90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above; provided, that the Liens encumbering the equipment, machinery software, improvements or any other similar property so acquired do not encumber any other asset of the Company or its Subsidiaries; (k) set-off rights of depository institutions; and (l) Liens created by the Security Agreement (collectively with clauses (a) through (k) hereof, the "Permitted Liens"). 5.5 Fundamental Changes. The Company will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or a series of transactions) all or substantially all of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time and immediately after giving effect thereto no Event of Default shall have occurred and be continuing (i) the Company or any of its Subsidiaries may, with the prior written 11 consent of the Holders, merge with or into any other Person; (ii) any wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with or into the Company or any other wholly-owned Subsidiary of the Company; (iii) any Subsidiary (other than the Guarantor, and except as otherwise prohibited by this Note) may sell, transfer, lease or otherwise dispose of its assets to the Company or to another wholly-owned Subsidiary of the Company; and (iv) any Subsidiary may liquidate or dissolve if the board of directors of the Company determine in good faith that such liquidation or dissolution is in its best interests and is not disadvantageous to the Holders. 5.6 Restricted Payments. The Company will not, and the Company will not permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that (i) any Subsidiary may make a Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any Restricted Payment required by the terms of the Note Purchase Agreement and the other documents executed in connection therewith. 5.7 Transactions with Affiliates. The Company will not, and the Company will not permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions that are at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arm's length basis from unrelated third parties, (b) transactions exclusively between the Company and the Guarantor and (c) transactions under the agreements listed on Schedule 3.17 to the Note Purchase Agreement. 5.8 Investments. The Company will not, and the Company will not permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment in any Person, except for Permitted Investments. 5.9 Nature of Business. The Company will not, and the Company will not permit any Subsidiary to, engage in any business other than that conducted on the date hereof and any businesses reasonably related thereto. 5.10 Property of Existing Domestic Subsidiaries. The Company will not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise organized under the laws of the United States of America or any state thereof (a "Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease, license, purchase or otherwise acquire any personal or real property (excluding any material intellectual property) in excess of $50,000 for all property held by such Subsidiary, or $250,000 in the aggregate for all property held by all Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own or otherwise hold any rights to any material intellectual property or (iv) otherwise conduct any business or maintain operations. 5.11 Formation of Subsidiaries. The Company will not, and will not cause or permit any of its Subsidiaries to, form, acquire or permit the existence of any 12 new domestic Subsidiary, without causing such domestic Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes and related security document, in form and substance satisfactory to the Holders. 5.12 Books and Records. The Company shall keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Company and its Subsidiaries in accordance with GAAP consistently applied. 5.13 Inspection. The Company shall, and shall cause each of its Subsidiaries to, permit representatives of the Holders to visit and inspect any of its properties, to examine its corporate, financial and operating records and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with their respective directors, officers and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably requested upon notice to the Company. 5.14 Maintenance of Business. The Company shall, and shall cause each Subsidiary to, preserve and maintain its existence. The Company shall, and shall cause each Subsidiary to, preserve and keep in force and effect all licenses, permits, franchises, approvals, patents, trademarks, trade names, trade styles, copyrights, and other property rights necessary to the proper conduct of its business, except where the failure to do so could not reasonably be expected to have a material adverse effect on the Condition of the Company or on the prospects of repayment of the Notes. 5.15 Maintenance of Properties. The Company shall, and shall cause each Subsidiary to, maintain, preserve and keep its property and equipment in good repair, working order and condition (ordinary wear and tear excepted) and shall from time to time make all needful and proper repairs, renewals, replacements, additions and betterments thereto so that at all times the efficiency thereof shall by fully preserved and maintained, except in each case to the extent that, in the reasonable business judgment of such Person, any such property or equipment is no longer necessary for the proper conduct of the business of such Person. 6. The occurrence of any one or more of the following events shall constitute an "Event of Default": 6.1 Failure To Pay. (i) The failure of the Company to pay any principal due under any of the Notes when due and payable (whether by acceleration, declaration, extension or otherwise), or (ii) the failure of the Company to pay any other amounts due under any of the Notes when due and payable if such failure is not cured within five (5) days of Company's receipt of notice thereof from any of the Holders. 6.2 Financial Covenants. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2. 13 6.3 Other Covenants and Agreements. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the covenants of this Note, the Security Agreement or any of the other Loan Documents (other than the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2), if such failure is not cured within sixty (60) days. 6.4 Representations and Warranties. If any representation or warranty made by the Company or any of its Subsidiaries in the Loan Documents is not true and correct in all material respects on the Initial Closing Date. 6.5 Default on Other Obligations. The occurrence of any condition or default under any other indebtedness for borrowed money of the Company or any of its Subsidiaries with a principal amount of at least five hundred thousand dollars ($500,000) that results in the acceleration of such indebtedness which is not cured within sixty (60) days. 6.6 Involuntary Bankruptcy. There shall be filed against the Company or any of its Subsidiaries an involuntary petition or other pleading seeking the entry of a decree or order for relief under the United States Bankruptcy Code or any similar federal or state insolvency or similar laws ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a reorganization of the Company or any of its Subsidiaries or the business and affairs of the Company or any of its Subsidiaries or (c) the appointment of a receiver, liquidator, assignee, custodian, trustee or similar official for the Company or any of its Subsidiaries of the property of the Company or any of its Subsidiaries. 6.7 Voluntary Bankruptcy. The commencement by the Company or any of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any federal or state insolvency or similar laws or the consent by the Company or any of its Subsidiaries to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian or similar official for the Company or any of its Subsidiaries of any of the property of the Company or any of its Subsidiaries or the making by the Company or any of its Subsidiaries of an assignment for the benefit of creditors, or the failure by Company or any of its Subsidiaries generally to pay its debts as the debts become due. 6.8 Judgments, Awards. Any judgment or order for the payment of money is rendered against the Company or any of its Subsidiaries in an amount in excess of five hundred thousand dollars ($500,000) individually or in the aggregate and either (i) enforcement proceedings are commenced by any creditor upon such judgment or order and not stayed, or (ii) there is any period of sixty (60) consecutive days during which such judgment has not been paid in full or a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, is not in effect. 6.9 Attachment by Lenders. Any assets of the Company or any of its Subsidiaries shall be attached, levied upon, seized or repossessed, or come into the 14 possession of a trustee, receiver or other custodian and a determination by any Holder, in good faith but in its sole discretion, that the same could have a material adverse effect on the prospect for the Holders to fully and punctually realize the full benefits conferred on the Holders by the Loan Documents. 6.10 Adverse Change in Financial Condition. Any event having a material adverse effect on the business, operations, assets, properties or condition of the Company and its Subsidiaries taken as a whole shall have occurred and be continuing or a material adverse effect on the validity or enforceability of this or any of the other Loan Documents or the rights or remedies of the Holders hereunder or thereunder. 7. Remedies. Upon and after the occurrence of an Event of Default, the Holder shall be entitled to the exercise the rights and remedies set forth in the Security Agreement, the other Loan Documents and under applicable law, all such rights and remedies being cumulative and enforceable alternatively, successively or concurrently. 8. Prepayment. The Company may not prepay this Note prior to the Maturity Date without the prior written consent of the Holders. 9. Seniority. (a) Except as set forth in the Subordination Agreement, the Notes will rank senior in right of payment to all other indebtedness of the Company, other than the GA Notes and the January 2004 Notes, with respect to which the Notes will be pari passu in right of payment in accordance with the Intercreditor Agreement. (b) Notwithstanding anything to the contrary contained in the Notes, this Note and the other Notes, and the terms and the conditions hereof and thereof, are subject to the Intercreditor Agreement. 10. Assignment. Subject to the restrictions on transfer described in Section 12 below, the rights and obligations of the Company and Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. The Company shall not be permitted to assign this Note without the prior written consent of the Holders. 11. Waiver of Notice. The Company hereby waives notice, presentment, demand, protest and notice of dishonor. 12. Transfer of This Note. With respect to any offer, sale or other disposition of this Note, Holder will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such Holder's counsel, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect); provided, that no opinion shall be required for any transfer to an Affiliate or if the transfer is made in compliance with the Securities Act, so long as the transferee can make the same representations and warranties at the time of transfer as set forth in Sections 4.5, 4.6, 4.7, 15 4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly upon delivering such written notice and opinion, if so required, Holder may sell or otherwise dispose of this Note, all in accordance with the terms of the notice delivered to the Company. Each Note thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Notwithstanding the foregoing, the Holder shall not be permitted to transfer this Note to any Person who is not an Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of written notice from the Company that Stockholder Approval cannot be obtained, or the occurrence of an actual vote of the Company's shareholders entitled to vote (whether by written consent or at a meeting specially called for such purpose), the result of which is a decision by a majority of the Company's shareholders entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of an Event of Default. This Note is registered as to both principal and stated interest with the Company (or its agent) within the meaning of section 1.871-14(c)(1)(i) of the Income Tax Regulations. Accordingly, notwithstanding anything to the contrary in this paragraph, this Note, together with any interest thereon, may be transferred only (i) upon surrender of the Note by the transferor to the Company (or its agent) and the reissuance of the Note (or the issuance of a new Note) to the transferee, or (ii) by transfer of the right to principal and interest through a book-entry system meeting the requirements of section 1.871-14(c)(1)(i)(B) of the Income Tax Regulations that is maintained by the Company (or its agent). In the case of a Holder that is not a "United States person" within the meaning of section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the "Code"), so long as an exception under section 871(h) or section 881(c) of the Code does not apply, the Company (or its agent) shall not withhold any U.S. federal income tax with respect to such Holder provided that the Holder timely provides the Company (or its agent) with a statement that meets the requirements of section 871(h)(5) of the Code. 13. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 14. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally recognized courier service or mailed by registered or certified mail, postage prepaid, to the respective addresses of the parties as set forth on the signature pages hereto or if sent by facsimile to the respective facsimile numbers of the parties set forth on the signature pages hereto. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given and received when personally delivered or three (3) business days after deposited in the mail or one business day after sent by courier or upon confirmation of facsimile delivery in the manner set forth above. 16 15. No Stockholder Rights. Nothing contained in this Note shall be construed as conferring upon Holder or any other Person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. 16. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law relating to conflict of laws. 17. Amendments and Waivers. No amendments or waivers of any provision of this Note, and no consent by the Holder to any departure by the Company, shall in any event be effective unless the same shall be in writing, and signed by the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 18. Severability. Any provision of this Note that is prohibited or unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF 17 THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. 20. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except as otherwise indicated, all references herein to Sections refer to Sections hereof. [the remainder of this page intentionally left blank] 18 IN WITNESS WHEREOF, the Company has caused this Note to be issued this 9th day of March, 2004. COMPANY: CRITICAL PATH, INC., a California corporation By: /s/ William E. McGlashan, Jr. ------------------------------------ Name: William E. McGlashan, Jr. Title: Chairman, Chief Executive Officer Critical Path, Inc. 350 The Embarcadero San Francisco, CA 94105-1204 Telecopy: (415) 541-2300 Attention: Chief Financial Officer With a copy to: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Telecopy: (415) 983-1200 Attention: Gregg Vignos, Esq. Name of Holder: ZAXIS PARTNERS, L.P. Address: c/o Apex Capital, LLC 25 Orinda Way, Suite 300 Orinda, CA 94563 Attention: Adam Fiore, General Counsel Telephone: (925) 253-6125 Facsimile: (925) 253-1809 EX-4.37 22 f97295exv4w37.txt EXHIBIT 4.37 EXHIBIT 4.37 THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS. CRITICAL PATH, INC. CONVERTIBLE SUBORDINATED PROMISSORY NOTE $675,000 San Francisco, California March 9, 2004 Critical Path, Inc., a California corporation (the "Company"), the principal office of which is located in San Francisco, California, for value received hereby promises to pay to the order of Guggenheim Portfolio Company XIII, or its registered assigns ("Holder"), the sum of six hundred seventy-five thousand dollars ($675,000), or such lesser amount as shall then equal the outstanding principal amount hereof on the terms and conditions set forth hereinafter. The outstanding principal amount hereof and all accrued and unpaid interest hereon, as set forth below, shall be due and payable on the earlier to occur of (i) March 9, 2008, (ii) when declared due and payable by Holder upon the occurrence of an Event of Default (as defined below), (iii) consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock or Stock Equivalents by the Company, any cash capital contribution from any third person or any other debt or equity financing consummated by the Company after the date of issuance of this Note which, in the case of (v), individually or in the aggregate raises proceeds of at least forty million dollars ($40,000,000) in cash or cash equivalents (the earliest of the events set forth in items (i)-(v) immediately above, the "Maturity Date"). The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. Except as otherwise defined herein, each capitalized term used herein shall have the meaning assigned to it in the Note Purchase Agreement, as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. All other references to the Note Purchase Agreement in this Note refer to the Note Purchase Agreement as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. As used in this Note, the following terms, unless the context otherwise requires, have the following meanings: 1.1 "Affiliate" means any Person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended. 1.2 "Capitalized Lease Obligations" means, with respect to any Person, all rental obligations of such Person which, under GAAP, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with such principles. 1.3 "Change of Control" shall mean (i) any merger, consolidation or other business combination transaction (or series of related transactions) in which the stockholders owning a majority of the voting securities of the Company prior to such transaction do not own a majority of the voting securities of the surviving entity, (ii) any tender offer, exchange offer or other transaction whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended) (other than General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and the Affiliates of the foregoing, provided that Affiliates shall be deemed not to include any portfolio companies of any of the foregoing) obtains a majority of the outstanding shares of capital stock entitled to vote in the election of directors, (iii) any proxy contest in which a majority of the Board of Directors of the Company (or persons appointed by such Board of Directors) prior to such contest do not constitute a majority of the Company's Board of Directors after such contest or (iv) any other transaction described in any stockholder rights agreement or "poison pill," if any, to which the Company is party, which may permit the holders of any rights or similar certificates to exercise the rights evidenced thereby. 1.4 "Company" shall have the meaning set forth in the recitals hereto, and includes any corporation that shall succeed to or assume the obligations of the Company under this Note. 1.5 "Common Conversion Date" shall have the meaning set forth in Section 3.1(b) hereof. 1.6 "Common Stock" means the common stock, par value $0.001 per share, of the Company. 1.7 "Conversion Date" shall mean the Subsequent Closing Date. 1.8 "Domestic Subsidiary" shall have the meaning set forth in Section 5.10 hereof. 1.9 "Event of Default" shall have the meaning set forth in Section 6 hereof. 2 1.10 "GA Notes" shall mean the Convertible Subordinated Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP Entities pursuant to the Purchase and Exchange Agreement. 1.11 "GAP Entities" shall mean General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG. 1.12 "Guarantor" shall have the meaning set forth in the Security Agreement. 1.13 "Holder" shall mean the registered holder of this Note from time to time, and in the plural, shall mean all registered holders of Notes from time to time issued by the Company pursuant to the Note Purchase Agreement. 1.14 "Intercreditor Agreement" shall mean the Intercreditor Agreement, dated the date hereof, among the GAP Entities, the January Lenders, Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures International. 1.15 "Interest Amount" shall have the meaning set forth in Section 3.1 hereof. 1.16 "Investment" means (i) the acquisition (whether for cash, property, services, assumption of Indebtedness, securities or otherwise) of assets (other than equipment, inventory, supplies or other assets acquired in the ordinary course of business of the Company), capital stock, bonds, notes, debentures, partnership, joint venture or other ownership interests or other securities of any Person, (ii) any deposit with, or advance, loan or other extension of credit to, or on behalf of, any Person (other than deposits made in connection with the purchase of equipment, inventory, services, leases, supplies or other assets in the ordinary course of business of the Company), and (iii) any other capital contribution to or investment in any Person, including, without limitation, any guaranty obligation incurred for the benefit of any Person. For the sake of clarity, Investments shall include any transfer of property or assets by the Company to any of its Subsidiaries or by any Subsidiary of the Company to any other Subsidiary. 1.17 "January Lenders" shall mean Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P. 1.18 "January Note Agreement" shall mean the Convertible Note Purchase Agreement, dated January 16, 2004, among the January Lenders and the Company. 1.19 "January 2004 Notes" shall mean the Convertible Subordinated Promissory Notes, each dated January 16, 2003, issued by the Company to the January Lenders pursuant to the January Note Agreement. 3 1.20 "Loan Documents" shall have the meaning set forth in the Security Agreement. 1.21 "Note" shall mean this note, and in the plural, shall mean all notes issued to the Lenders pursuant to the terms of the Note Purchase Agreement, including this Note, and all amendments, modifications and extensions thereto. 1.22 "Note Purchase Agreement" means that certain Convertible Note Purchase Agreement, dated March 9, 2004, among the Company, the Holder and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.23 "Permitted Investments" means (i) Investments in cash or cash equivalents, (ii) accounts receivable created, acquired or made in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (iii) Investments existing on the closing date, and listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty obligations permitted by Section 5.3 of this Agreement, (v) loans to employees, directors or officers of the Company in connection with the award of convertible bonds or capital stock under a stock incentive plan, stock option plan or other equity-based compensation plan or arrangement, (vi) other advances or loans to employees, directors, officers or agents of the Company in the ordinary course of business not to exceed $500,000 in the aggregate at any time outstanding; (vii) loans, advances and investments in foreign Subsidiaries (that are not incorporated or otherwise organized under the laws of the United States of America or any state thereof) in an amount not to exceed $1,000,000 in the aggregate at any time outstanding; (viii) any acquisition for which the prior written consent of the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement has been obtained, (ix) other loans, advances and investments of a nature not contemplated by the foregoing sections in an amount not to exceed $500,000 in the aggregate at any time outstanding or (x) Investments by the Company in the Guarantor. 1.24 "Permitted Liens" shall have the meaning set forth in Section 5.4. 1.25 "Person" means any individual, firm, corporation, partnership, trust, joint venture, joint stock company, limited liability company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. 1.26 "Price Per Share" shall have the meaning attributed to such term in the Series E Certificate of Determination, as filed with the Secretary of State of the State of California. 1.27 "Purchase and Exchange Agreement" shall mean the Convertible Note Purchase and Exchange Agreement, dated November 18, 2003, among the Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended. 4 1.28 "Qualified Asset Sale" means the sale, transfer or other disposition of any of the assets of the Company or any of its Subsidiaries, other than (a) sales of assets in the ordinary course of business, (b) sales of assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the sale, transfer or other disposition of assets of the Company where the proceeds are applied to the purchase price or traded in for credit against the purchase price of other assets, provided that any such purchase is made, or credit issued, within 90 days of the sale, transfer or other disposition, and (d) one or more sales of the Company's assets (other than sales otherwise included in clauses (a), (b), and (c) immediately above) which collectively yield up to an aggregate of one million dollars ($1,000,000) in gross proceeds to the Company while this Note is outstanding. 1.29 "Restricted Payment" means (a) any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Company or any of its Subsidiaries or (b) any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any shares of any class of capital stock of the Company or any Subsidiary or any option, warrant or other right to acquire any such shares of capital stock of the Company or any Subsidiary. 1.30 "Security Agreement" means that certain Guaranty and Security Agreement, of even date herewith between the Company, Compass Holding Corp., the Lenders and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.31 "Series E Conversion Price" shall have the meaning set forth in the Series E Certificate of Determination. 1.32 "Series E Preferred Stock" means the Series E Preferred Stock, par value $0.001, of the Company. 1.33 "Subordination Agreement" shall have the meaning set forth in Section 5.3. 1.34 "Subsequent Closing Date" shall have the meaning set forth in Section 2.4(e) of the Note Purchase Agreement. 1.35 "SVB" means Silicon Valley Bank, a California chartered bank, or any Affiliates thereof. 1.36 "Ten Percent Holder" means, with respect to a class of equity securities of the Company, a Person (together with such Person's Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such class of equity securities of the Company, as defined by Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 1.37 "UCC" shall have the meaning set forth in Section 5.4. 5 2. Interest. Simple interest shall accrue at the rate of ten percent (10%) per annum (or such lesser amount as shall equal the highest rate of interest allowable under applicable law) (the "Interest Rate"), on the outstanding principal of this Note from the date of this Note until the Maturity Date or the date this Note is otherwise repaid. The Company shall not be obligated to make any payments of interest which shall have accrued under this Note prior to the Maturity Date. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. In the event that the principal amount of this Note, any interest, or any amount payable hereunder is not paid in full when such amount becomes due and payable, or upon the occurrence of an Event of Default, interest shall accrue at the lesser of (a) the initial Interest Rate plus five percent (5%) per annum or (b) the highest rate of interest allowable under applicable law, on the balance of all amounts outstanding until such overdue amounts are paid or the Event of Default is cured, and such interest shall be payable on demand. 3. Conversion. 3.1 Conversion. (a) On the Conversion Date, the principal amount of this Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall be automatically converted into the number of fully paid and nonassessable shares of Series E Preferred Stock equal to the quotient obtained by dividing (a) the entire principal amount of this Note plus the Interest Amount by (b) the Price Per Share. (b) In the event that the Conversion Date has not occurred on or prior to August 15, 2004 (the "Common Conversion Date"), then, following the Common Conversion Date, the principal amount of this Note plus the Interest Amount shall be convertible, at the option of Holder and from time to time, only into Common Stock at a conversion price per share equal to $2.18, as adjusted for any stock dividends, stock splits or similar consolidations or subdivisions, following the date hereof; provided, however, that Holder shall not be permitted to convert any portion of the principal of this Note or the Interest Amount into Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion, the conversion would cause Holder to be a Ten Percent Holder. 3.2 Notice of Conversion. Upon conversion of this Note as provided in Section 3.1, Holder shall surrender this Note to the Company and shall state the name or names in which the certificate or certificates for such shares of Series E Preferred Stock or Common Stock, as the case may be, are to be issued. The Person or Persons entitled to receive the shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion shall be treated for all purposes as the record holder or holders (a) of such shares of Series E Preferred Stock as of the Conversion Date and (b) of such shares of Common Stock as of the date of any conversion pursuant to Section 3.1(b). 3.3 Delivery of Stock Certificates. Upon conversion of this Note as provided in Section 3.1, the Company at its expense will issue and deliver to 6 Holder of this Note a certificate or certificates (bearing such legends as are required by applicable state and federal securities laws in the opinion of counsel to the Company) for the number of full shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion. 3.4 Mechanics and Effect of Conversion. No fractional shares of Series E Preferred Stock or Common Stock, as the case may be, shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to Holder upon the conversion of this Note, the Company shall pay to Holder the amount of outstanding principal and interest that is not so converted. Upon conversion of all amounts due under this Note, the Company shall be released from all of its obligations under this Note. 4. Adjustments. The number of shares of Series E Preferred Stock or Common Stock convertible hereunder are subject to adjustment from time to time as follows: 4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at any time while this Note remains outstanding and unexpired there shall be (a) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (b) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise or (c) a sale or transfer of the Company's stock, properties or assets as, or substantially as, an entirety to any other Person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that Holder shall thereafter be entitled to receive by converting this Note the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon conversion of this Note would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Note had been converted immediately before such reorganization, merger, consolidation, sale or transfer (notwithstanding that the Stockholder Approval may not yet have been obtained), all subject to further adjustment as provided in this Section 4. The foregoing provisions of this Section 4.1 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation. If the per share consideration payable to Holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors based on the amount the Holder would have otherwise been entitled to receive had the transaction or transactions not occurred. In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of Holder after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon conversion of 7 this Note. The Company shall be obligated to retain and set aside, or otherwise make fair provision for exercise of the right of the Holder to receive, the shares of stock and/or other securities, cash or other property provided for in this Section 4.1. 4.2 Election of Holder upon Merger or Sale of Assets. Notwithstanding anything to the contrary contained herein, if an event shall occur as provided in Section 4.1 hereof that would otherwise result in the occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first paragraph of this Note, then the Holder may, in its sole discretion, by written notice to the Company elect to convert the principal amount of this Note plus the Interest Amount into the number of shares of stock or other securities or property described in Section 4.1, in lieu of receiving payment in full of all amounts outstanding under this Note. The number of shares of stock or other securities or property to be issued upon such conversion shall be determined in accordance with Section 4.1 hereof, taking into account the occurrence of such event. 4.3 Reclassification, Etc. If the Company shall, at any time while this Note, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, change any of the securities as to which conversion rights under this Note exist into the same or a different number of securities of any other class or classes, this Note shall thereafter represent the right to acquire such number and kind of securities as would have been issuable with respect to the securities that were subject to the conversion rights under this Note immediately prior to such reclassification or other change, and the Price Per Share shall be appropriately adjusted, all subject to further adjustment as provided in this Section 4. 4.4 Split, Subdivision or Combination of Shares. If the Company at any time while this Note, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the shares of Series E Preferred Stock or Common Stock into a different number of securities of the same class, the Price Per Share or conversion price, as the case may be, shall be proportionately adjusted. 4.5 Series E Adjustments. The initial Series E Conversion Price of the shares of Series E Preferred Stock issued upon conversion of this Note pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on the Conversion Date, subject to the adjustment of such Series E Conversion Price from time to time thereafter as provided in the Series E Certificate of Determination. 4.6 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 4, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. 4.7 No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all 8 such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 5. Covenants. The Company covenants and agrees that until the earlier of (i) the date on which all Obligations (as defined in the Security Agreement) have been paid in full or (ii) the date on which all amounts outstanding under the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b): 5.1 Financial Statements and Other Information. The Company shall deliver to the Holder of this Note the financial statements and other information required to be delivered under Section 8.1 of the Note Purchase Agreement. 5.2 Financial Covenants. The Company shall at all times comply with the financial and other covenants set forth in Schedule 8.5 to the Note Purchase Agreement as if such covenants were set forth herein. 5.3 Indebtedness. The Company shall not, and shall not permit any Subsidiary to, issue, incur, assume, create or have outstanding any Indebtedness, provided, however, that the foregoing shall not restrict nor operate to prevent: (a) Indebtedness in favor of the Holders under the Loan Documents; (b) Indebtedness existing on the date hereof, as set forth on Schedule 3.22 to the Note Purchase Agreement; (c) Indebtedness for accounts payable incurred in the ordinary course of business by the Company; (d) Indebtedness incurred solely for the purpose of financing the acquisition of any equipment, machinery, software, improvements or any other similar property, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, that the aggregate outstanding principal amount of all Indebtedness permitted pursuant to this clause (d) outstanding for more than sixty (60) days after the incurrence of such Indebtedness shall not at any time exceed $500,000; (e) Indebtedness of the Company evidenced by Capitalized Lease Obligations, provided, that in no event shall the aggregate principal amount of Capitalized Lease Obligations permitted by this clause (e) exceed $500,000 at any time outstanding; and (f) Any extension, renewal, refinancing, refunding, or replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and (e) above, on such terms and conditions as are, on the whole, not materially more onerous to the Company than the terms and conditions of such original Indebtedness on the date of such refinancing (including that the principal amount of such refinancing Indebtedness 9 does not exceed the principal amount of, plus the amount of accrued and unpaid interest on, the Indebtedness so refinanced (plus the amount of reasonable premium and fees and expenses incurred in connection therewith)), provided that, in the case of a refinancing of Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall only apply to the extent consistent with the Subordination Agreement, dated as of the date hereof, by and among SVB, the Holders and the Company (the "Subordination Agreement"). 5.4 Liens. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of the Company or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable), or assign any right to receive income or permit the filing of any financing statement under the Uniform Commercial Code, as from time to time in effect in the relevant jurisdiction (the "UCC"), or any other similar notice of Lien under any similar recording or notice statute; provided, that the provisions of this Section 5.4 shall not prevent the creation, incurrence, assumption or existence of the following: (a) Liens arising in the ordinary course of business by statute in connection with worker's compensation, unemployment insurance, old age benefits, social security obligations, statutory obligations or other similar charges (other then Liens arising under ERISA), good faith cash deposits in connection with tenders, contracts or leases to which the Company or any Subsidiary is a party or other cash deposits required to be made in the ordinary course of business, provided, that such Liens do not have a material adverse effect on the ability of the Company to repay amounts due under the Notes; (b) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (c) Liens in respect of property or assets of the Company or its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (i) which do not in the aggregate materially detract from the value of the Company's and its Subsidiaries' property or assets taken as a whole or result in a material adverse effect on the Condition of the Company or (ii) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; 10 (d) the pledge of assets for the purpose of securing an appeal, stay or discharge in the course of any legal proceeding, provided that the aggregate amount of liabilities of the Company and its Subsidiaries secured by a pledge of assets permitted under this subsection, including interest and penalties thereon, if any, shall not be in excess of $500,000 at any one time outstanding; (e) any interest or title of a lessor under any operating lease; (f) easements, rights-of-way, restrictions and other similar encumbrances against real property incurred in the ordinary course of business; (g) the Liens existing on the date hereof identified on Schedule 3.22 to the Note Purchase Agreement; (h) Liens on cash deposited with account debtors to secure performance by the Company or any Subsidiary in the ordinary course of business subject to customary and reasonable terms; (i) Liens upon assets of the Company or its Subsidiaries subject to Capitalized Lease Obligations, provided, that (A) such Liens only serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising under such Capitalized Lease Obligation and (B) the Lien encumbering the asset giving rise to the Capitalized Lease Obligation does not encumber any other asset of the Company or its Subsidiaries; (j) Liens placed upon equipment, machinery, software, improvements or any other similar property, used in the ordinary course of business of the Company or any of its Subsidiaries at the time of the acquisition thereof by the Company or any of its Subsidiaries or within ninety (90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above; provided, that the Liens encumbering the equipment, machinery software, improvements or any other similar property so acquired do not encumber any other asset of the Company or its Subsidiaries; (k) set-off rights of depository institutions; and (l) Liens created by the Security Agreement (collectively with clauses (a) through (k) hereof, the "Permitted Liens"). 5.5 Fundamental Changes. The Company will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or a series of transactions) all or substantially all of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time and immediately after giving effect thereto no Event of Default shall have occurred and be continuing (i) the Company or any of its Subsidiaries may, with the prior written 11 consent of the Holders, merge with or into any other Person; (ii) any wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with or into the Company or any other wholly-owned Subsidiary of the Company; (iii) any Subsidiary (other than the Guarantor, and except as otherwise prohibited by this Note) may sell, transfer, lease or otherwise dispose of its assets to the Company or to another wholly-owned Subsidiary of the Company; and (iv) any Subsidiary may liquidate or dissolve if the board of directors of the Company determine in good faith that such liquidation or dissolution is in its best interests and is not disadvantageous to the Holders. 5.6 Restricted Payments. The Company will not, and the Company will not permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that (i) any Subsidiary may make a Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any Restricted Payment required by the terms of the Note Purchase Agreement and the other documents executed in connection therewith. 5.7 Transactions with Affiliates. The Company will not, and the Company will not permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions that are at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arm's length basis from unrelated third parties, (b) transactions exclusively between the Company and the Guarantor and (c) transactions under the agreements listed on Schedule 3.17 to the Note Purchase Agreement. 5.8 Investments. The Company will not, and the Company will not permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment in any Person, except for Permitted Investments. 5.9 Nature of Business. The Company will not, and the Company will not permit any Subsidiary to, engage in any business other than that conducted on the date hereof and any businesses reasonably related thereto. 5.10 Property of Existing Domestic Subsidiaries. The Company will not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise organized under the laws of the United States of America or any state thereof (a "Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease, license, purchase or otherwise acquire any personal or real property (excluding any material intellectual property) in excess of $50,000 for all property held by such Subsidiary, or $250,000 in the aggregate for all property held by all Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own or otherwise hold any rights to any material intellectual property or (iv) otherwise conduct any business or maintain operations. 5.11 Formation of Subsidiaries. The Company will not, and will not cause or permit any of its Subsidiaries to, form, acquire or permit the existence of any 12 new domestic Subsidiary, without causing such domestic Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes and related security document, in form and substance satisfactory to the Holders. 5.12 Books and Records. The Company shall keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Company and its Subsidiaries in accordance with GAAP consistently applied. 5.13 Inspection. The Company shall, and shall cause each of its Subsidiaries to, permit representatives of the Holders to visit and inspect any of its properties, to examine its corporate, financial and operating records and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with their respective directors, officers and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably requested upon notice to the Company. 5.14 Maintenance of Business. The Company shall, and shall cause each Subsidiary to, preserve and maintain its existence. The Company shall, and shall cause each Subsidiary to, preserve and keep in force and effect all licenses, permits, franchises, approvals, patents, trademarks, trade names, trade styles, copyrights, and other property rights necessary to the proper conduct of its business, except where the failure to do so could not reasonably be expected to have a material adverse effect on the Condition of the Company or on the prospects of repayment of the Notes. 5.15 Maintenance of Properties. The Company shall, and shall cause each Subsidiary to, maintain, preserve and keep its property and equipment in good repair, working order and condition (ordinary wear and tear excepted) and shall from time to time make all needful and proper repairs, renewals, replacements, additions and betterments thereto so that at all times the efficiency thereof shall by fully preserved and maintained, except in each case to the extent that, in the reasonable business judgment of such Person, any such property or equipment is no longer necessary for the proper conduct of the business of such Person. 6. The occurrence of any one or more of the following events shall constitute an "Event of Default": 6.1 Failure To Pay. (i) The failure of the Company to pay any principal due under any of the Notes when due and payable (whether by acceleration, declaration, extension or otherwise), or (ii) the failure of the Company to pay any other amounts due under any of the Notes when due and payable if such failure is not cured within five (5) days of Company's receipt of notice thereof from any of the Holders. 6.2 Financial Covenants. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2. 13 6.3 Other Covenants and Agreements. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the covenants of this Note, the Security Agreement or any of the other Loan Documents (other than the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2), if such failure is not cured within sixty (60) days. 6.4 Representations and Warranties. If any representation or warranty made by the Company or any of its Subsidiaries in the Loan Documents is not true and correct in all material respects on the Initial Closing Date. 6.5 Default on Other Obligations. The occurrence of any condition or default under any other indebtedness for borrowed money of the Company or any of its Subsidiaries with a principal amount of at least five hundred thousand dollars ($500,000) that results in the acceleration of such indebtedness which is not cured within sixty (60) days. 6.6 Involuntary Bankruptcy. There shall be filed against the Company or any of its Subsidiaries an involuntary petition or other pleading seeking the entry of a decree or order for relief under the United States Bankruptcy Code or any similar federal or state insolvency or similar laws ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a reorganization of the Company or any of its Subsidiaries or the business and affairs of the Company or any of its Subsidiaries or (c) the appointment of a receiver, liquidator, assignee, custodian, trustee or similar official for the Company or any of its Subsidiaries of the property of the Company or any of its Subsidiaries. 6.7 Voluntary Bankruptcy. The commencement by the Company or any of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any federal or state insolvency or similar laws or the consent by the Company or any of its Subsidiaries to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian or similar official for the Company or any of its Subsidiaries of any of the property of the Company or any of its Subsidiaries or the making by the Company or any of its Subsidiaries of an assignment for the benefit of creditors, or the failure by Company or any of its Subsidiaries generally to pay its debts as the debts become due. 6.8 Judgments, Awards. Any judgment or order for the payment of money is rendered against the Company or any of its Subsidiaries in an amount in excess of five hundred thousand dollars ($500,000) individually or in the aggregate and either (i) enforcement proceedings are commenced by any creditor upon such judgment or order and not stayed, or (ii) there is any period of sixty (60) consecutive days during which such judgment has not been paid in full or a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, is not in effect. 6.9 Attachment by Lenders. Any assets of the Company or any of its Subsidiaries shall be attached, levied upon, seized or repossessed, or come into the 14 possession of a trustee, receiver or other custodian and a determination by any Holder, in good faith but in its sole discretion, that the same could have a material adverse effect on the prospect for the Holders to fully and punctually realize the full benefits conferred on the Holders by the Loan Documents. 6.10 Adverse Change in Financial Condition. Any event having a material adverse effect on the business, operations, assets, properties or condition of the Company and its Subsidiaries taken as a whole shall have occurred and be continuing or a material adverse effect on the validity or enforceability of this or any of the other Loan Documents or the rights or remedies of the Holders hereunder or thereunder. 7. Remedies. Upon and after the occurrence of an Event of Default, the Holder shall be entitled to the exercise the rights and remedies set forth in the Security Agreement, the other Loan Documents and under applicable law, all such rights and remedies being cumulative and enforceable alternatively, successively or concurrently. 8. Prepayment. The Company may not prepay this Note prior to the Maturity Date without the prior written consent of the Holders. 9. Seniority. (a) Except as set forth in the Subordination Agreement, the Notes will rank senior in right of payment to all other indebtedness of the Company, other than the GA Notes and the January 2004 Notes, with respect to which the Notes will be pari passu in right of payment in accordance with the Intercreditor Agreement. (b) Notwithstanding anything to the contrary contained in the Notes, this Note and the other Notes, and the terms and the conditions hereof and thereof, are subject to the Intercreditor Agreement. 10. Assignment. Subject to the restrictions on transfer described in Section 12 below, the rights and obligations of the Company and Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. The Company shall not be permitted to assign this Note without the prior written consent of the Holders. 11. Waiver of Notice. The Company hereby waives notice, presentment, demand, protest and notice of dishonor. 12. Transfer of This Note. With respect to any offer, sale or other disposition of this Note, Holder will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such Holder's counsel, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect); provided, that no opinion shall be required for any transfer to an Affiliate or if the transfer is made in compliance with the Securities Act, so long as the transferee can make the same representations and warranties at the time of transfer as set forth in Sections 4.5, 4.6, 4.7, 15 4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly upon delivering such written notice and opinion, if so required, Holder may sell or otherwise dispose of this Note, all in accordance with the terms of the notice delivered to the Company. Each Note thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Notwithstanding the foregoing, the Holder shall not be permitted to transfer this Note to any Person who is not an Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of written notice from the Company that Stockholder Approval cannot be obtained, or the occurrence of an actual vote of the Company's shareholders entitled to vote (whether by written consent or at a meeting specially called for such purpose), the result of which is a decision by a majority of the Company's shareholders entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of an Event of Default. This Note is registered as to both principal and stated interest with the Company (or its agent) within the meaning of section 1.871-14(c)(1)(i) of the Income Tax Regulations. Accordingly, notwithstanding anything to the contrary in this paragraph, this Note, together with any interest thereon, may be transferred only (i) upon surrender of the Note by the transferor to the Company (or its agent) and the reissuance of the Note (or the issuance of a new Note) to the transferee, or (ii) by transfer of the right to principal and interest through a book-entry system meeting the requirements of section 1.871-14(c)(1)(i)(B) of the Income Tax Regulations that is maintained by the Company (or its agent). In the case of a Holder that is not a "United States person" within the meaning of section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the "Code"), so long as an exception under section 871(h) or section 881(c) of the Code does not apply, the Company (or its agent) shall not withhold any U.S. federal income tax with respect to such Holder provided that the Holder timely provides the Company (or its agent) with a statement that meets the requirements of section 871(h)(5) of the Code. 13. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 14. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally recognized courier service or mailed by registered or certified mail, postage prepaid, to the respective addresses of the parties as set forth on the signature pages hereto or if sent by facsimile to the respective facsimile numbers of the parties set forth on the signature pages hereto. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given and received when personally delivered or three (3) business days after deposited in the mail or one business day after sent by courier or upon confirmation of facsimile delivery in the manner set forth above. 16 15. No Stockholder Rights. Nothing contained in this Note shall be construed as conferring upon Holder or any other Person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. 16. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law relating to conflict of laws. 17. Amendments and Waivers. No amendments or waivers of any provision of this Note, and no consent by the Holder to any departure by the Company, shall in any event be effective unless the same shall be in writing, and signed by the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 18. Severability. Any provision of this Note that is prohibited or unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF 17 THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. 20. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except as otherwise indicated, all references herein to Sections refer to Sections hereof. [the remainder of this page intentionally left blank] 18 IN WITNESS WHEREOF, the Company has caused this Note to be issued this 9th day of March, 2004. COMPANY: CRITICAL PATH, INC., a California corporation By: /s/ William E. McGlashan, Jr. ----------------------------------------- Name: William E. McGlashan, Jr. Title: Chairman, Chief Executive Officer Critical Path, Inc. 350 The Embarcadero San Francisco, CA 94105-1204 Telecopy: (415) 541-2300 Attention: Chief Financial Officer With a copy to: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Telecopy: (415) 983-1200 Attention: Gregg Vignos, Esq. Name of Holder: GUGGENHEIM PORTFOLIO COMPANY XIII Address: c/o Apex Capital, LLC 25 Orinda Way, Suite 300 Orinda, CA 94563 Attention: Adam Fiore, General Counsel Telephone: (925) 253-6125 Facsimile: (925) 253-1809 EX-4.38 23 f97295exv4w38.txt EXHIBIT 4.38 EXHIBIT 4.38 THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS. CRITICAL PATH, INC. CONVERTIBLE SUBORDINATED PROMISSORY NOTE $5,000,000 San Francisco, California March 9, 2004 Critical Path, Inc., a California corporation (the "Company"), the principal office of which is located in San Francisco, California, for value received hereby promises to pay to the order of Crosslink Crossover Fund IV, L.P., or its registered assigns ("Holder"), the sum of five million dollars ($5,000,000), or such lesser amount as shall then equal the outstanding principal amount hereof on the terms and conditions set forth hereinafter. The outstanding principal amount hereof and all accrued and unpaid interest hereon, as set forth below, shall be due and payable on the earlier to occur of (i) March 9, 2008, (ii) when declared due and payable by Holder upon the occurrence of an Event of Default (as defined below), (iii) consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock or Stock Equivalents by the Company, any cash capital contribution from any third person or any other debt or equity financing consummated by the Company after the date of issuance of this Note which, in the case of (v), individually or in the aggregate raises proceeds of at least forty million dollars ($40,000,000) in cash or cash equivalents (the earliest of the events set forth in items (i)-(v) immediately above, the "Maturity Date"). The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. Except as otherwise defined herein, each capitalized term used herein shall have the meaning assigned to it in the Note Purchase Agreement, as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. All other references to the Note Purchase Agreement in this Note refer to the Note Purchase Agreement as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. As used in this Note, the following terms, unless the context otherwise requires, have the following meanings: 1.1 "Affiliate" means any Person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended. 1.2 "Capitalized Lease Obligations" means, with respect to any Person, all rental obligations of such Person which, under GAAP, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with such principles. 1.3 "Change of Control" shall mean (i) any merger, consolidation or other business combination transaction (or series of related transactions) in which the stockholders owning a majority of the voting securities of the Company prior to such transaction do not own a majority of the voting securities of the surviving entity, (ii) any tender offer, exchange offer or other transaction whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended) (other than General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and the Affiliates of the foregoing, provided that Affiliates shall be deemed not to include any portfolio companies of any of the foregoing) obtains a majority of the outstanding shares of capital stock entitled to vote in the election of directors, (iii) any proxy contest in which a majority of the Board of Directors of the Company (or persons appointed by such Board of Directors) prior to such contest do not constitute a majority of the Company's Board of Directors after such contest or (iv) any other transaction described in any stockholder rights agreement or "poison pill," if any, to which the Company is party, which may permit the holders of any rights or similar certificates to exercise the rights evidenced thereby. 1.4 "Company" shall have the meaning set forth in the recitals hereto, and includes any corporation that shall succeed to or assume the obligations of the Company under this Note. 1.5 "Common Conversion Date" shall have the meaning set forth in Section 3.1(b) hereof. 1.6 "Common Stock" means the common stock, par value $0.001 per share, of the Company. 1.7 "Conversion Date" shall mean the Subsequent Closing Date. 1.8 "Domestic Subsidiary" shall have the meaning set forth in Section 5.10 hereof. 1.9 "Event of Default" shall have the meaning set forth in Section 6 hereof. 2 1.10 "GA Notes" shall mean the Convertible Subordinated Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP Entities pursuant to the Purchase and Exchange Agreement. 1.11 "GAP Entities" shall mean General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG. 1.12 "Guarantor" shall have the meaning set forth in the Security Agreement. 1.13 "Holder" shall mean the registered holder of this Note from time to time, and in the plural, shall mean all registered holders of Notes from time to time issued by the Company pursuant to the Note Purchase Agreement. 1.14 "Intercreditor Agreement" shall mean the Intercreditor Agreement, dated the date hereof, among the GAP Entities, the January Lenders, Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures International. 1.15 "Interest Amount" shall have the meaning set forth in Section 3.1 hereof. 1.16 "Investment" means (i) the acquisition (whether for cash, property, services, assumption of Indebtedness, securities or otherwise) of assets (other than equipment, inventory, supplies or other assets acquired in the ordinary course of business of the Company), capital stock, bonds, notes, debentures, partnership, joint venture or other ownership interests or other securities of any Person, (ii) any deposit with, or advance, loan or other extension of credit to, or on behalf of, any Person (other than deposits made in connection with the purchase of equipment, inventory, services, leases, supplies or other assets in the ordinary course of business of the Company), and (iii) any other capital contribution to or investment in any Person, including, without limitation, any guaranty obligation incurred for the benefit of any Person. For the sake of clarity, Investments shall include any transfer of property or assets by the Company to any of its Subsidiaries or by any Subsidiary of the Company to any other Subsidiary. 1.17 "January Lenders" shall mean Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P. 1.18 "January Note Agreement" shall mean the Convertible Note Purchase Agreement, dated January 16, 2004, among the January Lenders and the Company. 1.19 "January 2004 Notes" shall mean the Convertible Subordinated Promissory Notes, each dated January 16, 2003, issued by the Company to the January Lenders pursuant to the January Note Agreement. 3 1.20 "Loan Documents" shall have the meaning set forth in the Security Agreement. 1.21 "Note" shall mean this note, and in the plural, shall mean all notes issued to the Lenders pursuant to the terms of the Note Purchase Agreement, including this Note, and all amendments, modifications and extensions thereto. 1.22 "Note Purchase Agreement" means that certain Convertible Note Purchase Agreement, dated March 9, 2004, among the Company, the Holder and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.23 "Permitted Investments" means (i) Investments in cash or cash equivalents, (ii) accounts receivable created, acquired or made in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (iii) Investments existing on the closing date, and listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty obligations permitted by Section 5.3 of this Agreement, (v) loans to employees, directors or officers of the Company in connection with the award of convertible bonds or capital stock under a stock incentive plan, stock option plan or other equity-based compensation plan or arrangement, (vi) other advances or loans to employees, directors, officers or agents of the Company in the ordinary course of business not to exceed $500,000 in the aggregate at any time outstanding; (vii) loans, advances and investments in foreign Subsidiaries (that are not incorporated or otherwise organized under the laws of the United States of America or any state thereof) in an amount not to exceed $1,000,000 in the aggregate at any time outstanding; (viii) any acquisition for which the prior written consent of the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement has been obtained, (ix) other loans, advances and investments of a nature not contemplated by the foregoing sections in an amount not to exceed $500,000 in the aggregate at any time outstanding or (x) Investments by the Company in the Guarantor. 1.24 "Permitted Liens" shall have the meaning set forth in Section 5.4. 1.25 "Person" means any individual, firm, corporation, partnership, trust, joint venture, joint stock company, limited liability company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. 1.26 "Price Per Share" shall have the meaning attributed to such term in the Series E Certificate of Determination, as filed with the Secretary of State of the State of California. 1.27 "Purchase and Exchange Agreement" shall mean the Convertible Note Purchase and Exchange Agreement, dated November 18, 2003, among the Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended. 4 1.28 "Qualified Asset Sale" means the sale, transfer or other disposition of any of the assets of the Company or any of its Subsidiaries, other than (a) sales of assets in the ordinary course of business, (b) sales of assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the sale, transfer or other disposition of assets of the Company where the proceeds are applied to the purchase price or traded in for credit against the purchase price of other assets, provided that any such purchase is made, or credit issued, within 90 days of the sale, transfer or other disposition, and (d) one or more sales of the Company's assets (other than sales otherwise included in clauses (a), (b), and (c) immediately above) which collectively yield up to an aggregate of one million dollars ($1,000,000) in gross proceeds to the Company while this Note is outstanding. 1.29 "Restricted Payment" means (a) any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Company or any of its Subsidiaries or (b) any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any shares of any class of capital stock of the Company or any Subsidiary or any option, warrant or other right to acquire any such shares of capital stock of the Company or any Subsidiary. 1.30 "Security Agreement" means that certain Guaranty and Security Agreement, of even date herewith between the Company, Compass Holding Corp., the Lenders and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.31 "Series E Conversion Price" shall have the meaning set forth in the Series E Certificate of Determination. 1.32 "Series E Preferred Stock" means the Series E Preferred Stock, par value $0.001, of the Company. 1.33 "Subordination Agreement" shall have the meaning set forth in Section 5.3. 1.34 "Subsequent Closing Date" shall have the meaning set forth in Section 2.4(e) of the Note Purchase Agreement. 1.35 "SVB" means Silicon Valley Bank, a California chartered bank, or any Affiliates thereof. 1.36 "Ten Percent Holder" means, with respect to a class of equity securities of the Company, a Person (together with such Person's Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such class of equity securities of the Company, as defined by Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 1.37 "UCC" shall have the meaning set forth in Section 5.4. 5 2. Interest. Simple interest shall accrue at the rate of ten percent (10%) per annum (or such lesser amount as shall equal the highest rate of interest allowable under applicable law) (the "Interest Rate"), on the outstanding principal of this Note from the date of this Note until the Maturity Date or the date this Note is otherwise repaid. The Company shall not be obligated to make any payments of interest which shall have accrued under this Note prior to the Maturity Date. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. In the event that the principal amount of this Note, any interest, or any amount payable hereunder is not paid in full when such amount becomes due and payable, or upon the occurrence of an Event of Default, interest shall accrue at the lesser of (a) the initial Interest Rate plus five percent (5%) per annum or (b) the highest rate of interest allowable under applicable law, on the balance of all amounts outstanding until such overdue amounts are paid or the Event of Default is cured, and such interest shall be payable on demand. 3. Conversion. 3.1 Conversion. (a) On the Conversion Date, the principal amount of this Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall be automatically converted into the number of fully paid and nonassessable shares of Series E Preferred Stock equal to the quotient obtained by dividing (a) the entire principal amount of this Note plus the Interest Amount by (b) the Price Per Share. (b) In the event that the Conversion Date has not occurred on or prior to August 15, 2004 (the "Common Conversion Date"), then, following the Common Conversion Date, the principal amount of this Note plus the Interest Amount shall be convertible, at the option of Holder and from time to time, only into Common Stock at a conversion price per share equal to $2.18, as adjusted for any stock dividends, stock splits or similar consolidations or subdivisions, following the date hereof; provided, however, that Holder shall not be permitted to convert any portion of the principal of this Note or the Interest Amount into Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion, the conversion would cause Holder to be a Ten Percent Holder. 3.2 Notice of Conversion. Upon conversion of this Note as provided in Section 3.1, Holder shall surrender this Note to the Company and shall state the name or names in which the certificate or certificates for such shares of Series E Preferred Stock or Common Stock, as the case may be, are to be issued. The Person or Persons entitled to receive the shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion shall be treated for all purposes as the record holder or holders (a) of such shares of Series E Preferred Stock as of the Conversion Date and (b) of such shares of Common Stock as of the date of any conversion pursuant to Section 3.1(b). 3.3 Delivery of Stock Certificates. Upon conversion of this Note as provided in Section 3.1, the Company at its expense will issue and deliver to 6 Holder of this Note a certificate or certificates (bearing such legends as are required by applicable state and federal securities laws in the opinion of counsel to the Company) for the number of full shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion. 3.4 Mechanics and Effect of Conversion. No fractional shares of Series E Preferred Stock or Common Stock, as the case may be, shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to Holder upon the conversion of this Note, the Company shall pay to Holder the amount of outstanding principal and interest that is not so converted. Upon conversion of all amounts due under this Note, the Company shall be released from all of its obligations under this Note. 4. Adjustments. The number of shares of Series E Preferred Stock or Common Stock convertible hereunder are subject to adjustment from time to time as follows: 4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at any time while this Note remains outstanding and unexpired there shall be (a) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (b) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise or (c) a sale or transfer of the Company's stock, properties or assets as, or substantially as, an entirety to any other Person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that Holder shall thereafter be entitled to receive by converting this Note the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon conversion of this Note would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Note had been converted immediately before such reorganization, merger, consolidation, sale or transfer (notwithstanding that the Stockholder Approval may not yet have been obtained), all subject to further adjustment as provided in this Section 4. The foregoing provisions of this Section 4.1 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation. If the per share consideration payable to Holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors based on the amount the Holder would have otherwise been entitled to receive had the transaction or transactions not occurred. In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of Holder after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon conversion of 7 this Note. The Company shall be obligated to retain and set aside, or otherwise make fair provision for exercise of the right of the Holder to receive, the shares of stock and/or other securities, cash or other property provided for in this Section 4.1. 4.2 Election of Holder upon Merger or Sale of Assets. Notwithstanding anything to the contrary contained herein, if an event shall occur as provided in Section 4.1 hereof that would otherwise result in the occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first paragraph of this Note, then the Holder may, in its sole discretion, by written notice to the Company elect to convert the principal amount of this Note plus the Interest Amount into the number of shares of stock or other securities or property described in Section 4.1, in lieu of receiving payment in full of all amounts outstanding under this Note. The number of shares of stock or other securities or property to be issued upon such conversion shall be determined in accordance with Section 4.1 hereof, taking into account the occurrence of such event. 4.3 Reclassification, Etc. If the Company shall, at any time while this Note, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, change any of the securities as to which conversion rights under this Note exist into the same or a different number of securities of any other class or classes, this Note shall thereafter represent the right to acquire such number and kind of securities as would have been issuable with respect to the securities that were subject to the conversion rights under this Note immediately prior to such reclassification or other change, and the Price Per Share shall be appropriately adjusted, all subject to further adjustment as provided in this Section 4. 4.4 Split, Subdivision or Combination of Shares. If the Company at any time while this Note, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the shares of Series E Preferred Stock or Common Stock into a different number of securities of the same class, the Price Per Share or conversion price, as the case may be, shall be proportionately adjusted. 4.5 Series E Adjustments. The initial Series E Conversion Price of the shares of Series E Preferred Stock issued upon conversion of this Note pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on the Conversion Date, subject to the adjustment of such Series E Conversion Price from time to time thereafter as provided in the Series E Certificate of Determination. 4.6 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 4, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. 4.7 No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all 8 such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 5. Covenants. The Company covenants and agrees that until the earlier of (i) the date on which all Obligations (as defined in the Security Agreement) have been paid in full or (ii) the date on which all amounts outstanding under the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b): 5.1 Financial Statements and Other Information. The Company shall deliver to the Holder of this Note the financial statements and other information required to be delivered under Section 8.1 of the Note Purchase Agreement. 5.2 Financial Covenants. The Company shall at all times comply with the financial and other covenants set forth in Schedule 8.5 to the Note Purchase Agreement as if such covenants were set forth herein. 5.3 Indebtedness. The Company shall not, and shall not permit any Subsidiary to, issue, incur, assume, create or have outstanding any Indebtedness, provided, however, that the foregoing shall not restrict nor operate to prevent: (a) Indebtedness in favor of the Holders under the Loan Documents; (b) Indebtedness existing on the date hereof, as set forth on Schedule 3.22 to the Note Purchase Agreement; (c) Indebtedness for accounts payable incurred in the ordinary course of business by the Company; (d) Indebtedness incurred solely for the purpose of financing the acquisition of any equipment, machinery, software, improvements or any other similar property, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, that the aggregate outstanding principal amount of all Indebtedness permitted pursuant to this clause (d) outstanding for more than sixty (60) days after the incurrence of such Indebtedness shall not at any time exceed $500,000; (e) Indebtedness of the Company evidenced by Capitalized Lease Obligations, provided, that in no event shall the aggregate principal amount of Capitalized Lease Obligations permitted by this clause (e) exceed $500,000 at any time outstanding; and (f) Any extension, renewal, refinancing, refunding, or replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and (e) above, on such terms and conditions as are, on the whole, not materially more onerous to the Company than the terms and conditions of such original Indebtedness on the date of such refinancing (including that the principal amount of such refinancing Indebtedness 9 does not exceed the principal amount of, plus the amount of accrued and unpaid interest on, the Indebtedness so refinanced (plus the amount of reasonable premium and fees and expenses incurred in connection therewith)), provided that, in the case of a refinancing of Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall only apply to the extent consistent with the Subordination Agreement, dated as of the date hereof, by and among SVB, the Holders and the Company (the "Subordination Agreement"). 5.4 Liens. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of the Company or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable), or assign any right to receive income or permit the filing of any financing statement under the Uniform Commercial Code, as from time to time in effect in the relevant jurisdiction (the "UCC"), or any other similar notice of Lien under any similar recording or notice statute; provided, that the provisions of this Section 5.4 shall not prevent the creation, incurrence, assumption or existence of the following: (a) Liens arising in the ordinary course of business by statute in connection with worker's compensation, unemployment insurance, old age benefits, social security obligations, statutory obligations or other similar charges (other then Liens arising under ERISA), good faith cash deposits in connection with tenders, contracts or leases to which the Company or any Subsidiary is a party or other cash deposits required to be made in the ordinary course of business, provided, that such Liens do not have a material adverse effect on the ability of the Company to repay amounts due under the Notes; (b) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (c) Liens in respect of property or assets of the Company or its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (i) which do not in the aggregate materially detract from the value of the Company's and its Subsidiaries' property or assets taken as a whole or result in a material adverse effect on the Condition of the Company or (ii) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; 10 (d) the pledge of assets for the purpose of securing an appeal, stay or discharge in the course of any legal proceeding, provided that the aggregate amount of liabilities of the Company and its Subsidiaries secured by a pledge of assets permitted under this subsection, including interest and penalties thereon, if any, shall not be in excess of $500,000 at any one time outstanding; (e) any interest or title of a lessor under any operating lease; (f) easements, rights-of-way, restrictions and other similar encumbrances against real property incurred in the ordinary course of business; (g) the Liens existing on the date hereof identified on Schedule 3.22 to the Note Purchase Agreement; (h) Liens on cash deposited with account debtors to secure performance by the Company or any Subsidiary in the ordinary course of business subject to customary and reasonable terms; (i) Liens upon assets of the Company or its Subsidiaries subject to Capitalized Lease Obligations, provided, that (A) such Liens only serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising under such Capitalized Lease Obligation and (B) the Lien encumbering the asset giving rise to the Capitalized Lease Obligation does not encumber any other asset of the Company or its Subsidiaries; (j) Liens placed upon equipment, machinery, software, improvements or any other similar property, used in the ordinary course of business of the Company or any of its Subsidiaries at the time of the acquisition thereof by the Company or any of its Subsidiaries or within ninety (90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above; provided, that the Liens encumbering the equipment, machinery software, improvements or any other similar property so acquired do not encumber any other asset of the Company or its Subsidiaries; (k) set-off rights of depository institutions; and (l) Liens created by the Security Agreement (collectively with clauses (a) through (k) hereof, the "Permitted Liens"). 5.5 Fundamental Changes. The Company will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or a series of transactions) all or substantially all of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time and immediately after giving effect thereto no Event of Default shall have occurred and be continuing (i) the Company or any of its Subsidiaries may, with the prior written 11 consent of the Holders, merge with or into any other Person; (ii) any wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with or into the Company or any other wholly-owned Subsidiary of the Company; (iii) any Subsidiary (other than the Guarantor, and except as otherwise prohibited by this Note) may sell, transfer, lease or otherwise dispose of its assets to the Company or to another wholly-owned Subsidiary of the Company; and (iv) any Subsidiary may liquidate or dissolve if the board of directors of the Company determine in good faith that such liquidation or dissolution is in its best interests and is not disadvantageous to the Holders. 5.6 Restricted Payments. The Company will not, and the Company will not permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that (i) any Subsidiary may make a Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any Restricted Payment required by the terms of the Note Purchase Agreement and the other documents executed in connection therewith. 5.7 Transactions with Affiliates. The Company will not, and the Company will not permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions that are at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arm's length basis from unrelated third parties, (b) transactions exclusively between the Company and the Guarantor and (c) transactions under the agreements listed on Schedule 3.17 to the Note Purchase Agreement. 5.8 Investments. The Company will not, and the Company will not permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment in any Person, except for Permitted Investments. 5.9 Nature of Business. The Company will not, and the Company will not permit any Subsidiary to, engage in any business other than that conducted on the date hereof and any businesses reasonably related thereto. 5.10 Property of Existing Domestic Subsidiaries. The Company will not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise organized under the laws of the United States of America or any state thereof (a "Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease, license, purchase or otherwise acquire any personal or real property (excluding any material intellectual property) in excess of $50,000 for all property held by such Subsidiary, or $250,000 in the aggregate for all property held by all Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own or otherwise hold any rights to any material intellectual property or (iv) otherwise conduct any business or maintain operations. 5.11 Formation of Subsidiaries. The Company will not, and will not cause or permit any of its Subsidiaries to, form, acquire or permit the existence of 12 any new domestic Subsidiary, without causing such domestic Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes and related security document, in form and substance satisfactory to the Holders. 5.12 Books and Records. The Company shall keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Company and its Subsidiaries in accordance with GAAP consistently applied. 5.13 Inspection. The Company shall, and shall cause each of its Subsidiaries to, permit representatives of the Holders to visit and inspect any of its properties, to examine its corporate, financial and operating records and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with their respective directors, officers and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably requested upon notice to the Company. 5.14 Maintenance of Business. The Company shall, and shall cause each Subsidiary to, preserve and maintain its existence. The Company shall, and shall cause each Subsidiary to, preserve and keep in force and effect all licenses, permits, franchises, approvals, patents, trademarks, trade names, trade styles, copyrights, and other property rights necessary to the proper conduct of its business, except where the failure to do so could not reasonably be expected to have a material adverse effect on the Condition of the Company or on the prospects of repayment of the Notes. 5.15 Maintenance of Properties. The Company shall, and shall cause each Subsidiary to, maintain, preserve and keep its property and equipment in good repair, working order and condition (ordinary wear and tear excepted) and shall from time to time make all needful and proper repairs, renewals, replacements, additions and betterments thereto so that at all times the efficiency thereof shall by fully preserved and maintained, except in each case to the extent that, in the reasonable business judgment of such Person, any such property or equipment is no longer necessary for the proper conduct of the business of such Person. 6. The occurrence of any one or more of the following events shall constitute an "Event of Default": 6.1 Failure To Pay. (i) The failure of the Company to pay any principal due under any of the Notes when due and payable (whether by acceleration, declaration, extension or otherwise), or (ii) the failure of the Company to pay any other amounts due under any of the Notes when due and payable if such failure is not cured within five (5) days of Company's receipt of notice thereof from any of the Holders. 6.2 Financial Covenants. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2. 13 6.3 Other Covenants and Agreements. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the covenants of this Note, the Security Agreement or any of the other Loan Documents (other than the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2), if such failure is not cured within sixty (60) days. 6.4 Representations and Warranties. If any representation or warranty made by the Company or any of its Subsidiaries in the Loan Documents is not true and correct in all material respects on the Initial Closing Date. 6.5 Default on Other Obligations. The occurrence of any condition or default under any other indebtedness for borrowed money of the Company or any of its Subsidiaries with a principal amount of at least five hundred thousand dollars ($500,000) that results in the acceleration of such indebtedness which is not cured within sixty (60) days. 6.6 Involuntary Bankruptcy. There shall be filed against the Company or any of its Subsidiaries an involuntary petition or other pleading seeking the entry of a decree or order for relief under the United States Bankruptcy Code or any similar federal or state insolvency or similar laws ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a reorganization of the Company or any of its Subsidiaries or the business and affairs of the Company or any of its Subsidiaries or (c) the appointment of a receiver, liquidator, assignee, custodian, trustee or similar official for the Company or any of its Subsidiaries of the property of the Company or any of its Subsidiaries. 6.7 Voluntary Bankruptcy. The commencement by the Company or any of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any federal or state insolvency or similar laws or the consent by the Company or any of its Subsidiaries to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian or similar official for the Company or any of its Subsidiaries of any of the property of the Company or any of its Subsidiaries or the making by the Company or any of its Subsidiaries of an assignment for the benefit of creditors, or the failure by Company or any of its Subsidiaries generally to pay its debts as the debts become due. 6.8 Judgments, Awards. Any judgment or order for the payment of money is rendered against the Company or any of its Subsidiaries in an amount in excess of five hundred thousand dollars ($500,000) individually or in the aggregate and either (i) enforcement proceedings are commenced by any creditor upon such judgment or order and not stayed, or (ii) there is any period of sixty (60) consecutive days during which such judgment has not been paid in full or a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, is not in effect. 6.9 Attachment by Lenders. Any assets of the Company or any of its Subsidiaries shall be attached, levied upon, seized or repossessed, or come into the 14 possession of a trustee, receiver or other custodian and a determination by any Holder, in good faith but in its sole discretion, that the same could have a material adverse effect on the prospect for the Holders to fully and punctually realize the full benefits conferred on the Holders by the Loan Documents. 6.10 Adverse Change in Financial Condition. Any event having a material adverse effect on the business, operations, assets, properties or condition of the Company and its Subsidiaries taken as a whole shall have occurred and be continuing or a material adverse effect on the validity or enforceability of this or any of the other Loan Documents or the rights or remedies of the Holders hereunder or thereunder. 7. Remedies. Upon and after the occurrence of an Event of Default, the Holder shall be entitled to the exercise the rights and remedies set forth in the Security Agreement, the other Loan Documents and under applicable law, all such rights and remedies being cumulative and enforceable alternatively, successively or concurrently. 8. Prepayment. The Company may not prepay this Note prior to the Maturity Date without the prior written consent of the Holders. 9. Seniority. (a) Except as set forth in the Subordination Agreement, the Notes will rank senior in right of payment to all other indebtedness of the Company, other than the GA Notes and the January 2004 Notes, with respect to which the Notes will be pari passu in right of payment in accordance with the Intercreditor Agreement. (b) Notwithstanding anything to the contrary contained in the Notes, this Note and the other Notes, and the terms and the conditions hereof and thereof, are subject to the Intercreditor Agreement. 10. Assignment. Subject to the restrictions on transfer described in Section 12 below, the rights and obligations of the Company and Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. The Company shall not be permitted to assign this Note without the prior written consent of the Holders. 11. Waiver of Notice. The Company hereby waives notice, presentment, demand, protest and notice of dishonor. 12. Transfer of This Note. With respect to any offer, sale or other disposition of this Note, Holder will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such Holder's counsel, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect); provided, that no opinion shall be required for any transfer to an Affiliate or if the transfer is made in compliance with the Securities Act, so long as the transferee can make the same representations and warranties at the time of transfer as set forth in Sections 4.5, 4.6, 4.7, 15 4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly upon delivering such written notice and opinion, if so required, Holder may sell or otherwise dispose of this Note, all in accordance with the terms of the notice delivered to the Company. Each Note thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Notwithstanding the foregoing, the Holder shall not be permitted to transfer this Note to any Person who is not an Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of written notice from the Company that Stockholder Approval cannot be obtained, or the occurrence of an actual vote of the Company's shareholders entitled to vote (whether by written consent or at a meeting specially called for such purpose), the result of which is a decision by a majority of the Company's shareholders entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of an Event of Default. This Note is registered as to both principal and stated interest with the Company (or its agent) within the meaning of section 1.871-14(c)(1)(i) of the Income Tax Regulations. Accordingly, notwithstanding anything to the contrary in this paragraph, this Note, together with any interest thereon, may be transferred only (i) upon surrender of the Note by the transferor to the Company (or its agent) and the reissuance of the Note (or the issuance of a new Note) to the transferee, or (ii) by transfer of the right to principal and interest through a book-entry system meeting the requirements of section 1.871-14(c)(1)(i)(B) of the Income Tax Regulations that is maintained by the Company (or its agent). In the case of a Holder that is not a "United States person" within the meaning of section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the "Code"), so long as an exception under section 871(h) or section 881(c) of the Code does not apply, the Company (or its agent) shall not withhold any U.S. federal income tax with respect to such Holder provided that the Holder timely provides the Company (or its agent) with a statement that meets the requirements of section 871(h)(5) of the Code. 13. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 14. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally recognized courier service or mailed by registered or certified mail, postage prepaid, to the respective addresses of the parties as set forth on the signature pages hereto or if sent by facsimile to the respective facsimile numbers of the parties set forth on the signature pages hereto. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given and received when personally delivered or three (3) business days after deposited in the mail or one business day after sent by courier or upon confirmation of facsimile delivery in the manner set forth above. 16 15. No Stockholder Rights. Nothing contained in this Note shall be construed as conferring upon Holder or any other Person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. 16. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law relating to conflict of laws. 17. Amendments and Waivers. No amendments or waivers of any provision of this Note, and no consent by the Holder to any departure by the Company, shall in any event be effective unless the same shall be in writing, and signed by the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 18. Severability. Any provision of this Note that is prohibited or unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF 17 THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. 20. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except as otherwise indicated, all references herein to Sections refer to Sections hereof. [the remainder of this page intentionally left blank] 18 IN WITNESS WHEREOF, the Company has caused this Note to be issued this 9th day of March, 2004. COMPANY: CRITICAL PATH, INC., a California corporation By: /s/ William E. McGlashan, Jr. ------------------------------------ Name: William E. McGlashan, Jr. Title: Chairman, Chief Executive Officer Critical Path, Inc. 350 The Embarcadero San Francisco, CA 94105-1204 Telecopy: (415) 541-2300 Attention: Chief Financial Officer With a copy to: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Telecopy: (415) 983-1200 Attention: Gregg Vignos, Esq. Name of Holder: CROSSLINK CROSSOVER FUND IV, L.P. Address: c/o Crosslink Capital Two Embarcadero Center, Suite 2200 San Francisco, CA 94111 Attention: Jason Sanders Telephone: (415) 617-1845 Facsimile: (415) 617-1801 EX-4.39 24 f97295exv4w39.txt EXHIBIT 4.39 EXHIBIT 4.39 THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS. CRITICAL PATH, INC. CONVERTIBLE SUBORDINATED PROMISSORY NOTE $3,000,000 San Francisco, California March 9, 2004 Critical Path, Inc., a California corporation (the "Company"), the principal office of which is located in San Francisco, California, for value received hereby promises to pay to the order of Sagamore Hill Hub Fund, Ltd., or its registered assigns ("Holder"), the sum of three million dollars ($3,000,000), or such lesser amount as shall then equal the outstanding principal amount hereof on the terms and conditions set forth hereinafter. The outstanding principal amount hereof and all accrued and unpaid interest hereon, as set forth below, shall be due and payable on the earlier to occur of (i) March 9, 2008, (ii) when declared due and payable by Holder upon the occurrence of an Event of Default (as defined below), (iii) consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock or Stock Equivalents by the Company, any cash capital contribution from any third person or any other debt or equity financing consummated by the Company after the date of issuance of this Note which, in the case of (v), individually or in the aggregate raises proceeds of at least forty million dollars ($40,000,000) in cash or cash equivalents (the earliest of the events set forth in items (i)-(v) immediately above, the "Maturity Date"). The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. Except as otherwise defined herein, each capitalized term used herein shall have the meaning assigned to it in the Note Purchase Agreement, as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. All other references to the Note Purchase Agreement in this Note refer to the Note Purchase Agreement as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. As used in this Note, the following terms, unless the context otherwise requires, have the following meanings: 1.1 "Affiliate" means any Person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended. 1.2 "Capitalized Lease Obligations" means, with respect to any Person, all rental obligations of such Person which, under GAAP, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with such principles. 1.3 "Change of Control" shall mean (i) any merger, consolidation or other business combination transaction (or series of related transactions) in which the stockholders owning a majority of the voting securities of the Company prior to such transaction do not own a majority of the voting securities of the surviving entity, (ii) any tender offer, exchange offer or other transaction whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended) (other than General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and the Affiliates of the foregoing, provided that Affiliates shall be deemed not to include any portfolio companies of any of the foregoing) obtains a majority of the outstanding shares of capital stock entitled to vote in the election of directors, (iii) any proxy contest in which a majority of the Board of Directors of the Company (or persons appointed by such Board of Directors) prior to such contest do not constitute a majority of the Company's Board of Directors after such contest or (iv) any other transaction described in any stockholder rights agreement or "poison pill," if any, to which the Company is party, which may permit the holders of any rights or similar certificates to exercise the rights evidenced thereby. 1.4 "Company" shall have the meaning set forth in the recitals hereto, and includes any corporation that shall succeed to or assume the obligations of the Company under this Note. 1.5 "Common Conversion Date" shall have the meaning set forth in Section 3.1(b) hereof. 1.6 "Common Stock" means the common stock, par value $0.001 per share, of the Company. 1.7 "Conversion Date" shall mean the Subsequent Closing Date. 1.8 "Domestic Subsidiary" shall have the meaning set forth in Section 5.10 hereof. 1.9 "Event of Default" shall have the meaning set forth in Section 6 hereof. 2 1.10 "GA Notes" shall mean the Convertible Subordinated Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP Entities pursuant to the Purchase and Exchange Agreement. 1.11 "GAP Entities" shall mean General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG. 1.12 "Guarantor" shall have the meaning set forth in the Security Agreement. 1.13 "Holder" shall mean the registered holder of this Note from time to time, and in the plural, shall mean all registered holders of Notes from time to time issued by the Company pursuant to the Note Purchase Agreement. 1.14 "Intercreditor Agreement" shall mean the Intercreditor Agreement, dated the date hereof, among the GAP Entities, the January Lenders, Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures International. 1.15 "Interest Amount" shall have the meaning set forth in Section 3.1 hereof. 1.16 "Investment" means (i) the acquisition (whether for cash, property, services, assumption of Indebtedness, securities or otherwise) of assets (other than equipment, inventory, supplies or other assets acquired in the ordinary course of business of the Company), capital stock, bonds, notes, debentures, partnership, joint venture or other ownership interests or other securities of any Person, (ii) any deposit with, or advance, loan or other extension of credit to, or on behalf of, any Person (other than deposits made in connection with the purchase of equipment, inventory, services, leases, supplies or other assets in the ordinary course of business of the Company), and (iii) any other capital contribution to or investment in any Person, including, without limitation, any guaranty obligation incurred for the benefit of any Person. For the sake of clarity, Investments shall include any transfer of property or assets by the Company to any of its Subsidiaries or by any Subsidiary of the Company to any other Subsidiary. 1.17 "January Lenders" shall mean Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P. 1.18 "January Note Agreement" shall mean the Convertible Note Purchase Agreement, dated January 16, 2004, among the January Lenders and the Company. 1.19 "January 2004 Notes" shall mean the Convertible Subordinated Promissory Notes, each dated January 16, 2003, issued by the Company to the January Lenders pursuant to the January Note Agreement. 3 1.20 "Loan Documents" shall have the meaning set forth in the Security Agreement. 1.21 "Note" shall mean this note, and in the plural, shall mean all notes issued to the Lenders pursuant to the terms of the Note Purchase Agreement, including this Note, and all amendments, modifications and extensions thereto. 1.22 "Note Purchase Agreement" means that certain Convertible Note Purchase Agreement, dated March 9, 2004, among the Company, the Holder and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.23 "Permitted Investments" means (i) Investments in cash or cash equivalents, (ii) accounts receivable created, acquired or made in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (iii) Investments existing on the closing date, and listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty obligations permitted by Section 5.3 of this Agreement, (v) loans to employees, directors or officers of the Company in connection with the award of convertible bonds or capital stock under a stock incentive plan, stock option plan or other equity-based compensation plan or arrangement, (vi) other advances or loans to employees, directors, officers or agents of the Company in the ordinary course of business not to exceed $500,000 in the aggregate at any time outstanding; (vii) loans, advances and investments in foreign Subsidiaries (that are not incorporated or otherwise organized under the laws of the United States of America or any state thereof) in an amount not to exceed $1,000,000 in the aggregate at any time outstanding; (viii) any acquisition for which the prior written consent of the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement has been obtained, (ix) other loans, advances and investments of a nature not contemplated by the foregoing sections in an amount not to exceed $500,000 in the aggregate at any time outstanding or (x) Investments by the Company in the Guarantor. 1.24 "Permitted Liens" shall have the meaning set forth in Section 5.4. 1.25 "Person" means any individual, firm, corporation, partnership, trust, joint venture, joint stock company, limited liability company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. 1.26 "Price Per Share" shall have the meaning attributed to such term in the Series E Certificate of Determination, as filed with the Secretary of State of the State of California. 1.27 "Purchase and Exchange Agreement" shall mean the Convertible Note Purchase and Exchange Agreement, dated November 18, 2003, among the Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended. 4 1.28 "Qualified Asset Sale" means the sale, transfer or other disposition of any of the assets of the Company or any of its Subsidiaries, other than (a) sales of assets in the ordinary course of business, (b) sales of assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the sale, transfer or other disposition of assets of the Company where the proceeds are applied to the purchase price or traded in for credit against the purchase price of other assets, provided that any such purchase is made, or credit issued, within 90 days of the sale, transfer or other disposition, and (d) one or more sales of the Company's assets (other than sales otherwise included in clauses (a), (b), and (c) immediately above) which collectively yield up to an aggregate of one million dollars ($1,000,000) in gross proceeds to the Company while this Note is outstanding. 1.29 "Restricted Payment" means (a) any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Company or any of its Subsidiaries or (b) any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any shares of any class of capital stock of the Company or any Subsidiary or any option, warrant or other right to acquire any such shares of capital stock of the Company or any Subsidiary. 1.30 "Security Agreement" means that certain Guaranty and Security Agreement, of even date herewith between the Company, Compass Holding Corp., the Lenders and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.31 "Series E Conversion Price" shall have the meaning set forth in the Series E Certificate of Determination. 1.32 "Series E Preferred Stock" means the Series E Preferred Stock, par value $0.001, of the Company. 1.33 "Subordination Agreement" shall have the meaning set forth in Section 5.3. 1.34 "Subsequent Closing Date" shall have the meaning set forth in Section 2.4(e) of the Note Purchase Agreement. 1.35 "SVB" means Silicon Valley Bank, a California chartered bank, or any Affiliates thereof. 1.36 "Ten Percent Holder" means, with respect to a class of equity securities of the Company, a Person (together with such Person's Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such class of equity securities of the Company, as defined by Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 1.37 "UCC" shall have the meaning set forth in Section 5.4. 5 2. Interest. Simple interest shall accrue at the rate of ten percent (10%) per annum (or such lesser amount as shall equal the highest rate of interest allowable under applicable law) (the "Interest Rate"), on the outstanding principal of this Note from the date of this Note until the Maturity Date or the date this Note is otherwise repaid. The Company shall not be obligated to make any payments of interest which shall have accrued under this Note prior to the Maturity Date. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. In the event that the principal amount of this Note, any interest, or any amount payable hereunder is not paid in full when such amount becomes due and payable, or upon the occurrence of an Event of Default, interest shall accrue at the lesser of (a) the initial Interest Rate plus five percent (5%) per annum or (b) the highest rate of interest allowable under applicable law, on the balance of all amounts outstanding until such overdue amounts are paid or the Event of Default is cured, and such interest shall be payable on demand. 3. Conversion. 3.1 Conversion. (a) On the Conversion Date, the principal amount of this Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall be automatically converted into the number of fully paid and nonassessable shares of Series E Preferred Stock equal to the quotient obtained by dividing (a) the entire principal amount of this Note plus the Interest Amount by (b) the Price Per Share. (b) In the event that the Conversion Date has not occurred on or prior to August 15, 2004 (the "Common Conversion Date"), then, following the Common Conversion Date, the principal amount of this Note plus the Interest Amount shall be convertible, at the option of Holder and from time to time, only into Common Stock at a conversion price per share equal to $2.18, as adjusted for any stock dividends, stock splits or similar consolidations or subdivisions, following the date hereof; provided, however, that Holder shall not be permitted to convert any portion of the principal of this Note or the Interest Amount into Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion, the conversion would cause Holder to be a Ten Percent Holder. 3.2 Notice of Conversion. Upon conversion of this Note as provided in Section 3.1, Holder shall surrender this Note to the Company and shall state the name or names in which the certificate or certificates for such shares of Series E Preferred Stock or Common Stock, as the case may be, are to be issued. The Person or Persons entitled to receive the shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion shall be treated for all purposes as the record holder or holders (a) of such shares of Series E Preferred Stock as of the Conversion Date and (b) of such shares of Common Stock as of the date of any conversion pursuant to Section 3.1(b). 3.3 Delivery of Stock Certificates. Upon conversion of this Note as provided in Section 3.1, the Company at its expense will issue and deliver to 6 Holder of this Note a certificate or certificates (bearing such legends as are required by applicable state and federal securities laws in the opinion of counsel to the Company) for the number of full shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion. 3.4 Mechanics and Effect of Conversion. No fractional shares of Series E Preferred Stock or Common Stock, as the case may be, shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to Holder upon the conversion of this Note, the Company shall pay to Holder the amount of outstanding principal and interest that is not so converted. Upon conversion of all amounts due under this Note, the Company shall be released from all of its obligations under this Note. 4. Adjustments. The number of shares of Series E Preferred Stock or Common Stock convertible hereunder are subject to adjustment from time to time as follows: 4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at any time while this Note remains outstanding and unexpired there shall be (a) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (b) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise or (c) a sale or transfer of the Company's stock, properties or assets as, or substantially as, an entirety to any other Person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that Holder shall thereafter be entitled to receive by converting this Note the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon conversion of this Note would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Note had been converted immediately before such reorganization, merger, consolidation, sale or transfer (notwithstanding that the Stockholder Approval may not yet have been obtained), all subject to further adjustment as provided in this Section 4. The foregoing provisions of this Section 4.1 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation. If the per share consideration payable to Holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors based on the amount the Holder would have otherwise been entitled to receive had the transaction or transactions not occurred. In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of Holder after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon conversion of 7 this Note. The Company shall be obligated to retain and set aside, or otherwise make fair provision for exercise of the right of the Holder to receive, the shares of stock and/or other securities, cash or other property provided for in this Section 4.1. 4.2 Election of Holder upon Merger or Sale of Assets. Notwithstanding anything to the contrary contained herein, if an event shall occur as provided in Section 4.1 hereof that would otherwise result in the occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first paragraph of this Note, then the Holder may, in its sole discretion, by written notice to the Company elect to convert the principal amount of this Note plus the Interest Amount into the number of shares of stock or other securities or property described in Section 4.1, in lieu of receiving payment in full of all amounts outstanding under this Note. The number of shares of stock or other securities or property to be issued upon such conversion shall be determined in accordance with Section 4.1 hereof, taking into account the occurrence of such event. 4.3 Reclassification, Etc. If the Company shall, at any time while this Note, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, change any of the securities as to which conversion rights under this Note exist into the same or a different number of securities of any other class or classes, this Note shall thereafter represent the right to acquire such number and kind of securities as would have been issuable with respect to the securities that were subject to the conversion rights under this Note immediately prior to such reclassification or other change, and the Price Per Share shall be appropriately adjusted, all subject to further adjustment as provided in this Section 4. 4.4 Split, Subdivision or Combination of Shares. If the Company at any time while this Note, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the shares of Series E Preferred Stock or Common Stock into a different number of securities of the same class, the Price Per Share or conversion price, as the case may be, shall be proportionately adjusted. 4.5 Series E Adjustments. The initial Series E Conversion Price of the shares of Series E Preferred Stock issued upon conversion of this Note pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on the Conversion Date, subject to the adjustment of such Series E Conversion Price from time to time thereafter as provided in the Series E Certificate of Determination. 4.6 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 4, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. 4.7 No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all 8 such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 5. Covenants. The Company covenants and agrees that until the earlier of (i) the date on which all Obligations (as defined in the Security Agreement) have been paid in full or (ii) the date on which all amounts outstanding under the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b): 5.1 Financial Statements and Other Information. The Company shall deliver to the Holder of this Note the financial statements and other information required to be delivered under Section 8.1 of the Note Purchase Agreement. 5.2 Financial Covenants. The Company shall at all times comply with the financial and other covenants set forth in Schedule 8.5 to the Note Purchase Agreement as if such covenants were set forth herein. 5.3 Indebtedness. The Company shall not, and shall not permit any Subsidiary to, issue, incur, assume, create or have outstanding any Indebtedness, provided, however, that the foregoing shall not restrict nor operate to prevent: (a) Indebtedness in favor of the Holders under the Loan Documents; (b) Indebtedness existing on the date hereof, as set forth on Schedule 3.22 to the Note Purchase Agreement; (c) Indebtedness for accounts payable incurred in the ordinary course of business by the Company; (d) Indebtedness incurred solely for the purpose of financing the acquisition of any equipment, machinery, software, improvements or any other similar property, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, that the aggregate outstanding principal amount of all Indebtedness permitted pursuant to this clause (d) outstanding for more than sixty (60) days after the incurrence of such Indebtedness shall not at any time exceed $500,000; (e) Indebtedness of the Company evidenced by Capitalized Lease Obligations, provided, that in no event shall the aggregate principal amount of Capitalized Lease Obligations permitted by this clause (e) exceed $500,000 at any time outstanding; and (f) Any extension, renewal, refinancing, refunding, or replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and (e) above, on such terms and conditions as are, on the whole, not materially more onerous to the Company than the terms and conditions of such original Indebtedness on the date of such refinancing (including that the principal amount of such refinancing Indebtedness 9 does not exceed the principal amount of, plus the amount of accrued and unpaid interest on, the Indebtedness so refinanced (plus the amount of reasonable premium and fees and expenses incurred in connection therewith)), provided that, in the case of a refinancing of Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall only apply to the extent consistent with the Subordination Agreement, dated as of the date hereof, by and among SVB, the Holders and the Company (the "Subordination Agreement"). 5.4 Liens. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of the Company or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable), or assign any right to receive income or permit the filing of any financing statement under the Uniform Commercial Code, as from time to time in effect in the relevant jurisdiction (the "UCC"), or any other similar notice of Lien under any similar recording or notice statute; provided, that the provisions of this Section 5.4 shall not prevent the creation, incurrence, assumption or existence of the following: (a) Liens arising in the ordinary course of business by statute in connection with worker's compensation, unemployment insurance, old age benefits, social security obligations, statutory obligations or other similar charges (other then Liens arising under ERISA), good faith cash deposits in connection with tenders, contracts or leases to which the Company or any Subsidiary is a party or other cash deposits required to be made in the ordinary course of business, provided, that such Liens do not have a material adverse effect on the ability of the Company to repay amounts due under the Notes; (b) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (c) Liens in respect of property or assets of the Company or its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (i) which do not in the aggregate materially detract from the value of the Company's and its Subsidiaries' property or assets taken as a whole or result in a material adverse effect on the Condition of the Company or (ii) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; 10 (d) the pledge of assets for the purpose of securing an appeal, stay or discharge in the course of any legal proceeding, provided that the aggregate amount of liabilities of the Company and its Subsidiaries secured by a pledge of assets permitted under this subsection, including interest and penalties thereon, if any, shall not be in excess of $500,000 at any one time outstanding; (e) any interest or title of a lessor under any operating lease; (f) easements, rights-of-way, restrictions and other similar encumbrances against real property incurred in the ordinary course of business; (g) the Liens existing on the date hereof identified on Schedule 3.22 to the Note Purchase Agreement; (h) Liens on cash deposited with account debtors to secure performance by the Company or any Subsidiary in the ordinary course of business subject to customary and reasonable terms; (i) Liens upon assets of the Company or its Subsidiaries subject to Capitalized Lease Obligations, provided, that (A) such Liens only serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising under such Capitalized Lease Obligation and (B) the Lien encumbering the asset giving rise to the Capitalized Lease Obligation does not encumber any other asset of the Company or its Subsidiaries; (j) Liens placed upon equipment, machinery, software, improvements or any other similar property, used in the ordinary course of business of the Company or any of its Subsidiaries at the time of the acquisition thereof by the Company or any of its Subsidiaries or within ninety (90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above; provided, that the Liens encumbering the equipment, machinery software, improvements or any other similar property so acquired do not encumber any other asset of the Company or its Subsidiaries; (k) set-off rights of depository institutions; and (l) Liens created by the Security Agreement (collectively with clauses (a) through (k) hereof, the "Permitted Liens"). 5.5 Fundamental Changes. The Company will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or a series of transactions) all or substantially all of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time and immediately after giving effect thereto no Event of Default shall have occurred and be continuing (i) the Company or any of its Subsidiaries may, with the prior written 11 consent of the Holders, merge with or into any other Person; (ii) any wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with or into the Company or any other wholly-owned Subsidiary of the Company; (iii) any Subsidiary (other than the Guarantor, and except as otherwise prohibited by this Note) may sell, transfer, lease or otherwise dispose of its assets to the Company or to another wholly-owned Subsidiary of the Company; and (iv) any Subsidiary may liquidate or dissolve if the board of directors of the Company determine in good faith that such liquidation or dissolution is in its best interests and is not disadvantageous to the Holders. 5.6 Restricted Payments. The Company will not, and the Company will not permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that (i) any Subsidiary may make a Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any Restricted Payment required by the terms of the Note Purchase Agreement and the other documents executed in connection therewith. 5.7 Transactions with Affiliates. The Company will not, and the Company will not permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions that are at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arm's length basis from unrelated third parties, (b) transactions exclusively between the Company and the Guarantor and (c) transactions under the agreements listed on Schedule 3.17 to the Note Purchase Agreement. 5.8 Investments. The Company will not, and the Company will not permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment in any Person, except for Permitted Investments. 5.9 Nature of Business. The Company will not, and the Company will not permit any Subsidiary to, engage in any business other than that conducted on the date hereof and any businesses reasonably related thereto. 5.10 Property of Existing Domestic Subsidiaries. The Company will not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise organized under the laws of the United States of America or any state thereof (a "Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease, license, purchase or otherwise acquire any personal or real property (excluding any material intellectual property) in excess of $50,000 for all property held by such Subsidiary, or $250,000 in the aggregate for all property held by all Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own or otherwise hold any rights to any material intellectual property or (iv) otherwise conduct any business or maintain operations. 5.11 Formation of Subsidiaries. The Company will not, and will not cause or permit any of its Subsidiaries to, form, acquire or permit the existence of any 12 new domestic Subsidiary, without causing such domestic Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes and related security document, in form and substance satisfactory to the Holders. 5.12 Books and Records. The Company shall keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Company and its Subsidiaries in accordance with GAAP consistently applied. 5.13 Inspection. The Company shall, and shall cause each of its Subsidiaries to, permit representatives of the Holders to visit and inspect any of its properties, to examine its corporate, financial and operating records and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with their respective directors, officers and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably requested upon notice to the Company. 5.14 Maintenance of Business. The Company shall, and shall cause each Subsidiary to, preserve and maintain its existence. The Company shall, and shall cause each Subsidiary to, preserve and keep in force and effect all licenses, permits, franchises, approvals, patents, trademarks, trade names, trade styles, copyrights, and other property rights necessary to the proper conduct of its business, except where the failure to do so could not reasonably be expected to have a material adverse effect on the Condition of the Company or on the prospects of repayment of the Notes. 5.15 Maintenance of Properties. The Company shall, and shall cause each Subsidiary to, maintain, preserve and keep its property and equipment in good repair, working order and condition (ordinary wear and tear excepted) and shall from time to time make all needful and proper repairs, renewals, replacements, additions and betterments thereto so that at all times the efficiency thereof shall by fully preserved and maintained, except in each case to the extent that, in the reasonable business judgment of such Person, any such property or equipment is no longer necessary for the proper conduct of the business of such Person. 6. The occurrence of any one or more of the following events shall constitute an "Event of Default": 6.1 Failure To Pay. (i) The failure of the Company to pay any principal due under any of the Notes when due and payable (whether by acceleration, declaration, extension or otherwise), or (ii) the failure of the Company to pay any other amounts due under any of the Notes when due and payable if such failure is not cured within five (5) days of Company's receipt of notice thereof from any of the Holders. 6.2 Financial Covenants. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2. 13 6.3 Other Covenants and Agreements. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the covenants of this Note, the Security Agreement or any of the other Loan Documents (other than the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2), if such failure is not cured within sixty (60) days. 6.4 Representations and Warranties. If any representation or warranty made by the Company or any of its Subsidiaries in the Loan Documents is not true and correct in all material respects on the Initial Closing Date. 6.5 Default on Other Obligations. The occurrence of any condition or default under any other indebtedness for borrowed money of the Company or any of its Subsidiaries with a principal amount of at least five hundred thousand dollars ($500,000) that results in the acceleration of such indebtedness which is not cured within sixty (60) days. 6.6 Involuntary Bankruptcy. There shall be filed against the Company or any of its Subsidiaries an involuntary petition or other pleading seeking the entry of a decree or order for relief under the United States Bankruptcy Code or any similar federal or state insolvency or similar laws ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a reorganization of the Company or any of its Subsidiaries or the business and affairs of the Company or any of its Subsidiaries or (c) the appointment of a receiver, liquidator, assignee, custodian, trustee or similar official for the Company or any of its Subsidiaries of the property of the Company or any of its Subsidiaries. 6.7 Voluntary Bankruptcy. The commencement by the Company or any of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any federal or state insolvency or similar laws or the consent by the Company or any of its Subsidiaries to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian or similar official for the Company or any of its Subsidiaries of any of the property of the Company or any of its Subsidiaries or the making by the Company or any of its Subsidiaries of an assignment for the benefit of creditors, or the failure by Company or any of its Subsidiaries generally to pay its debts as the debts become due. 6.8 Judgments, Awards. Any judgment or order for the payment of money is rendered against the Company or any of its Subsidiaries in an amount in excess of five hundred thousand dollars ($500,000) individually or in the aggregate and either (i) enforcement proceedings are commenced by any creditor upon such judgment or order and not stayed, or (ii) there is any period of sixty (60) consecutive days during which such judgment has not been paid in full or a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, is not in effect. 6.9 Attachment by Lenders. Any assets of the Company or any of its Subsidiaries shall be attached, levied upon, seized or repossessed, or come into the 14 possession of a trustee, receiver or other custodian and a determination by any Holder, in good faith but in its sole discretion, that the same could have a material adverse effect on the prospect for the Holders to fully and punctually realize the full benefits conferred on the Holders by the Loan Documents. 6.10 Adverse Change in Financial Condition. Any event having a material adverse effect on the business, operations, assets, properties or condition of the Company and its Subsidiaries taken as a whole shall have occurred and be continuing or a material adverse effect on the validity or enforceability of this or any of the other Loan Documents or the rights or remedies of the Holders hereunder or thereunder. 7. Remedies. Upon and after the occurrence of an Event of Default, the Holder shall be entitled to the exercise the rights and remedies set forth in the Security Agreement, the other Loan Documents and under applicable law, all such rights and remedies being cumulative and enforceable alternatively, successively or concurrently. 8. Prepayment. The Company may not prepay this Note prior to the Maturity Date without the prior written consent of the Holders. 9. Seniority. (a) Except as set forth in the Subordination Agreement, the Notes will rank senior in right of payment to all other indebtedness of the Company, other than the GA Notes and the January 2004 Notes, with respect to which the Notes will be pari passu in right of payment in accordance with the Intercreditor Agreement. (b) Notwithstanding anything to the contrary contained in the Notes, this Note and the other Notes, and the terms and the conditions hereof and thereof, are subject to the Intercreditor Agreement. 10. Assignment. Subject to the restrictions on transfer described in Section 12 below, the rights and obligations of the Company and Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. The Company shall not be permitted to assign this Note without the prior written consent of the Holders. 11. Waiver of Notice. The Company hereby waives notice, presentment, demand, protest and notice of dishonor. 12. Transfer of This Note. With respect to any offer, sale or other disposition of this Note, Holder will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such Holder's counsel, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect); provided, that no opinion shall be required for any transfer to an Affiliate or if the transfer is made in compliance with the Securities Act, so long as the transferee can make the same representations and warranties at the time of transfer as set forth in Sections 4.5, 4.6, 4.7, 15 4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly upon delivering such written notice and opinion, if so required, Holder may sell or otherwise dispose of this Note, all in accordance with the terms of the notice delivered to the Company. Each Note thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Notwithstanding the foregoing, the Holder shall not be permitted to transfer this Note to any Person who is not an Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of written notice from the Company that Stockholder Approval cannot be obtained, or the occurrence of an actual vote of the Company's shareholders entitled to vote (whether by written consent or at a meeting specially called for such purpose), the result of which is a decision by a majority of the Company's shareholders entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of an Event of Default. This Note is registered as to both principal and stated interest with the Company (or its agent) within the meaning of section 1.871-14(c)(1)(i) of the Income Tax Regulations. Accordingly, notwithstanding anything to the contrary in this paragraph, this Note, together with any interest thereon, may be transferred only (i) upon surrender of the Note by the transferor to the Company (or its agent) and the reissuance of the Note (or the issuance of a new Note) to the transferee, or (ii) by transfer of the right to principal and interest through a book-entry system meeting the requirements of section 1.871-14(c)(1)(i)(B) of the Income Tax Regulations that is maintained by the Company (or its agent). In the case of a Holder that is not a "United States person" within the meaning of section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the "Code"), so long as an exception under section 871(h) or section 881(c) of the Code does not apply, the Company (or its agent) shall not withhold any U.S. federal income tax with respect to such Holder provided that the Holder timely provides the Company (or its agent) with a statement that meets the requirements of section 871(h)(5) of the Code. 13. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 14. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally recognized courier service or mailed by registered or certified mail, postage prepaid, to the respective addresses of the parties as set forth on the signature pages hereto or if sent by facsimile to the respective facsimile numbers of the parties set forth on the signature pages hereto. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given and received when personally delivered or three (3) business days after deposited in the mail or one business day after sent by courier or upon confirmation of facsimile delivery in the manner set forth above. 16 15. No Stockholder Rights. Nothing contained in this Note shall be construed as conferring upon Holder or any other Person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. 16. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law relating to conflict of laws. 17. Amendments and Waivers. No amendments or waivers of any provision of this Note, and no consent by the Holder to any departure by the Company, shall in any event be effective unless the same shall be in writing, and signed by the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 18. Severability. Any provision of this Note that is prohibited or unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF 17 THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. 20. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except as otherwise indicated, all references herein to Sections refer to Sections hereof. [the remainder of this page intentionally left blank] 18 IN WITNESS WHEREOF, the Company has caused this Note to be issued this 9th day of March, 2004. COMPANY: CRITICAL PATH, INC., a California corporation By: /s/ William E. McGlashan, Jr. ------------------------------------ Name: William E. McGlashan, Jr. Title: Chairman, Chief Executive Officer Critical Path, Inc. 350 The Embarcadero San Francisco, CA 94105-1204 Telecopy: (415) 541-2300 Attention: Chief Financial Officer With a copy to: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Telecopy: (415) 983-1200 Attention: Gregg Vignos, Esq. Name of Holder: SAGAMORE HILL HUB FUND, LTD. Address: c/o Sagamore Hill Capital Management 10 Glenville Street, 3rd Floor Greenwich, CT 06831 Attention: Legal Department Telephone: ---------------------------------- Facsimile: (203) 422-7214 EX-4.40 25 f97295exv4w40.txt EXHIBIT 4.40 EXHIBIT 4.40 THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS. CRITICAL PATH, INC. CONVERTIBLE SUBORDINATED PROMISSORY NOTE $1,843,000 San Francisco, California March 9, 2004 Critical Path, Inc., a California corporation (the "Company"), the principal office of which is located in San Francisco, California, for value received hereby promises to pay to the order of Criterion Capital Partners, Ltd., or its registered assigns ("Holder"), the sum of one million eight hundred forty-three thousand dollars ($1,843,000), or such lesser amount as shall then equal the outstanding principal amount hereof on the terms and conditions set forth hereinafter. The outstanding principal amount hereof and all accrued and unpaid interest hereon, as set forth below, shall be due and payable on the earlier to occur of (i) March 9, 2008, (ii) when declared due and payable by Holder upon the occurrence of an Event of Default (as defined below), (iii) consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock or Stock Equivalents by the Company, any cash capital contribution from any third person or any other debt or equity financing consummated by the Company after the date of issuance of this Note which, in the case of (v), individually or in the aggregate raises proceeds of at least forty million dollars ($40,000,000) in cash or cash equivalents (the earliest of the events set forth in items (i)-(v) immediately above, the "Maturity Date"). The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. Except as otherwise defined herein, each capitalized term used herein shall have the meaning assigned to it in the Note Purchase Agreement, as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. All other references to the Note Purchase Agreement in this Note refer to the Note Purchase Agreement as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. As used in this Note, the following terms, unless the context otherwise requires, have the following meanings: 1.1 "Affiliate" means any Person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended. 1.2 "Capitalized Lease Obligations" means, with respect to any Person, all rental obligations of such Person which, under GAAP, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with such principles. 1.3 "Change of Control" shall mean (i) any merger, consolidation or other business combination transaction (or series of related transactions) in which the stockholders owning a majority of the voting securities of the Company prior to such transaction do not own a majority of the voting securities of the surviving entity, (ii) any tender offer, exchange offer or other transaction whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended) (other than General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and the Affiliates of the foregoing, provided that Affiliates shall be deemed not to include any portfolio companies of any of the foregoing) obtains a majority of the outstanding shares of capital stock entitled to vote in the election of directors, (iii) any proxy contest in which a majority of the Board of Directors of the Company (or persons appointed by such Board of Directors) prior to such contest do not constitute a majority of the Company's Board of Directors after such contest or (iv) any other transaction described in any stockholder rights agreement or "poison pill," if any, to which the Company is party, which may permit the holders of any rights or similar certificates to exercise the rights evidenced thereby. 1.4 "Company" shall have the meaning set forth in the recitals hereto, and includes any corporation that shall succeed to or assume the obligations of the Company under this Note. 1.5 "Common Conversion Date" shall have the meaning set forth in Section 3.1(b) hereof. 1.6 "Common Stock" means the common stock, par value $0.001 per share, of the Company. 1.7 "Conversion Date" shall mean the Subsequent Closing Date. 1.8 "Domestic Subsidiary" shall have the meaning set forth in Section 5.10 hereof. 2 1.9 "Event of Default" shall have the meaning set forth in Section 6 hereof. 1.10 "GA Notes" shall mean the Convertible Subordinated Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP Entities pursuant to the Purchase and Exchange Agreement. 1.11 "GAP Entities" shall mean General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG. 1.12 "Guarantor" shall have the meaning set forth in the Security Agreement. 1.13 "Holder" shall mean the registered holder of this Note from time to time, and in the plural, shall mean all registered holders of Notes from time to time issued by the Company pursuant to the Note Purchase Agreement. 1.14 "Intercreditor Agreement" shall mean the Intercreditor Agreement, dated the date hereof, among the GAP Entities, the January Lenders, Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures International. 1.15 "Interest Amount" shall have the meaning set forth in Section 3.1 hereof. 1.16 "Investment" means (i) the acquisition (whether for cash, property, services, assumption of Indebtedness, securities or otherwise) of assets (other than equipment, inventory, supplies or other assets acquired in the ordinary course of business of the Company), capital stock, bonds, notes, debentures, partnership, joint venture or other ownership interests or other securities of any Person, (ii) any deposit with, or advance, loan or other extension of credit to, or on behalf of, any Person (other than deposits made in connection with the purchase of equipment, inventory, services, leases, supplies or other assets in the ordinary course of business of the Company), and (iii) any other capital contribution to or investment in any Person, including, without limitation, any guaranty obligation incurred for the benefit of any Person. For the sake of clarity, Investments shall include any transfer of property or assets by the Company to any of its Subsidiaries or by any Subsidiary of the Company to any other Subsidiary. 1.17 "January Lenders" shall mean Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P. 1.18 "January Note Agreement" shall mean the Convertible Note Purchase Agreement, dated January 16, 2004, among the January Lenders and the Company. 3 1.19 "January 2004 Notes" shall mean the Convertible Subordinated Promissory Notes, each dated January 16, 2003, issued by the Company to the January Lenders pursuant to the January Note Agreement. 1.20 "Loan Documents" shall have the meaning set forth in the Security Agreement. 1.21 "Note" shall mean this note, and in the plural, shall mean all notes issued to the Lenders pursuant to the terms of the Note Purchase Agreement, including this Note, and all amendments, modifications and extensions thereto. 1.22 "Note Purchase Agreement" means that certain Convertible Note Purchase Agreement, dated March 9, 2004, among the Company, the Holder and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.23 "Permitted Investments" means (i) Investments in cash or cash equivalents, (ii) accounts receivable created, acquired or made in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (iii) Investments existing on the closing date, and listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty obligations permitted by Section 5.3 of this Agreement, (v) loans to employees, directors or officers of the Company in connection with the award of convertible bonds or capital stock under a stock incentive plan, stock option plan or other equity-based compensation plan or arrangement, (vi) other advances or loans to employees, directors, officers or agents of the Company in the ordinary course of business not to exceed $500,000 in the aggregate at any time outstanding; (vii) loans, advances and investments in foreign Subsidiaries (that are not incorporated or otherwise organized under the laws of the United States of America or any state thereof) in an amount not to exceed $1,000,000 in the aggregate at any time outstanding; (viii) any acquisition for which the prior written consent of the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement has been obtained, (ix) other loans, advances and investments of a nature not contemplated by the foregoing sections in an amount not to exceed $500,000 in the aggregate at any time outstanding or (x) Investments by the Company in the Guarantor. 1.24 "Permitted Liens" shall have the meaning set forth in Section 5.4. 1.25 "Person" means any individual, firm, corporation, partnership, trust, joint venture, joint stock company, limited liability company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. 1.26 "Price Per Share" shall have the meaning attributed to such term in the Series E Certificate of Determination, as filed with the Secretary of State of the State of California. 4 1.27 "Purchase and Exchange Agreement" shall mean the Convertible Note Purchase and Exchange Agreement, dated November 18, 2003, among the Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended. 1.28 "Qualified Asset Sale" means the sale, transfer or other disposition of any of the assets of the Company or any of its Subsidiaries, other than (a) sales of assets in the ordinary course of business, (b) sales of assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the sale, transfer or other disposition of assets of the Company where the proceeds are applied to the purchase price or traded in for credit against the purchase price of other assets, provided that any such purchase is made, or credit issued, within 90 days of the sale, transfer or other disposition, and (d) one or more sales of the Company's assets (other than sales otherwise included in clauses (a), (b), and (c) immediately above) which collectively yield up to an aggregate of one million dollars ($1,000,000) in gross proceeds to the Company while this Note is outstanding. 1.29 "Restricted Payment" means (a) any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Company or any of its Subsidiaries or (b) any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any shares of any class of capital stock of the Company or any Subsidiary or any option, warrant or other right to acquire any such shares of capital stock of the Company or any Subsidiary. 1.30 "Security Agreement" means that certain Guaranty and Security Agreement, of even date herewith between the Company, Compass Holding Corp., the Lenders and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.31 "Series E Conversion Price" shall have the meaning set forth in the Series E Certificate of Determination. 1.32 "Series E Preferred Stock" means the Series E Preferred Stock, par value $0.001, of the Company. 1.33 "Subordination Agreement" shall have the meaning set forth in Section 5.3. 1.34 "Subsequent Closing Date" shall have the meaning set forth in Section 2.4(e) of the Note Purchase Agreement. 1.35 "SVB" means Silicon Valley Bank, a California chartered bank, or any Affiliates thereof. 1.36 "Ten Percent Holder" means, with respect to a class of equity securities of the Company, a Person (together with such Person's Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such class of equity securities of 5 the Company, as defined by Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 1.37 "UCC" shall have the meaning set forth in Section 5.4. 2. Interest. Simple interest shall accrue at the rate of ten percent (10%) per annum (or such lesser amount as shall equal the highest rate of interest allowable under applicable law) (the "Interest Rate"), on the outstanding principal of this Note from the date of this Note until the Maturity Date or the date this Note is otherwise repaid. The Company shall not be obligated to make any payments of interest which shall have accrued under this Note prior to the Maturity Date. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. In the event that the principal amount of this Note, any interest, or any amount payable hereunder is not paid in full when such amount becomes due and payable, or upon the occurrence of an Event of Default, interest shall accrue at the lesser of (a) the initial Interest Rate plus five percent (5%) per annum or (b) the highest rate of interest allowable under applicable law, on the balance of all amounts outstanding until such overdue amounts are paid or the Event of Default is cured, and such interest shall be payable on demand. 3. Conversion. 3.1 Conversion. (a) On the Conversion Date, the principal amount of this Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall be automatically converted into the number of fully paid and nonassessable shares of Series E Preferred Stock equal to the quotient obtained by dividing (a) the entire principal amount of this Note plus the Interest Amount by (b) the Price Per Share. (b) In the event that the Conversion Date has not occurred on or prior to August 15, 2004 (the "Common Conversion Date"), then, following the Common Conversion Date, the principal amount of this Note plus the Interest Amount shall be convertible, at the option of Holder and from time to time, only into Common Stock at a conversion price per share equal to $2.18, as adjusted for any stock dividends, stock splits or similar consolidations or subdivisions, following the date hereof; provided, however, that Holder shall not be permitted to convert any portion of the principal of this Note or the Interest Amount into Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion, the conversion would cause Holder to be a Ten Percent Holder. 3.2 Notice of Conversion. Upon conversion of this Note as provided in Section 3.1, Holder shall surrender this Note to the Company and shall state the name or names in which the certificate or certificates for such shares of Series E Preferred Stock or Common Stock, as the case may be, are to be issued. The Person or Persons entitled to receive the shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion shall be treated for all purposes as the record holder or holders (a) of such shares of Series E Preferred Stock as of the 6 Conversion Date and (b) of such shares of Common Stock as of the date of any conversion pursuant to Section 3.1(b). 3.3 Delivery of Stock Certificates. Upon conversion of this Note as provided in Section 3.1, the Company at its expense will issue and deliver to Holder of this Note a certificate or certificates (bearing such legends as are required by applicable state and federal securities laws in the opinion of counsel to the Company) for the number of full shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion. 3.4 Mechanics and Effect of Conversion. No fractional shares of Series E Preferred Stock or Common Stock, as the case may be, shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to Holder upon the conversion of this Note, the Company shall pay to Holder the amount of outstanding principal and interest that is not so converted. Upon conversion of all amounts due under this Note, the Company shall be released from all of its obligations under this Note. 4. Adjustments. The number of shares of Series E Preferred Stock or Common Stock convertible hereunder are subject to adjustment from time to time as follows: 4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at any time while this Note remains outstanding and unexpired there shall be (a) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (b) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise or (c) a sale or transfer of the Company's stock, properties or assets as, or substantially as, an entirety to any other Person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that Holder shall thereafter be entitled to receive by converting this Note the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon conversion of this Note would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Note had been converted immediately before such reorganization, merger, consolidation, sale or transfer (notwithstanding that the Stockholder Approval may not yet have been obtained), all subject to further adjustment as provided in this Section 4. The foregoing provisions of this Section 4.1 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation. If the per share consideration payable to Holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors based on the amount the Holder would have otherwise been entitled to receive had the transaction or transactions not occurred. 7 In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of Holder after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon conversion of this Note. The Company shall be obligated to retain and set aside, or otherwise make fair provision for exercise of the right of the Holder to receive, the shares of stock and/or other securities, cash or other property provided for in this Section 4.1. 4.2 Election of Holder upon Merger or Sale of Assets. Notwithstanding anything to the contrary contained herein, if an event shall occur as provided in Section 4.1 hereof that would otherwise result in the occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first paragraph of this Note, then the Holder may, in its sole discretion, by written notice to the Company elect to convert the principal amount of this Note plus the Interest Amount into the number of shares of stock or other securities or property described in Section 4.1, in lieu of receiving payment in full of all amounts outstanding under this Note. The number of shares of stock or other securities or property to be issued upon such conversion shall be determined in accordance with Section 4.1 hereof, taking into account the occurrence of such event. 4.3 Reclassification, Etc. If the Company shall, at any time while this Note, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, change any of the securities as to which conversion rights under this Note exist into the same or a different number of securities of any other class or classes, this Note shall thereafter represent the right to acquire such number and kind of securities as would have been issuable with respect to the securities that were subject to the conversion rights under this Note immediately prior to such reclassification or other change, and the Price Per Share shall be appropriately adjusted, all subject to further adjustment as provided in this Section 4. 4.4 Split, Subdivision or Combination of Shares. If the Company at any time while this Note, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the shares of Series E Preferred Stock or Common Stock into a different number of securities of the same class, the Price Per Share or conversion price, as the case may be, shall be proportionately adjusted. 4.5 Series E Adjustments. The initial Series E Conversion Price of the shares of Series E Preferred Stock issued upon conversion of this Note pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on the Conversion Date, subject to the adjustment of such Series E Conversion Price from time to time thereafter as provided in the Series E Certificate of Determination. 4.6 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 4, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. 8 4.7 No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 5. Covenants. The Company covenants and agrees that until the earlier of (i) the date on which all Obligations (as defined in the Security Agreement) have been paid in full or (ii) the date on which all amounts outstanding under the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b): 5.1 Financial Statements and Other Information. The Company shall deliver to the Holder of this Note the financial statements and other information required to be delivered under Section 8.1 of the Note Purchase Agreement. 5.2 Financial Covenants. The Company shall at all times comply with the financial and other covenants set forth in Schedule 8.5 to the Note Purchase Agreement as if such covenants were set forth herein. 5.3 Indebtedness. The Company shall not, and shall not permit any Subsidiary to, issue, incur, assume, create or have outstanding any Indebtedness, provided, however, that the foregoing shall not restrict nor operate to prevent: (a) Indebtedness in favor of the Holders under the Loan Documents; (b) Indebtedness existing on the date hereof, as set forth on Schedule 3.22 to the Note Purchase Agreement; (c) Indebtedness for accounts payable incurred in the ordinary course of business by the Company; (d) Indebtedness incurred solely for the purpose of financing the acquisition of any equipment, machinery, software, improvements or any other similar property, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, that the aggregate outstanding principal amount of all Indebtedness permitted pursuant to this clause (d) outstanding for more than sixty (60) days after the incurrence of such Indebtedness shall not at any time exceed $500,000; (e) Indebtedness of the Company evidenced by Capitalized Lease Obligations, provided, that in no event shall the aggregate principal amount of Capitalized Lease Obligations permitted by this clause (e) exceed $500,000 at any time outstanding; and 9 (f) Any extension, renewal, refinancing, refunding, or replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and (e) above, on such terms and conditions as are, on the whole, not materially more onerous to the Company than the terms and conditions of such original Indebtedness on the date of such refinancing (including that the principal amount of such refinancing Indebtedness does not exceed the principal amount of, plus the amount of accrued and unpaid interest on, the Indebtedness so refinanced (plus the amount of reasonable premium and fees and expenses incurred in connection therewith)), provided that, in the case of a refinancing of Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall only apply to the extent consistent with the Subordination Agreement, dated as of the date hereof, by and among SVB, the Holders and the Company (the "Subordination Agreement"). 5.4 Liens. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of the Company or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable), or assign any right to receive income or permit the filing of any financing statement under the Uniform Commercial Code, as from time to time in effect in the relevant jurisdiction (the "UCC"), or any other similar notice of Lien under any similar recording or notice statute; provided, that the provisions of this Section 5.4 shall not prevent the creation, incurrence, assumption or existence of the following: (a) Liens arising in the ordinary course of business by statute in connection with worker's compensation, unemployment insurance, old age benefits, social security obligations, statutory obligations or other similar charges (other then Liens arising under ERISA), good faith cash deposits in connection with tenders, contracts or leases to which the Company or any Subsidiary is a party or other cash deposits required to be made in the ordinary course of business, provided, that such Liens do not have a material adverse effect on the ability of the Company to repay amounts due under the Notes; (b) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (c) Liens in respect of property or assets of the Company or its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (i) which do not in the aggregate materially detract from the value of the Company's and its Subsidiaries' property or assets taken as a whole or result in a material adverse effect on the Condition of the Company or (ii) which are 10 being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; (d) the pledge of assets for the purpose of securing an appeal, stay or discharge in the course of any legal proceeding, provided that the aggregate amount of liabilities of the Company and its Subsidiaries secured by a pledge of assets permitted under this subsection, including interest and penalties thereon, if any, shall not be in excess of $500,000 at any one time outstanding; (e) any interest or title of a lessor under any operating lease; (f) easements, rights-of-way, restrictions and other similar encumbrances against real property incurred in the ordinary course of business; (g) the Liens existing on the date hereof identified on Schedule 3.22 to the Note Purchase Agreement; (h) Liens on cash deposited with account debtors to secure performance by the Company or any Subsidiary in the ordinary course of business subject to customary and reasonable terms; (i) Liens upon assets of the Company or its Subsidiaries subject to Capitalized Lease Obligations, provided, that (A) such Liens only serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising under such Capitalized Lease Obligation and (B) the Lien encumbering the asset giving rise to the Capitalized Lease Obligation does not encumber any other asset of the Company or its Subsidiaries; (j) Liens placed upon equipment, machinery, software, improvements or any other similar property, used in the ordinary course of business of the Company or any of its Subsidiaries at the time of the acquisition thereof by the Company or any of its Subsidiaries or within ninety (90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above; provided, that the Liens encumbering the equipment, machinery software, improvements or any other similar property so acquired do not encumber any other asset of the Company or its Subsidiaries; (k) set-off rights of depository institutions; and (l) Liens created by the Security Agreement (collectively with clauses (a) through (k) hereof, the "Permitted Liens"). 5.5 Fundamental Changes. The Company will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or a series of transactions) all or substantially all of its 11 assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time and immediately after giving effect thereto no Event of Default shall have occurred and be continuing (i) the Company or any of its Subsidiaries may, with the prior written consent of the Holders, merge with or into any other Person; (ii) any wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with or into the Company or any other wholly-owned Subsidiary of the Company; (iii) any Subsidiary (other than the Guarantor, and except as otherwise prohibited by this Note) may sell, transfer, lease or otherwise dispose of its assets to the Company or to another wholly-owned Subsidiary of the Company; and (iv) any Subsidiary may liquidate or dissolve if the board of directors of the Company determine in good faith that such liquidation or dissolution is in its best interests and is not disadvantageous to the Holders. 5.6 Restricted Payments. The Company will not, and the Company will not permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that (i) any Subsidiary may make a Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any Restricted Payment required by the terms of the Note Purchase Agreement and the other documents executed in connection therewith. 5.7 Transactions with Affiliates. The Company will not, and the Company will not permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions that are at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arm's length basis from unrelated third parties, (b) transactions exclusively between the Company and the Guarantor and (c) transactions under the agreements listed on Schedule 3.17 to the Note Purchase Agreement. 5.8 Investments. The Company will not, and the Company will not permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment in any Person, except for Permitted Investments. 5.9 Nature of Business. The Company will not, and the Company will not permit any Subsidiary to, engage in any business other than that conducted on the date hereof and any businesses reasonably related thereto. 5.10 Property of Existing Domestic Subsidiaries. The Company will not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise organized under the laws of the United States of America or any state thereof (a "Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease, license, purchase or otherwise acquire any personal or real property (excluding any material intellectual property) in excess of $50,000 for all property held by such Subsidiary, or $250,000 in the aggregate for all property held by all Domestic Subsidiaries (ii) maintain 12 any deposit account in its name, (iii) own or otherwise hold any rights to any material intellectual property or (iv) otherwise conduct any business or maintain operations. 5.11 Formation of Subsidiaries. The Company will not, and will not cause or permit any of its Subsidiaries to, form, acquire or permit the existence of any new domestic Subsidiary, without causing such domestic Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes and related security document, in form and substance satisfactory to the Holders. 5.12 Books and Records. The Company shall keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Company and its Subsidiaries in accordance with GAAP consistently applied. 5.13 Inspection. The Company shall, and shall cause each of its Subsidiaries to, permit representatives of the Holders to visit and inspect any of its properties, to examine its corporate, financial and operating records and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with their respective directors, officers and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably requested upon notice to the Company. 5.14 Maintenance of Business. The Company shall, and shall cause each Subsidiary to, preserve and maintain its existence. The Company shall, and shall cause each Subsidiary to, preserve and keep in force and effect all licenses, permits, franchises, approvals, patents, trademarks, trade names, trade styles, copyrights, and other property rights necessary to the proper conduct of its business, except where the failure to do so could not reasonably be expected to have a material adverse effect on the Condition of the Company or on the prospects of repayment of the Notes. 5.15 Maintenance of Properties. The Company shall, and shall cause each Subsidiary to, maintain, preserve and keep its property and equipment in good repair, working order and condition (ordinary wear and tear excepted) and shall from time to time make all needful and proper repairs, renewals, replacements, additions and betterments thereto so that at all times the efficiency thereof shall by fully preserved and maintained, except in each case to the extent that, in the reasonable business judgment of such Person, any such property or equipment is no longer necessary for the proper conduct of the business of such Person. 6. The occurrence of any one or more of the following events shall constitute an "Event of Default": 6.1 Failure To Pay. (i) The failure of the Company to pay any principal due under any of the Notes when due and payable (whether by acceleration, declaration, extension or otherwise), or (ii) the failure of the Company to pay any other amounts due under any of the Notes when due and payable if such failure is not cured within five (5) days of Company's receipt of notice thereof from any of the Holders. 13 6.2 Financial Covenants. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2. 6.3 Other Covenants and Agreements. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the covenants of this Note, the Security Agreement or any of the other Loan Documents (other than the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2), if such failure is not cured within sixty (60) days. 6.4 Representations and Warranties. If any representation or warranty made by the Company or any of its Subsidiaries in the Loan Documents is not true and correct in all material respects on the Initial Closing Date. 6.5 Default on Other Obligations. The occurrence of any condition or default under any other indebtedness for borrowed money of the Company or any of its Subsidiaries with a principal amount of at least five hundred thousand dollars ($500,000) that results in the acceleration of such indebtedness which is not cured within sixty (60) days. 6.6 Involuntary Bankruptcy. There shall be filed against the Company or any of its Subsidiaries an involuntary petition or other pleading seeking the entry of a decree or order for relief under the United States Bankruptcy Code or any similar federal or state insolvency or similar laws ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a reorganization of the Company or any of its Subsidiaries or the business and affairs of the Company or any of its Subsidiaries or (c) the appointment of a receiver, liquidator, assignee, custodian, trustee or similar official for the Company or any of its Subsidiaries of the property of the Company or any of its Subsidiaries. 6.7 Voluntary Bankruptcy. The commencement by the Company or any of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any federal or state insolvency or similar laws or the consent by the Company or any of its Subsidiaries to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian or similar official for the Company or any of its Subsidiaries of any of the property of the Company or any of its Subsidiaries or the making by the Company or any of its Subsidiaries of an assignment for the benefit of creditors, or the failure by Company or any of its Subsidiaries generally to pay its debts as the debts become due. 6.8 Judgments, Awards. Any judgment or order for the payment of money is rendered against the Company or any of its Subsidiaries in an amount in excess of five hundred thousand dollars ($500,000) individually or in the aggregate and either (i) enforcement proceedings are commenced by any creditor upon such judgment or order and not stayed, or (ii) there is any period of sixty (60) consecutive 14 days during which such judgment has not been paid in full or a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, is not in effect. 6.9 Attachment by Lenders. Any assets of the Company or any of its Subsidiaries shall be attached, levied upon, seized or repossessed, or come into the possession of a trustee, receiver or other custodian and a determination by any Holder, in good faith but in its sole discretion, that the same could have a material adverse effect on the prospect for the Holders to fully and punctually realize the full benefits conferred on the Holders by the Loan Documents. 6.10 Adverse Change in Financial Condition. Any event having a material adverse effect on the business, operations, assets, properties or condition of the Company and its Subsidiaries taken as a whole shall have occurred and be continuing or a material adverse effect on the validity or enforceability of this or any of the other Loan Documents or the rights or remedies of the Holders hereunder or thereunder. 7. Remedies. Upon and after the occurrence of an Event of Default, the Holder shall be entitled to the exercise the rights and remedies set forth in the Security Agreement, the other Loan Documents and under applicable law, all such rights and remedies being cumulative and enforceable alternatively, successively or concurrently. 8. Prepayment. The Company may not prepay this Note prior to the Maturity Date without the prior written consent of the Holders. 9. Seniority. (a) Except as set forth in the Subordination Agreement, the Notes will rank senior in right of payment to all other indebtedness of the Company, other than the GA Notes and the January 2004 Notes, with respect to which the Notes will be pari passu in right of payment in accordance with the Intercreditor Agreement. (b) Notwithstanding anything to the contrary contained in the Notes, this Note and the other Notes, and the terms and the conditions hereof and thereof, are subject to the Intercreditor Agreement. 10. Assignment. Subject to the restrictions on transfer described in Section 12 below, the rights and obligations of the Company and Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. The Company shall not be permitted to assign this Note without the prior written consent of the Holders. 11. Waiver of Notice. The Company hereby waives notice, presentment, demand, protest and notice of dishonor. 12. Transfer of This Note. With respect to any offer, sale or other disposition of this Note, Holder will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such Holder's 15 counsel, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect); provided, that no opinion shall be required for any transfer to an Affiliate or if the transfer is made in compliance with the Securities Act, so long as the transferee can make the same representations and warranties at the time of transfer as set forth in Sections 4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly upon delivering such written notice and opinion, if so required, Holder may sell or otherwise dispose of this Note, all in accordance with the terms of the notice delivered to the Company. Each Note thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Notwithstanding the foregoing, the Holder shall not be permitted to transfer this Note to any Person who is not an Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of written notice from the Company that Stockholder Approval cannot be obtained, or the occurrence of an actual vote of the Company's shareholders entitled to vote (whether by written consent or at a meeting specially called for such purpose), the result of which is a decision by a majority of the Company's shareholders entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of an Event of Default. This Note is registered as to both principal and stated interest with the Company (or its agent) within the meaning of section 1.871-14(c)(1)(i) of the Income Tax Regulations. Accordingly, notwithstanding anything to the contrary in this paragraph, this Note, together with any interest thereon, may be transferred only (i) upon surrender of the Note by the transferor to the Company (or its agent) and the reissuance of the Note (or the issuance of a new Note) to the transferee, or (ii) by transfer of the right to principal and interest through a book-entry system meeting the requirements of section 1.871-14(c)(1)(i)(B) of the Income Tax Regulations that is maintained by the Company (or its agent). In the case of a Holder that is not a "United States person" within the meaning of section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the "Code"), so long as an exception under section 871(h) or section 881(c) of the Code does not apply, the Company (or its agent) shall not withhold any U.S. federal income tax with respect to such Holder provided that the Holder timely provides the Company (or its agent) with a statement that meets the requirements of section 871(h)(5) of the Code. 13. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 14. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally recognized courier service or mailed by registered or certified mail, postage prepaid, to the respective addresses of the parties as set forth on the signature pages hereto or if sent by facsimile to the respective facsimile numbers of the parties set forth on the signature pages hereto. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively 16 be deemed to have been given and received when personally delivered or three (3) business days after deposited in the mail or one business day after sent by courier or upon confirmation of facsimile delivery in the manner set forth above. 15. No Stockholder Rights. Nothing contained in this Note shall be construed as conferring upon Holder or any other Person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. 16. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law relating to conflict of laws. 17. Amendments and Waivers. No amendments or waivers of any provision of this Note, and no consent by the Holder to any departure by the Company, shall in any event be effective unless the same shall be in writing, and signed by the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 18. Severability. Any provision of this Note that is prohibited or unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE COMPANY AND THE 17 HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. 20. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except as otherwise indicated, all references herein to Sections refer to Sections hereof. [the remainder of this page intentionally left blank] 18 IN WITNESS WHEREOF, the Company has caused this Note to be issued this 9th day of March, 2004. COMPANY: CRITICAL PATH, INC., a California corporation By: /s/ William E. McGlashan, Jr. ----------------------------------------- Name: William E. McGlashan, Jr. Title: Chairman, Chief Executive Officer Critical Path, Inc. 350 The Embarcadero San Francisco, CA 94105-1204 Telecopy: (415) 541-2300 Attention: Chief Financial Officer With a copy to: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Telecopy: (415) 983-1200 Attention: Gregg Vignos, Esq. Name of Holder: CRITERION CAPITAL PARTNERS, LTD. Address: c/o Criterion Capital Management One Maritime Plaza, Suite 1460 San Francisco, CA 64111 Attention: R. Daniel Beckham Telephone: ------------------------------ Facsimile: ------------------------------ EX-4.41 26 f97295exv4w41.txt EXHIBIT 4.41 EXHIBIT 4.41 THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS. CRITICAL PATH, INC. CONVERTIBLE SUBORDINATED PROMISSORY NOTE $1,307,000 San Francisco, California March 9, 2004 Critical Path, Inc., a California corporation (the "Company"), the principal office of which is located in San Francisco, California, for value received hereby promises to pay to the order of Criterion Capital Partners, Institutional, or its registered assigns ("Holder"), the sum of one million three hundred seven thousand dollars ($1,307,000), or such lesser amount as shall then equal the outstanding principal amount hereof on the terms and conditions set forth hereinafter. The outstanding principal amount hereof and all accrued and unpaid interest hereon, as set forth below, shall be due and payable on the earlier to occur of (i) March 9, 2008, (ii) when declared due and payable by Holder upon the occurrence of an Event of Default (as defined below), (iii) consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock or Stock Equivalents by the Company, any cash capital contribution from any third person or any other debt or equity financing consummated by the Company after the date of issuance of this Note which, in the case of (v), individually or in the aggregate raises proceeds of at least forty million dollars ($40,000,000) in cash or cash equivalents (the earliest of the events set forth in items (i)-(v) immediately above, the "Maturity Date"). The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. Except as otherwise defined herein, each capitalized term used herein shall have the meaning assigned to it in the Note Purchase Agreement, as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. All other references to the Note Purchase Agreement in this Note refer to the Note Purchase Agreement as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. As used in this Note, the following terms, unless the context otherwise requires, have the following meanings: 1.1 "Affiliate" means any Person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended. 1.2 "Capitalized Lease Obligations" means, with respect to any Person, all rental obligations of such Person which, under GAAP, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with such principles. 1.3 "Change of Control" shall mean (i) any merger, consolidation or other business combination transaction (or series of related transactions) in which the stockholders owning a majority of the voting securities of the Company prior to such transaction do not own a majority of the voting securities of the surviving entity, (ii) any tender offer, exchange offer or other transaction whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended) (other than General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and the Affiliates of the foregoing, provided that Affiliates shall be deemed not to include any portfolio companies of any of the foregoing) obtains a majority of the outstanding shares of capital stock entitled to vote in the election of directors, (iii) any proxy contest in which a majority of the Board of Directors of the Company (or persons appointed by such Board of Directors) prior to such contest do not constitute a majority of the Company's Board of Directors after such contest or (iv) any other transaction described in any stockholder rights agreement or "poison pill," if any, to which the Company is party, which may permit the holders of any rights or similar certificates to exercise the rights evidenced thereby. 1.4 "Company" shall have the meaning set forth in the recitals hereto, and includes any corporation that shall succeed to or assume the obligations of the Company under this Note. 1.5 "Common Conversion Date" shall have the meaning set forth in Section 3.1(b) hereof. 1.6 "Common Stock" means the common stock, par value $0.001 per share, of the Company. 1.7 "Conversion Date" shall mean the Subsequent Closing Date. 1.8 "Domestic Subsidiary" shall have the meaning set forth in Section 5.10 hereof. 2 1.9 "Event of Default" shall have the meaning set forth in Section 6 hereof. 1.10 "GA Notes" shall mean the Convertible Subordinated Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP Entities pursuant to the Purchase and Exchange Agreement. 1.11 "GAP Entities" shall mean General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG. 1.12 "Guarantor" shall have the meaning set forth in the Security Agreement. 1.13 "Holder" shall mean the registered holder of this Note from time to time, and in the plural, shall mean all registered holders of Notes from time to time issued by the Company pursuant to the Note Purchase Agreement. 1.14 "Intercreditor Agreement" shall mean the Intercreditor Agreement, dated the date hereof, among the GAP Entities, the January Lenders, Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures International. 1.15 "Interest Amount" shall have the meaning set forth in Section 3.1 hereof. 1.16 "Investment" means (i) the acquisition (whether for cash, property, services, assumption of Indebtedness, securities or otherwise) of assets (other than equipment, inventory, supplies or other assets acquired in the ordinary course of business of the Company), capital stock, bonds, notes, debentures, partnership, joint venture or other ownership interests or other securities of any Person, (ii) any deposit with, or advance, loan or other extension of credit to, or on behalf of, any Person (other than deposits made in connection with the purchase of equipment, inventory, services, leases, supplies or other assets in the ordinary course of business of the Company), and (iii) any other capital contribution to or investment in any Person, including, without limitation, any guaranty obligation incurred for the benefit of any Person. For the sake of clarity, Investments shall include any transfer of property or assets by the Company to any of its Subsidiaries or by any Subsidiary of the Company to any other Subsidiary. 1.17 "January Lenders" shall mean Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P. 1.18 "January Note Agreement" shall mean the Convertible Note Purchase Agreement, dated January 16, 2004, among the January Lenders and the Company. 3 1.19 "January 2004 Notes" shall mean the Convertible Subordinated Promissory Notes, each dated January 16, 2003, issued by the Company to the January Lenders pursuant to the January Note Agreement. 1.20 "Loan Documents" shall have the meaning set forth in the Security Agreement. 1.21 "Note" shall mean this note, and in the plural, shall mean all notes issued to the Lenders pursuant to the terms of the Note Purchase Agreement, including this Note, and all amendments, modifications and extensions thereto. 1.22 "Note Purchase Agreement" means that certain Convertible Note Purchase Agreement, dated March 9, 2004, among the Company, the Holder and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.23 "Permitted Investments" means (i) Investments in cash or cash equivalents, (ii) accounts receivable created, acquired or made in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (iii) Investments existing on the closing date, and listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty obligations permitted by Section 5.3 of this Agreement, (v) loans to employees, directors or officers of the Company in connection with the award of convertible bonds or capital stock under a stock incentive plan, stock option plan or other equity-based compensation plan or arrangement, (vi) other advances or loans to employees, directors, officers or agents of the Company in the ordinary course of business not to exceed $500,000 in the aggregate at any time outstanding; (vii) loans, advances and investments in foreign Subsidiaries (that are not incorporated or otherwise organized under the laws of the United States of America or any state thereof) in an amount not to exceed $1,000,000 in the aggregate at any time outstanding; (viii) any acquisition for which the prior written consent of the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement has been obtained, (ix) other loans, advances and investments of a nature not contemplated by the foregoing sections in an amount not to exceed $500,000 in the aggregate at any time outstanding or (x) Investments by the Company in the Guarantor. 1.24 "Permitted Liens" shall have the meaning set forth in Section 5.4. 1.25 "Person" means any individual, firm, corporation, partnership, trust, joint venture, joint stock company, limited liability company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. 1.26 "Price Per Share" shall have the meaning attributed to such term in the Series E Certificate of Determination, as filed with the Secretary of State of the State of California. 4 1.27 "Purchase and Exchange Agreement" shall mean the Convertible Note Purchase and Exchange Agreement, dated November 18, 2003, among the Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended. 1.28 "Qualified Asset Sale" means the sale, transfer or other disposition of any of the assets of the Company or any of its Subsidiaries, other than (a) sales of assets in the ordinary course of business, (b) sales of assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the sale, transfer or other disposition of assets of the Company where the proceeds are applied to the purchase price or traded in for credit against the purchase price of other assets, provided that any such purchase is made, or credit issued, within 90 days of the sale, transfer or other disposition, and (d) one or more sales of the Company's assets (other than sales otherwise included in clauses (a), (b), and (c) immediately above) which collectively yield up to an aggregate of one million dollars ($1,000,000) in gross proceeds to the Company while this Note is outstanding. 1.29 "Restricted Payment" means (a) any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Company or any of its Subsidiaries or (b) any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any shares of any class of capital stock of the Company or any Subsidiary or any option, warrant or other right to acquire any such shares of capital stock of the Company or any Subsidiary. 1.30 "Security Agreement" means that certain Guaranty and Security Agreement, of even date herewith between the Company, Compass Holding Corp., the Lenders and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.31 "Series E Conversion Price" shall have the meaning set forth in the Series E Certificate of Determination. 1.32 "Series E Preferred Stock" means the Series E Preferred Stock, par value $0.001, of the Company. 1.33 "Subordination Agreement" shall have the meaning set forth in Section 5.3. 1.34 "Subsequent Closing Date" shall have the meaning set forth in Section 2.4(e) of the Note Purchase Agreement. 1.35 "SVB" means Silicon Valley Bank, a California chartered bank, or any Affiliates thereof. 1.36 "Ten Percent Holder" means, with respect to a class of equity securities of the Company, a Person (together with such Person's Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such class of equity securities of 5 the Company, as defined by Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 1.37 "UCC" shall have the meaning set forth in Section 5.4. 2. Interest. Simple interest shall accrue at the rate of ten percent (10%) per annum (or such lesser amount as shall equal the highest rate of interest allowable under applicable law) (the "Interest Rate"), on the outstanding principal of this Note from the date of this Note until the Maturity Date or the date this Note is otherwise repaid. The Company shall not be obligated to make any payments of interest which shall have accrued under this Note prior to the Maturity Date. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. In the event that the principal amount of this Note, any interest, or any amount payable hereunder is not paid in full when such amount becomes due and payable, or upon the occurrence of an Event of Default, interest shall accrue at the lesser of (a) the initial Interest Rate plus five percent (5%) per annum or (b) the highest rate of interest allowable under applicable law, on the balance of all amounts outstanding until such overdue amounts are paid or the Event of Default is cured, and such interest shall be payable on demand. 3. Conversion. 3.1 Conversion. (a) On the Conversion Date, the principal amount of this Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall be automatically converted into the number of fully paid and nonassessable shares of Series E Preferred Stock equal to the quotient obtained by dividing (a) the entire principal amount of this Note plus the Interest Amount by (b) the Price Per Share. (b) In the event that the Conversion Date has not occurred on or prior to August 15, 2004 (the "Common Conversion Date"), then, following the Common Conversion Date, the principal amount of this Note plus the Interest Amount shall be convertible, at the option of Holder and from time to time, only into Common Stock at a conversion price per share equal to $2.18, as adjusted for any stock dividends, stock splits or similar consolidations or subdivisions, following the date hereof; provided, however, that Holder shall not be permitted to convert any portion of the principal of this Note or the Interest Amount into Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion, the conversion would cause Holder to be a Ten Percent Holder. 3.2 Notice of Conversion. Upon conversion of this Note as provided in Section 3.1, Holder shall surrender this Note to the Company and shall state the name or names in which the certificate or certificates for such shares of Series E Preferred Stock or Common Stock, as the case may be, are to be issued. The Person or Persons entitled to receive the shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion shall be treated for all purposes as the record holder or holders (a) of such shares of Series E Preferred Stock as of the 6 Conversion Date and (b) of such shares of Common Stock as of the date of any conversion pursuant to Section 3.1(b). 3.3 Delivery of Stock Certificates. Upon conversion of this Note as provided in Section 3.1, the Company at its expense will issue and deliver to Holder of this Note a certificate or certificates (bearing such legends as are required by applicable state and federal securities laws in the opinion of counsel to the Company) for the number of full shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion. 3.4 Mechanics and Effect of Conversion. No fractional shares of Series E Preferred Stock or Common Stock, as the case may be, shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to Holder upon the conversion of this Note, the Company shall pay to Holder the amount of outstanding principal and interest that is not so converted. Upon conversion of all amounts due under this Note, the Company shall be released from all of its obligations under this Note. 4. Adjustments. The number of shares of Series E Preferred Stock or Common Stock convertible hereunder are subject to adjustment from time to time as follows: 4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at any time while this Note remains outstanding and unexpired there shall be (a) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (b) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise or (c) a sale or transfer of the Company's stock, properties or assets as, or substantially as, an entirety to any other Person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that Holder shall thereafter be entitled to receive by converting this Note the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon conversion of this Note would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Note had been converted immediately before such reorganization, merger, consolidation, sale or transfer (notwithstanding that the Stockholder Approval may not yet have been obtained), all subject to further adjustment as provided in this Section 4. The foregoing provisions of this Section 4.1 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation. If the per share consideration payable to Holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors based on the amount the Holder would have otherwise been entitled to receive had the transaction or transactions not occurred. 7 In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of Holder after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon conversion of this Note. The Company shall be obligated to retain and set aside, or otherwise make fair provision for exercise of the right of the Holder to receive, the shares of stock and/or other securities, cash or other property provided for in this Section 4.1. 4.2 Election of Holder upon Merger or Sale of Assets. Notwithstanding anything to the contrary contained herein, if an event shall occur as provided in Section 4.1 hereof that would otherwise result in the occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first paragraph of this Note, then the Holder may, in its sole discretion, by written notice to the Company elect to convert the principal amount of this Note plus the Interest Amount into the number of shares of stock or other securities or property described in Section 4.1, in lieu of receiving payment in full of all amounts outstanding under this Note. The number of shares of stock or other securities or property to be issued upon such conversion shall be determined in accordance with Section 4.1 hereof, taking into account the occurrence of such event. 4.3 Reclassification, Etc. If the Company shall, at any time while this Note, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, change any of the securities as to which conversion rights under this Note exist into the same or a different number of securities of any other class or classes, this Note shall thereafter represent the right to acquire such number and kind of securities as would have been issuable with respect to the securities that were subject to the conversion rights under this Note immediately prior to such reclassification or other change, and the Price Per Share shall be appropriately adjusted, all subject to further adjustment as provided in this Section 4. 4.4 Split, Subdivision or Combination of Shares. If the Company at any time while this Note, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the shares of Series E Preferred Stock or Common Stock into a different number of securities of the same class, the Price Per Share or conversion price, as the case may be, shall be proportionately adjusted. 4.5 Series E Adjustments. The initial Series E Conversion Price of the shares of Series E Preferred Stock issued upon conversion of this Note pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on the Conversion Date, subject to the adjustment of such Series E Conversion Price from time to time thereafter as provided in the Series E Certificate of Determination. 4.6 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 4, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. 8 4.7 No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 5. Covenants. The Company covenants and agrees that until the earlier of (i) the date on which all Obligations (as defined in the Security Agreement) have been paid in full or (ii) the date on which all amounts outstanding under the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b): 5.1 Financial Statements and Other Information. The Company shall deliver to the Holder of this Note the financial statements and other information required to be delivered under Section 8.1 of the Note Purchase Agreement. 5.2 Financial Covenants. The Company shall at all times comply with the financial and other covenants set forth in Schedule 8.5 to the Note Purchase Agreement as if such covenants were set forth herein. 5.3 Indebtedness. The Company shall not, and shall not permit any Subsidiary to, issue, incur, assume, create or have outstanding any Indebtedness, provided, however, that the foregoing shall not restrict nor operate to prevent: (a) Indebtedness in favor of the Holders under the Loan Documents; (b) Indebtedness existing on the date hereof, as set forth on Schedule 3.22 to the Note Purchase Agreement; (c) Indebtedness for accounts payable incurred in the ordinary course of business by the Company; (d) Indebtedness incurred solely for the purpose of financing the acquisition of any equipment, machinery, software, improvements or any other similar property, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, that the aggregate outstanding principal amount of all Indebtedness permitted pursuant to this clause (d) outstanding for more than sixty (60) days after the incurrence of such Indebtedness shall not at any time exceed $500,000; (e) Indebtedness of the Company evidenced by Capitalized Lease Obligations, provided, that in no event shall the aggregate principal amount of Capitalized Lease Obligations permitted by this clause (e) exceed $500,000 at any time outstanding; and 9 (f) Any extension, renewal, refinancing, refunding, or replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and (e) above, on such terms and conditions as are, on the whole, not materially more onerous to the Company than the terms and conditions of such original Indebtedness on the date of such refinancing (including that the principal amount of such refinancing Indebtedness does not exceed the principal amount of, plus the amount of accrued and unpaid interest on, the Indebtedness so refinanced (plus the amount of reasonable premium and fees and expenses incurred in connection therewith)), provided that, in the case of a refinancing of Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall only apply to the extent consistent with the Subordination Agreement, dated as of the date hereof, by and among SVB, the Holders and the Company (the "Subordination Agreement"). 5.4 Liens. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of the Company or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable), or assign any right to receive income or permit the filing of any financing statement under the Uniform Commercial Code, as from time to time in effect in the relevant jurisdiction (the "UCC"), or any other similar notice of Lien under any similar recording or notice statute; provided, that the provisions of this Section 5.4 shall not prevent the creation, incurrence, assumption or existence of the following: (a) Liens arising in the ordinary course of business by statute in connection with worker's compensation, unemployment insurance, old age benefits, social security obligations, statutory obligations or other similar charges (other then Liens arising under ERISA), good faith cash deposits in connection with tenders, contracts or leases to which the Company or any Subsidiary is a party or other cash deposits required to be made in the ordinary course of business, provided, that such Liens do not have a material adverse effect on the ability of the Company to repay amounts due under the Notes; (b) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (c) Liens in respect of property or assets of the Company or its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (i) which do not in the aggregate materially detract from the value of the Company's and its Subsidiaries' property or assets taken as a whole or result in a material adverse effect on the Condition of the Company or (ii) which are 10 being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; (d) the pledge of assets for the purpose of securing an appeal, stay or discharge in the course of any legal proceeding, provided that the aggregate amount of liabilities of the Company and its Subsidiaries secured by a pledge of assets permitted under this subsection, including interest and penalties thereon, if any, shall not be in excess of $500,000 at any one time outstanding; (e) any interest or title of a lessor under any operating lease; (f) easements, rights-of-way, restrictions and other similar encumbrances against real property incurred in the ordinary course of business; (g) the Liens existing on the date hereof identified on Schedule 3.22 to the Note Purchase Agreement; (h) Liens on cash deposited with account debtors to secure performance by the Company or any Subsidiary in the ordinary course of business subject to customary and reasonable terms; (i) Liens upon assets of the Company or its Subsidiaries subject to Capitalized Lease Obligations, provided, that (A) such Liens only serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising under such Capitalized Lease Obligation and (B) the Lien encumbering the asset giving rise to the Capitalized Lease Obligation does not encumber any other asset of the Company or its Subsidiaries; (j) Liens placed upon equipment, machinery, software, improvements or any other similar property, used in the ordinary course of business of the Company or any of its Subsidiaries at the time of the acquisition thereof by the Company or any of its Subsidiaries or within ninety (90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above; provided, that the Liens encumbering the equipment, machinery software, improvements or any other similar property so acquired do not encumber any other asset of the Company or its Subsidiaries; (k) set-off rights of depository institutions; and (l) Liens created by the Security Agreement (collectively with clauses (a) through (k) hereof, the "Permitted Liens"). 5.5 Fundamental Changes. The Company will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or a series of transactions) all or substantially all of its 11 assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time and immediately after giving effect thereto no Event of Default shall have occurred and be continuing (i) the Company or any of its Subsidiaries may, with the prior written consent of the Holders, merge with or into any other Person; (ii) any wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with or into the Company or any other wholly-owned Subsidiary of the Company; (iii) any Subsidiary (other than the Guarantor, and except as otherwise prohibited by this Note) may sell, transfer, lease or otherwise dispose of its assets to the Company or to another wholly-owned Subsidiary of the Company; and (iv) any Subsidiary may liquidate or dissolve if the board of directors of the Company determine in good faith that such liquidation or dissolution is in its best interests and is not disadvantageous to the Holders. 5.6 Restricted Payments. The Company will not, and the Company will not permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that (i) any Subsidiary may make a Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any Restricted Payment required by the terms of the Note Purchase Agreement and the other documents executed in connection therewith. 5.7 Transactions with Affiliates. The Company will not, and the Company will not permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions that are at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arm's length basis from unrelated third parties, (b) transactions exclusively between the Company and the Guarantor and (c) transactions under the agreements listed on Schedule 3.17 to the Note Purchase Agreement. 5.8 Investments. The Company will not, and the Company will not permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment in any Person, except for Permitted Investments. 5.9 Nature of Business. The Company will not, and the Company will not permit any Subsidiary to, engage in any business other than that conducted on the date hereof and any businesses reasonably related thereto. 5.10 Property of Existing Domestic Subsidiaries. The Company will not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise organized under the laws of the United States of America or any state thereof (a "Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease, license, purchase or otherwise acquire any personal or real property (excluding any material intellectual property) in excess of $50,000 for all property held by such Subsidiary, or $250,000 in the aggregate for all property held by all Domestic Subsidiaries (ii) maintain 12 any deposit account in its name, (iii) own or otherwise hold any rights to any material intellectual property or (iv) otherwise conduct any business or maintain operations. 5.11 Formation of Subsidiaries. The Company will not, and will not cause or permit any of its Subsidiaries to, form, acquire or permit the existence of any new domestic Subsidiary, without causing such domestic Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes and related security document, in form and substance satisfactory to the Holders. 5.12 Books and Records. The Company shall keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Company and its Subsidiaries in accordance with GAAP consistently applied. 5.13 Inspection. The Company shall, and shall cause each of its Subsidiaries to, permit representatives of the Holders to visit and inspect any of its properties, to examine its corporate, financial and operating records and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with their respective directors, officers and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably requested upon notice to the Company. 5.14 Maintenance of Business. The Company shall, and shall cause each Subsidiary to, preserve and maintain its existence. The Company shall, and shall cause each Subsidiary to, preserve and keep in force and effect all licenses, permits, franchises, approvals, patents, trademarks, trade names, trade styles, copyrights, and other property rights necessary to the proper conduct of its business, except where the failure to do so could not reasonably be expected to have a material adverse effect on the Condition of the Company or on the prospects of repayment of the Notes. 5.15 Maintenance of Properties. The Company shall, and shall cause each Subsidiary to, maintain, preserve and keep its property and equipment in good repair, working order and condition (ordinary wear and tear excepted) and shall from time to time make all needful and proper repairs, renewals, replacements, additions and betterments thereto so that at all times the efficiency thereof shall by fully preserved and maintained, except in each case to the extent that, in the reasonable business judgment of such Person, any such property or equipment is no longer necessary for the proper conduct of the business of such Person. 6. The occurrence of any one or more of the following events shall constitute an "Event of Default": 6.1 Failure To Pay. (i) The failure of the Company to pay any principal due under any of the Notes when due and payable (whether by acceleration, declaration, extension or otherwise), or (ii) the failure of the Company to pay any other amounts due under any of the Notes when due and payable if such failure is not cured within five (5) days of Company's receipt of notice thereof from any of the Holders. 13 6.2 Financial Covenants. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2. 6.3 Other Covenants and Agreements. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the covenants of this Note, the Security Agreement or any of the other Loan Documents (other than the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2), if such failure is not cured within sixty (60) days. 6.4 Representations and Warranties. If any representation or warranty made by the Company or any of its Subsidiaries in the Loan Documents is not true and correct in all material respects on the Initial Closing Date. 6.5 Default on Other Obligations. The occurrence of any condition or default under any other indebtedness for borrowed money of the Company or any of its Subsidiaries with a principal amount of at least five hundred thousand dollars ($500,000) that results in the acceleration of such indebtedness which is not cured within sixty (60) days. 6.6 Involuntary Bankruptcy. There shall be filed against the Company or any of its Subsidiaries an involuntary petition or other pleading seeking the entry of a decree or order for relief under the United States Bankruptcy Code or any similar federal or state insolvency or similar laws ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a reorganization of the Company or any of its Subsidiaries or the business and affairs of the Company or any of its Subsidiaries or (c) the appointment of a receiver, liquidator, assignee, custodian, trustee or similar official for the Company or any of its Subsidiaries of the property of the Company or any of its Subsidiaries. 6.7 Voluntary Bankruptcy. The commencement by the Company or any of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any federal or state insolvency or similar laws or the consent by the Company or any of its Subsidiaries to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian or similar official for the Company or any of its Subsidiaries of any of the property of the Company or any of its Subsidiaries or the making by the Company or any of its Subsidiaries of an assignment for the benefit of creditors, or the failure by Company or any of its Subsidiaries generally to pay its debts as the debts become due. 6.8 Judgments, Awards. Any judgment or order for the payment of money is rendered against the Company or any of its Subsidiaries in an amount in excess of five hundred thousand dollars ($500,000) individually or in the aggregate and either (i) enforcement proceedings are commenced by any creditor upon such judgment or order and not stayed, or (ii) there is any period of sixty (60) consecutive 14 days during which such judgment has not been paid in full or a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, is not in effect. 6.9 Attachment by Lenders. Any assets of the Company or any of its Subsidiaries shall be attached, levied upon, seized or repossessed, or come into the possession of a trustee, receiver or other custodian and a determination by any Holder, in good faith but in its sole discretion, that the same could have a material adverse effect on the prospect for the Holders to fully and punctually realize the full benefits conferred on the Holders by the Loan Documents. 6.10 Adverse Change in Financial Condition. Any event having a material adverse effect on the business, operations, assets, properties or condition of the Company and its Subsidiaries taken as a whole shall have occurred and be continuing or a material adverse effect on the validity or enforceability of this or any of the other Loan Documents or the rights or remedies of the Holders hereunder or thereunder. 7. Remedies. Upon and after the occurrence of an Event of Default, the Holder shall be entitled to the exercise the rights and remedies set forth in the Security Agreement, the other Loan Documents and under applicable law, all such rights and remedies being cumulative and enforceable alternatively, successively or concurrently. 8. Prepayment. The Company may not prepay this Note prior to the Maturity Date without the prior written consent of the Holders. 9. Seniority. (a) Except as set forth in the Subordination Agreement, the Notes will rank senior in right of payment to all other indebtedness of the Company, other than the GA Notes and the January 2004 Notes, with respect to which the Notes will be pari passu in right of payment in accordance with the Intercreditor Agreement. (b) Notwithstanding anything to the contrary contained in the Notes, this Note and the other Notes, and the terms and the conditions hereof and thereof, are subject to the Intercreditor Agreement. 10. Assignment. Subject to the restrictions on transfer described in Section 12 below, the rights and obligations of the Company and Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. The Company shall not be permitted to assign this Note without the prior written consent of the Holders. 11. Waiver of Notice. The Company hereby waives notice, presentment, demand, protest and notice of dishonor. 12. Transfer of This Note. With respect to any offer, sale or other disposition of this Note, Holder will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such Holder's 15 counsel, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect); provided, that no opinion shall be required for any transfer to an Affiliate or if the transfer is made in compliance with the Securities Act, so long as the transferee can make the same representations and warranties at the time of transfer as set forth in Sections 4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly upon delivering such written notice and opinion, if so required, Holder may sell or otherwise dispose of this Note, all in accordance with the terms of the notice delivered to the Company. Each Note thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Notwithstanding the foregoing, the Holder shall not be permitted to transfer this Note to any Person who is not an Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of written notice from the Company that Stockholder Approval cannot be obtained, or the occurrence of an actual vote of the Company's shareholders entitled to vote (whether by written consent or at a meeting specially called for such purpose), the result of which is a decision by a majority of the Company's shareholders entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of an Event of Default. This Note is registered as to both principal and stated interest with the Company (or its agent) within the meaning of section 1.871-14(c)(1)(i) of the Income Tax Regulations. Accordingly, notwithstanding anything to the contrary in this paragraph, this Note, together with any interest thereon, may be transferred only (i) upon surrender of the Note by the transferor to the Company (or its agent) and the reissuance of the Note (or the issuance of a new Note) to the transferee, or (ii) by transfer of the right to principal and interest through a book-entry system meeting the requirements of section 1.871-14(c)(1)(i)(B) of the Income Tax Regulations that is maintained by the Company (or its agent). In the case of a Holder that is not a "United States person" within the meaning of section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the "Code"), so long as an exception under section 871(h) or section 881(c) of the Code does not apply, the Company (or its agent) shall not withhold any U.S. federal income tax with respect to such Holder provided that the Holder timely provides the Company (or its agent) with a statement that meets the requirements of section 871(h)(5) of the Code. 13. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 14. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally recognized courier service or mailed by registered or certified mail, postage prepaid, to the respective addresses of the parties as set forth on the signature pages hereto or if sent by facsimile to the respective facsimile numbers of the parties set forth on the signature pages hereto. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively 16 be deemed to have been given and received when personally delivered or three (3) business days after deposited in the mail or one business day after sent by courier or upon confirmation of facsimile delivery in the manner set forth above. 15. No Stockholder Rights. Nothing contained in this Note shall be construed as conferring upon Holder or any other Person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. 16. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law relating to conflict of laws. 17. Amendments and Waivers. No amendments or waivers of any provision of this Note, and no consent by the Holder to any departure by the Company, shall in any event be effective unless the same shall be in writing, and signed by the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 18. Severability. Any provision of this Note that is prohibited or unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE COMPANY AND THE 17 HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. 20. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except as otherwise indicated, all references herein to Sections refer to Sections hereof. [the remainder of this page intentionally left blank] 18 IN WITNESS WHEREOF, the Company has caused this Note to be issued this 9(th) day of March, 2004. COMPANY: CRITICAL PATH, INC., a California corporation By: /s/ William E. McGlashan, Jr. ------------------------------------- Name: William E. McGlashan, Jr. Title: Chairman, Chief Executive Officer Critical Path, Inc. 350 The Embarcadero San Francisco, CA 94105-1204 Telecopy: (415) 541-2300 Attention: Chief Financial Officer With a copy to: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Telecopy: (415) 983-1200 Attention: Gregg Vignos, Esq. Name of Holder: CRITERION CAPITAL PARTNERS, INSTITUTIONAL Address: c/o Criterion Capital Management One Maritime Plaza, Suite 1460 San Francisco, CA 64111 Attention: R. Daniel Beckham Telephone: ----------------------------------- Facsimile: ----------------------------------- EX-4.42 27 f97295exv4w42.txt EXHIBIT 4.42 EXHIBIT 4.42 THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS. CRITICAL PATH, INC. CONVERTIBLE SUBORDINATED PROMISSORY NOTE $350,000 San Francisco, California March 9, 2004 Critical Path, Inc., a California corporation (the "Company"), the principal office of which is located in San Francisco, California, for value received hereby promises to pay to the order of Criterion Capital Partners, L.P., or its registered assigns ("Holder"), the sum of three hundred fifty thousand dollars ($350,000), or such lesser amount as shall then equal the outstanding principal amount hereof on the terms and conditions set forth hereinafter. The outstanding principal amount hereof and all accrued and unpaid interest hereon, as set forth below, shall be due and payable on the earlier to occur of (i) March 9, 2008, (ii) when declared due and payable by Holder upon the occurrence of an Event of Default (as defined below), (iii) consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock or Stock Equivalents by the Company, any cash capital contribution from any third person or any other debt or equity financing consummated by the Company after the date of issuance of this Note which, in the case of (v), individually or in the aggregate raises proceeds of at least forty million dollars ($40,000,000) in cash or cash equivalents (the earliest of the events set forth in items (i)-(v) immediately above, the "Maturity Date"). The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. Except as otherwise defined herein, each capitalized term used herein shall have the meaning assigned to it in the Note Purchase Agreement, as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. All other references to the Note Purchase Agreement in this Note refer to the Note Purchase Agreement as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. As used in this Note, the following terms, unless the context otherwise requires, have the following meanings: 1.1 "Affiliate" means any Person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended. 1.2 "Capitalized Lease Obligations" means, with respect to any Person, all rental obligations of such Person which, under GAAP, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with such principles. 1.3 "Change of Control" shall mean (i) any merger, consolidation or other business combination transaction (or series of related transactions) in which the stockholders owning a majority of the voting securities of the Company prior to such transaction do not own a majority of the voting securities of the surviving entity, (ii) any tender offer, exchange offer or other transaction whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended) (other than General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and the Affiliates of the foregoing, provided that Affiliates shall be deemed not to include any portfolio companies of any of the foregoing) obtains a majority of the outstanding shares of capital stock entitled to vote in the election of directors, (iii) any proxy contest in which a majority of the Board of Directors of the Company (or persons appointed by such Board of Directors) prior to such contest do not constitute a majority of the Company's Board of Directors after such contest or (iv) any other transaction described in any stockholder rights agreement or "poison pill," if any, to which the Company is party, which may permit the holders of any rights or similar certificates to exercise the rights evidenced thereby. 1.4 "Company" shall have the meaning set forth in the recitals hereto, and includes any corporation that shall succeed to or assume the obligations of the Company under this Note. 1.5 "Common Conversion Date" shall have the meaning set forth in Section 3.1(b) hereof. 1.6 "Common Stock" means the common stock, par value $0.001 per share, of the Company. 1.7 "Conversion Date" shall mean the Subsequent Closing Date. 1.8 "Domestic Subsidiary" shall have the meaning set forth in Section 5.10 hereof. 1.9 "Event of Default" shall have the meaning set forth in Section 6 hereof. 2 1.10 "GA Notes" shall mean the Convertible Subordinated Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP Entities pursuant to the Purchase and Exchange Agreement. 1.11 "GAP Entities" shall mean General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG. 1.12 "Guarantor" shall have the meaning set forth in the Security Agreement. 1.13 "Holder" shall mean the registered holder of this Note from time to time, and in the plural, shall mean all registered holders of Notes from time to time issued by the Company pursuant to the Note Purchase Agreement. 1.14 "Intercreditor Agreement" shall mean the Intercreditor Agreement, dated the date hereof, among the GAP Entities, the January Lenders, Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures International. 1.15 "Interest Amount" shall have the meaning set forth in Section 3.1 hereof. 1.16 "Investment" means (i) the acquisition (whether for cash, property, services, assumption of Indebtedness, securities or otherwise) of assets (other than equipment, inventory, supplies or other assets acquired in the ordinary course of business of the Company), capital stock, bonds, notes, debentures, partnership, joint venture or other ownership interests or other securities of any Person, (ii) any deposit with, or advance, loan or other extension of credit to, or on behalf of, any Person (other than deposits made in connection with the purchase of equipment, inventory, services, leases, supplies or other assets in the ordinary course of business of the Company), and (iii) any other capital contribution to or investment in any Person, including, without limitation, any guaranty obligation incurred for the benefit of any Person. For the sake of clarity, Investments shall include any transfer of property or assets by the Company to any of its Subsidiaries or by any Subsidiary of the Company to any other Subsidiary. 1.17 "January Lenders" shall mean Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P. 1.18 "January Note Agreement" shall mean the Convertible Note Purchase Agreement, dated January 16, 2004, among the January Lenders and the Company. 1.19 "January 2004 Notes" shall mean the Convertible Subordinated Promissory Notes, each dated January 16, 2003, issued by the Company to the January Lenders pursuant to the January Note Agreement. 3 1.20 "Loan Documents" shall have the meaning set forth in the Security Agreement. 1.21 "Note" shall mean this note, and in the plural, shall mean all notes issued to the Lenders pursuant to the terms of the Note Purchase Agreement, including this Note, and all amendments, modifications and extensions thereto. 1.22 "Note Purchase Agreement" means that certain Convertible Note Purchase Agreement, dated March 9, 2004, among the Company, the Holder and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.23 "Permitted Investments" means (i) Investments in cash or cash equivalents, (ii) accounts receivable created, acquired or made in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (iii) Investments existing on the closing date, and listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty obligations permitted by Section 5.3 of this Agreement, (v) loans to employees, directors or officers of the Company in connection with the award of convertible bonds or capital stock under a stock incentive plan, stock option plan or other equity-based compensation plan or arrangement, (vi) other advances or loans to employees, directors, officers or agents of the Company in the ordinary course of business not to exceed $500,000 in the aggregate at any time outstanding; (vii) loans, advances and investments in foreign Subsidiaries (that are not incorporated or otherwise organized under the laws of the United States of America or any state thereof) in an amount not to exceed $1,000,000 in the aggregate at any time outstanding; (viii) any acquisition for which the prior written consent of the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement has been obtained, (ix) other loans, advances and investments of a nature not contemplated by the foregoing sections in an amount not to exceed $500,000 in the aggregate at any time outstanding or (x) Investments by the Company in the Guarantor. 1.24 "Permitted Liens" shall have the meaning set forth in Section 5.4. 1.25 "Person" means any individual, firm, corporation, partnership, trust, joint venture, joint stock company, limited liability company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. 1.26 "Price Per Share" shall have the meaning attributed to such term in the Series E Certificate of Determination, as filed with the Secretary of State of the State of California. 1.27 "Purchase and Exchange Agreement" shall mean the Convertible Note Purchase and Exchange Agreement, dated November 18, 2003, among the Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended. 4 1.28 "Qualified Asset Sale" means the sale, transfer or other disposition of any of the assets of the Company or any of its Subsidiaries, other than (a) sales of assets in the ordinary course of business, (b) sales of assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the sale, transfer or other disposition of assets of the Company where the proceeds are applied to the purchase price or traded in for credit against the purchase price of other assets, provided that any such purchase is made, or credit issued, within 90 days of the sale, transfer or other disposition, and (d) one or more sales of the Company's assets (other than sales otherwise included in clauses (a), (b), and (c) immediately above) which collectively yield up to an aggregate of one million dollars ($1,000,000) in gross proceeds to the Company while this Note is outstanding. 1.29 "Restricted Payment" means (a) any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Company or any of its Subsidiaries or (b) any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any shares of any class of capital stock of the Company or any Subsidiary or any option, warrant or other right to acquire any such shares of capital stock of the Company or any Subsidiary. 1.30 "Security Agreement" means that certain Guaranty and Security Agreement, of even date herewith between the Company, Compass Holding Corp., the Lenders and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.31 "Series E Conversion Price" shall have the meaning set forth in the Series E Certificate of Determination. 1.32 "Series E Preferred Stock" means the Series E Preferred Stock, par value $0.001, of the Company. 1.33 "Subordination Agreement" shall have the meaning set forth in Section 5.3. 1.34 "Subsequent Closing Date" shall have the meaning set forth in Section 2.4(e) of the Note Purchase Agreement. 1.35 "SVB" means Silicon Valley Bank, a California chartered bank, or any Affiliates thereof. 1.36 "Ten Percent Holder" means, with respect to a class of equity securities of the Company, a Person (together with such Person's Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such class of equity securities of the Company, as defined by Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 1.37 "UCC" shall have the meaning set forth in Section 5.4. 5 2. Interest. Simple interest shall accrue at the rate of ten percent (10%) per annum (or such lesser amount as shall equal the highest rate of interest allowable under applicable law) (the "Interest Rate"), on the outstanding principal of this Note from the date of this Note until the Maturity Date or the date this Note is otherwise repaid. The Company shall not be obligated to make any payments of interest which shall have accrued under this Note prior to the Maturity Date. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. In the event that the principal amount of this Note, any interest, or any amount payable hereunder is not paid in full when such amount becomes due and payable, or upon the occurrence of an Event of Default, interest shall accrue at the lesser of (a) the initial Interest Rate plus five percent (5%) per annum or (b) the highest rate of interest allowable under applicable law, on the balance of all amounts outstanding until such overdue amounts are paid or the Event of Default is cured, and such interest shall be payable on demand. 3. Conversion. 3.1 Conversion. (a) On the Conversion Date, the principal amount of this Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall be automatically converted into the number of fully paid and nonassessable shares of Series E Preferred Stock equal to the quotient obtained by dividing (a) the entire principal amount of this Note plus the Interest Amount by (b) the Price Per Share. (b) In the event that the Conversion Date has not occurred on or prior to August 15, 2004 (the "Common Conversion Date"), then, following the Common Conversion Date, the principal amount of this Note plus the Interest Amount shall be convertible, at the option of Holder and from time to time, only into Common Stock at a conversion price per share equal to $2.18, as adjusted for any stock dividends, stock splits or similar consolidations or subdivisions, following the date hereof; provided, however, that Holder shall not be permitted to convert any portion of the principal of this Note or the Interest Amount into Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion, the conversion would cause Holder to be a Ten Percent Holder. 3.2 Notice of Conversion. Upon conversion of this Note as provided in Section 3.1, Holder shall surrender this Note to the Company and shall state the name or names in which the certificate or certificates for such shares of Series E Preferred Stock or Common Stock, as the case may be, are to be issued. The Person or Persons entitled to receive the shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion shall be treated for all purposes as the record holder or holders (a) of such shares of Series E Preferred Stock as of the Conversion Date and (b) of such shares of Common Stock as of the date of any conversion pursuant to Section 3.1(b). 3.3 Delivery of Stock Certificates. Upon conversion of this Note as provided in Section 3.1, the Company at its expense will issue and deliver to 6 Holder of this Note a certificate or certificates (bearing such legends as are required by applicable state and federal securities laws in the opinion of counsel to the Company) for the number of full shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion. 3.4 Mechanics and Effect of Conversion. No fractional shares of Series E Preferred Stock or Common Stock, as the case may be, shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to Holder upon the conversion of this Note, the Company shall pay to Holder the amount of outstanding principal and interest that is not so converted. Upon conversion of all amounts due under this Note, the Company shall be released from all of its obligations under this Note. 4. Adjustments. The number of shares of Series E Preferred Stock or Common Stock convertible hereunder are subject to adjustment from time to time as follows: 4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at any time while this Note remains outstanding and unexpired there shall be (a) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (b) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise or (c) a sale or transfer of the Company's stock, properties or assets as, or substantially as, an entirety to any other Person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that Holder shall thereafter be entitled to receive by converting this Note the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon conversion of this Note would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Note had been converted immediately before such reorganization, merger, consolidation, sale or transfer (notwithstanding that the Stockholder Approval may not yet have been obtained), all subject to further adjustment as provided in this Section 4. The foregoing provisions of this Section 4.1 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation. If the per share consideration payable to Holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors based on the amount the Holder would have otherwise been entitled to receive had the transaction or transactions not occurred. In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of Holder after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon conversion of 7 this Note. The Company shall be obligated to retain and set aside, or otherwise make fair provision for exercise of the right of the Holder to receive, the shares of stock and/or other securities, cash or other property provided for in this Section 4.1. 4.2 Election of Holder upon Merger or Sale of Assets. Notwithstanding anything to the contrary contained herein, if an event shall occur as provided in Section 4.1 hereof that would otherwise result in the occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first paragraph of this Note, then the Holder may, in its sole discretion, by written notice to the Company elect to convert the principal amount of this Note plus the Interest Amount into the number of shares of stock or other securities or property described in Section 4.1, in lieu of receiving payment in full of all amounts outstanding under this Note. The number of shares of stock or other securities or property to be issued upon such conversion shall be determined in accordance with Section 4.1 hereof, taking into account the occurrence of such event. 4.3 Reclassification, Etc. If the Company shall, at any time while this Note, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, change any of the securities as to which conversion rights under this Note exist into the same or a different number of securities of any other class or classes, this Note shall thereafter represent the right to acquire such number and kind of securities as would have been issuable with respect to the securities that were subject to the conversion rights under this Note immediately prior to such reclassification or other change, and the Price Per Share shall be appropriately adjusted, all subject to further adjustment as provided in this Section 4. 4.4 Split, Subdivision or Combination of Shares. If the Company at any time while this Note, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the shares of Series E Preferred Stock or Common Stock into a different number of securities of the same class, the Price Per Share or conversion price, as the case may be, shall be proportionately adjusted. 4.5 Series E Adjustments. The initial Series E Conversion Price of the shares of Series E Preferred Stock issued upon conversion of this Note pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on the Conversion Date, subject to the adjustment of such Series E Conversion Price from time to time thereafter as provided in the Series E Certificate of Determination. 4.6 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 4, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. 4.7 No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all 8 such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 5. Covenants. The Company covenants and agrees that until the earlier of (i) the date on which all Obligations (as defined in the Security Agreement) have been paid in full or (ii) the date on which all amounts outstanding under the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b): 5.1 Financial Statements and Other Information. The Company shall deliver to the Holder of this Note the financial statements and other information required to be delivered under Section 8.1 of the Note Purchase Agreement. 5.2 Financial Covenants. The Company shall at all times comply with the financial and other covenants set forth in Schedule 8.5 to the Note Purchase Agreement as if such covenants were set forth herein. 5.3 Indebtedness. The Company shall not, and shall not permit any Subsidiary to, issue, incur, assume, create or have outstanding any Indebtedness, provided, however, that the foregoing shall not restrict nor operate to prevent: (a) Indebtedness in favor of the Holders under the Loan Documents; (b) Indebtedness existing on the date hereof, as set forth on Schedule 3.22 to the Note Purchase Agreement; (c) Indebtedness for accounts payable incurred in the ordinary course of business by the Company; (d) Indebtedness incurred solely for the purpose of financing the acquisition of any equipment, machinery, software, improvements or any other similar property, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, that the aggregate outstanding principal amount of all Indebtedness permitted pursuant to this clause (d) outstanding for more than sixty (60) days after the incurrence of such Indebtedness shall not at any time exceed $500,000; (e) Indebtedness of the Company evidenced by Capitalized Lease Obligations, provided, that in no event shall the aggregate principal amount of Capitalized Lease Obligations permitted by this clause (e) exceed $500,000 at any time outstanding; and (f) Any extension, renewal, refinancing, refunding, or replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and (e) above, on such terms and conditions as are, on the whole, not materially more onerous to the Company than the terms and conditions of such original Indebtedness on the date of such refinancing (including that the principal amount of such refinancing Indebtedness 9 does not exceed the principal amount of, plus the amount of accrued and unpaid interest on, the Indebtedness so refinanced (plus the amount of reasonable premium and fees and expenses incurred in connection therewith)), provided that, in the case of a refinancing of Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall only apply to the extent consistent with the Subordination Agreement, dated as of the date hereof, by and among SVB, the Holders and the Company (the "Subordination Agreement"). 5.4 Liens. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of the Company or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable), or assign any right to receive income or permit the filing of any financing statement under the Uniform Commercial Code, as from time to time in effect in the relevant jurisdiction (the "UCC"), or any other similar notice of Lien under any similar recording or notice statute; provided, that the provisions of this Section 5.4 shall not prevent the creation, incurrence, assumption or existence of the following: (a) Liens arising in the ordinary course of business by statute in connection with worker's compensation, unemployment insurance, old age benefits, social security obligations, statutory obligations or other similar charges (other then Liens arising under ERISA), good faith cash deposits in connection with tenders, contracts or leases to which the Company or any Subsidiary is a party or other cash deposits required to be made in the ordinary course of business, provided, that such Liens do not have a material adverse effect on the ability of the Company to repay amounts due under the Notes; (b) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (c) Liens in respect of property or assets of the Company or its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (i) which do not in the aggregate materially detract from the value of the Company's and its Subsidiaries' property or assets taken as a whole or result in a material adverse effect on the Condition of the Company or (ii) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; 10 (d) the pledge of assets for the purpose of securing an appeal, stay or discharge in the course of any legal proceeding, provided that the aggregate amount of liabilities of the Company and its Subsidiaries secured by a pledge of assets permitted under this subsection, including interest and penalties thereon, if any, shall not be in excess of $500,000 at any one time outstanding; (e) any interest or title of a lessor under any operating lease; (f) easements, rights-of-way, restrictions and other similar encumbrances against real property incurred in the ordinary course of business; (g) the Liens existing on the date hereof identified on Schedule 3.22 to the Note Purchase Agreement; (h) Liens on cash deposited with account debtors to secure performance by the Company or any Subsidiary in the ordinary course of business subject to customary and reasonable terms; (i) Liens upon assets of the Company or its Subsidiaries subject to Capitalized Lease Obligations, provided, that (A) such Liens only serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising under such Capitalized Lease Obligation and (B) the Lien encumbering the asset giving rise to the Capitalized Lease Obligation does not encumber any other asset of the Company or its Subsidiaries; (j) Liens placed upon equipment, machinery, software, improvements or any other similar property, used in the ordinary course of business of the Company or any of its Subsidiaries at the time of the acquisition thereof by the Company or any of its Subsidiaries or within ninety (90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above; provided, that the Liens encumbering the equipment, machinery software, improvements or any other similar property so acquired do not encumber any other asset of the Company or its Subsidiaries; (k) set-off rights of depository institutions; and (l) Liens created by the Security Agreement (collectively with clauses (a) through (k) hereof, the "Permitted Liens"). 5.5 Fundamental Changes. The Company will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or a series of transactions) all or substantially all of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time and immediately after giving effect thereto no Event of Default shall have occurred and be continuing (i) the Company or any of its Subsidiaries may, with the prior written 11 consent of the Holders, merge with or into any other Person; (ii) any wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with or into the Company or any other wholly-owned Subsidiary of the Company; (iii) any Subsidiary (other than the Guarantor, and except as otherwise prohibited by this Note) may sell, transfer, lease or otherwise dispose of its assets to the Company or to another wholly-owned Subsidiary of the Company; and (iv) any Subsidiary may liquidate or dissolve if the board of directors of the Company determine in good faith that such liquidation or dissolution is in its best interests and is not disadvantageous to the Holders. 5.6 Restricted Payments. The Company will not, and the Company will not permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that (i) any Subsidiary may make a Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any Restricted Payment required by the terms of the Note Purchase Agreement and the other documents executed in connection therewith. 5.7 Transactions with Affiliates. The Company will not, and the Company will not permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions that are at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arm's length basis from unrelated third parties, (b) transactions exclusively between the Company and the Guarantor and (c) transactions under the agreements listed on Schedule 3.17 to the Note Purchase Agreement. 5.8 Investments. The Company will not, and the Company will not permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment in any Person, except for Permitted Investments. 5.9 Nature of Business. The Company will not, and the Company will not permit any Subsidiary to, engage in any business other than that conducted on the date hereof and any businesses reasonably related thereto. 5.10 Property of Existing Domestic Subsidiaries. The Company will not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise organized under the laws of the United States of America or any state thereof (a "Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease, license, purchase or otherwise acquire any personal or real property (excluding any material intellectual property) in excess of $50,000 for all property held by such Subsidiary, or $250,000 in the aggregate for all property held by all Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own or otherwise hold any rights to any material intellectual property or (iv) otherwise conduct any business or maintain operations. 5.11 Formation of Subsidiaries. The Company will not, and will not cause or permit any of its Subsidiaries to, form, acquire or permit the existence of any 12 new domestic Subsidiary, without causing such domestic Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes and related security document, in form and substance satisfactory to the Holders. 5.12 Books and Records. The Company shall keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Company and its Subsidiaries in accordance with GAAP consistently applied. 5.13 Inspection. The Company shall, and shall cause each of its Subsidiaries to, permit representatives of the Holders to visit and inspect any of its properties, to examine its corporate, financial and operating records and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with their respective directors, officers and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably requested upon notice to the Company. 5.14 Maintenance of Business. The Company shall, and shall cause each Subsidiary to, preserve and maintain its existence. The Company shall, and shall cause each Subsidiary to, preserve and keep in force and effect all licenses, permits, franchises, approvals, patents, trademarks, trade names, trade styles, copyrights, and other property rights necessary to the proper conduct of its business, except where the failure to do so could not reasonably be expected to have a material adverse effect on the Condition of the Company or on the prospects of repayment of the Notes. 5.15 Maintenance of Properties. The Company shall, and shall cause each Subsidiary to, maintain, preserve and keep its property and equipment in good repair, working order and condition (ordinary wear and tear excepted) and shall from time to time make all needful and proper repairs, renewals, replacements, additions and betterments thereto so that at all times the efficiency thereof shall by fully preserved and maintained, except in each case to the extent that, in the reasonable business judgment of such Person, any such property or equipment is no longer necessary for the proper conduct of the business of such Person. 6. The occurrence of any one or more of the following events shall constitute an "Event of Default": 6.1 Failure To Pay. (i) The failure of the Company to pay any principal due under any of the Notes when due and payable (whether by acceleration, declaration, extension or otherwise), or (ii) the failure of the Company to pay any other amounts due under any of the Notes when due and payable if such failure is not cured within five (5) days of Company's receipt of notice thereof from any of the Holders. 6.2 Financial Covenants. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2. 13 6.3 Other Covenants and Agreements. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the covenants of this Note, the Security Agreement or any of the other Loan Documents (other than the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2), if such failure is not cured within sixty (60) days. 6.4 Representations and Warranties. If any representation or warranty made by the Company or any of its Subsidiaries in the Loan Documents is not true and correct in all material respects on the Initial Closing Date. 6.5 Default on Other Obligations. The occurrence of any condition or default under any other indebtedness for borrowed money of the Company or any of its Subsidiaries with a principal amount of at least five hundred thousand dollars ($500,000) that results in the acceleration of such indebtedness which is not cured within sixty (60) days. 6.6 Involuntary Bankruptcy. There shall be filed against the Company or any of its Subsidiaries an involuntary petition or other pleading seeking the entry of a decree or order for relief under the United States Bankruptcy Code or any similar federal or state insolvency or similar laws ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a reorganization of the Company or any of its Subsidiaries or the business and affairs of the Company or any of its Subsidiaries or (c) the appointment of a receiver, liquidator, assignee, custodian, trustee or similar official for the Company or any of its Subsidiaries of the property of the Company or any of its Subsidiaries. 6.7 Voluntary Bankruptcy. The commencement by the Company or any of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any federal or state insolvency or similar laws or the consent by the Company or any of its Subsidiaries to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian or similar official for the Company or any of its Subsidiaries of any of the property of the Company or any of its Subsidiaries or the making by the Company or any of its Subsidiaries of an assignment for the benefit of creditors, or the failure by Company or any of its Subsidiaries generally to pay its debts as the debts become due. 6.8 Judgments, Awards. Any judgment or order for the payment of money is rendered against the Company or any of its Subsidiaries in an amount in excess of five hundred thousand dollars ($500,000) individually or in the aggregate and either (i) enforcement proceedings are commenced by any creditor upon such judgment or order and not stayed, or (ii) there is any period of sixty (60) consecutive days during which such judgment has not been paid in full or a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, is not in effect. 6.9 Attachment by Lenders. Any assets of the Company or any of its Subsidiaries shall be attached, levied upon, seized or repossessed, or come into the 14 possession of a trustee, receiver or other custodian and a determination by any Holder, in good faith but in its sole discretion, that the same could have a material adverse effect on the prospect for the Holders to fully and punctually realize the full benefits conferred on the Holders by the Loan Documents. 6.10 Adverse Change in Financial Condition. Any event having a material adverse effect on the business, operations, assets, properties or condition of the Company and its Subsidiaries taken as a whole shall have occurred and be continuing or a material adverse effect on the validity or enforceability of this or any of the other Loan Documents or the rights or remedies of the Holders hereunder or thereunder. 7. Remedies. Upon and after the occurrence of an Event of Default, the Holder shall be entitled to the exercise the rights and remedies set forth in the Security Agreement, the other Loan Documents and under applicable law, all such rights and remedies being cumulative and enforceable alternatively, successively or concurrently. 8. Prepayment. The Company may not prepay this Note prior to the Maturity Date without the prior written consent of the Holders. 9. Seniority. (a) Except as set forth in the Subordination Agreement, the Notes will rank senior in right of payment to all other indebtedness of the Company, other than the GA Notes and the January 2004 Notes, with respect to which the Notes will be pari passu in right of payment in accordance with the Intercreditor Agreement. (b) Notwithstanding anything to the contrary contained in the Notes, this Note and the other Notes, and the terms and the conditions hereof and thereof, are subject to the Intercreditor Agreement. 10. Assignment. Subject to the restrictions on transfer described in Section 12 below, the rights and obligations of the Company and Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. The Company shall not be permitted to assign this Note without the prior written consent of the Holders. 11. Waiver of Notice. The Company hereby waives notice, presentment, demand, protest and notice of dishonor. 12. Transfer of This Note. With respect to any offer, sale or other disposition of this Note, Holder will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such Holder's counsel, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect); provided, that no opinion shall be required for any transfer to an Affiliate or if the transfer is made in compliance with the Securities Act, so long as the transferee can make the same representations and warranties at the time of transfer as set forth in Sections 4.5, 4.6, 4.7, 15 4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly upon delivering such written notice and opinion, if so required, Holder may sell or otherwise dispose of this Note, all in accordance with the terms of the notice delivered to the Company. Each Note thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Notwithstanding the foregoing, the Holder shall not be permitted to transfer this Note to any Person who is not an Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of written notice from the Company that Stockholder Approval cannot be obtained, or the occurrence of an actual vote of the Company's shareholders entitled to vote (whether by written consent or at a meeting specially called for such purpose), the result of which is a decision by a majority of the Company's shareholders entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of an Event of Default. This Note is registered as to both principal and stated interest with the Company (or its agent) within the meaning of section 1.871-14(c)(1)(i) of the Income Tax Regulations. Accordingly, notwithstanding anything to the contrary in this paragraph, this Note, together with any interest thereon, may be transferred only (i) upon surrender of the Note by the transferor to the Company (or its agent) and the reissuance of the Note (or the issuance of a new Note) to the transferee, or (ii) by transfer of the right to principal and interest through a book-entry system meeting the requirements of section 1.871-14(c)(1)(i)(B) of the Income Tax Regulations that is maintained by the Company (or its agent). In the case of a Holder that is not a "United States person" within the meaning of section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the "Code"), so long as an exception under section 871(h) or section 881(c) of the Code does not apply, the Company (or its agent) shall not withhold any U.S. federal income tax with respect to such Holder provided that the Holder timely provides the Company (or its agent) with a statement that meets the requirements of section 871(h)(5) of the Code. 13. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 14. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally recognized courier service or mailed by registered or certified mail, postage prepaid, to the respective addresses of the parties as set forth on the signature pages hereto or if sent by facsimile to the respective facsimile numbers of the parties set forth on the signature pages hereto. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given and received when personally delivered or three (3) business days after deposited in the mail or one business day after sent by courier or upon confirmation of facsimile delivery in the manner set forth above. 16 15. No Stockholder Rights. Nothing contained in this Note shall be construed as conferring upon Holder or any other Person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. 16. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law relating to conflict of laws. 17. Amendments and Waivers. No amendments or waivers of any provision of this Note, and no consent by the Holder to any departure by the Company, shall in any event be effective unless the same shall be in writing, and signed by the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 18. Severability. Any provision of this Note that is prohibited or unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF 17 THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. 20. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except as otherwise indicated, all references herein to Sections refer to Sections hereof. [the remainder of this page intentionally left blank] 18 IN WITNESS WHEREOF, the Company has caused this Note to be issued this 9th day of March, 2004. COMPANY: CRITICAL PATH, INC., a California corporation By: /s/ William E. McGlashan, Jr. ---------------------------------- Name: William E. McGlashan, Jr. Title: Chairman, Chief Executive Officer Critical Path, Inc. 350 The Embarcadero San Francisco, CA 94105-1204 Telecopy: (415) 541-2300 Attention: Chief Financial Officer With a copy to: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Telecopy: (415) 983-1200 Attention: Gregg Vignos, Esq. Name of Holder: CRITERION CAPITAL PARTNERS, L.P. Address: c/o Criterion Capital Management One Maritime Plaza, Suite 1460 San Francisco, CA 64111 Attention: R. Daniel Beckham Telephone: ------------------------------- Facsimile: ------------------------------- EX-4.43 28 f97295exv4w43.txt EXHIBIT 4.43 EXHIBIT 4.43 THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS. CRITICAL PATH, INC. CONVERTIBLE SUBORDINATED PROMISSORY NOTE $2,000,000 San Francisco, California March 9, 2004 Critical Path, Inc., a California corporation (the "Company"), the principal office of which is located in San Francisco, California, for value received hereby promises to pay to the order of Capital Ventures International, or its registered assigns ("Holder"), the sum of two million dollars ($2,000,000), or such lesser amount as shall then equal the outstanding principal amount hereof on the terms and conditions set forth hereinafter. The outstanding principal amount hereof and all accrued and unpaid interest hereon, as set forth below, shall be due and payable on the earlier to occur of (i) March 9, 2008, (ii) when declared due and payable by Holder upon the occurrence of an Event of Default (as defined below), (iii) consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock or Stock Equivalents by the Company, any cash capital contribution from any third person or any other debt or equity financing consummated by the Company after the date of issuance of this Note which, in the case of (v), individually or in the aggregate raises proceeds of at least forty million dollars ($40,000,000) in cash or cash equivalents (the earliest of the events set forth in items (i)-(v) immediately above, the "Maturity Date"). The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Definitions. Except as otherwise defined herein, each capitalized term used herein shall have the meaning assigned to it in the Note Purchase Agreement, as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. All other references to the Note Purchase Agreement in this Note refer to the Note Purchase Agreement as in effect on the date hereof, and without regard to any subsequent termination of the Note Purchase Agreement. As used in this Note, the following terms, unless the context otherwise requires, have the following meanings: 1.1 "Affiliate" means any Person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended. 1.2 "Capitalized Lease Obligations" means, with respect to any Person, all rental obligations of such Person which, under GAAP, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with such principles. 1.3 "Change of Control" shall mean (i) any merger, consolidation or other business combination transaction (or series of related transactions) in which the stockholders owning a majority of the voting securities of the Company prior to such transaction do not own a majority of the voting securities of the surviving entity, (ii) any tender offer, exchange offer or other transaction whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended) (other than General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and the Affiliates of the foregoing, provided that Affiliates shall be deemed not to include any portfolio companies of any of the foregoing) obtains a majority of the outstanding shares of capital stock entitled to vote in the election of directors, (iii) any proxy contest in which a majority of the Board of Directors of the Company (or persons appointed by such Board of Directors) prior to such contest do not constitute a majority of the Company's Board of Directors after such contest or (iv) any other transaction described in any stockholder rights agreement or "poison pill," if any, to which the Company is party, which may permit the holders of any rights or similar certificates to exercise the rights evidenced thereby. 1.4 "Company" shall have the meaning set forth in the recitals hereto, and includes any corporation that shall succeed to or assume the obligations of the Company under this Note. 1.5 "Common Conversion Date" shall have the meaning set forth in Section 3.1(b) hereof. 1.6 "Common Stock" means the common stock, par value $0.001 per share, of the Company. 1.7 "Conversion Date" shall mean the Subsequent Closing Date. 1.8 "Domestic Subsidiary" shall have the meaning set forth in Section 5.10 hereof. 1.9 "Event of Default" shall have the meaning set forth in Section 6 hereof. 2 1.10 "GA Notes" shall mean the Convertible Subordinated Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP Entities pursuant to the Purchase and Exchange Agreement. 1.11 "GAP Entities" shall mean General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG. 1.12 "Guarantor" shall have the meaning set forth in the Security Agreement. 1.13 "Holder" shall mean the registered holder of this Note from time to time, and in the plural, shall mean all registered holders of Notes from time to time issued by the Company pursuant to the Note Purchase Agreement. 1.14 "Intercreditor Agreement" shall mean the Intercreditor Agreement, dated the date hereof, among the GAP Entities, the January Lenders, Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures International. 1.15 "Interest Amount" shall have the meaning set forth in Section 3.1 hereof. 1.16 "Investment" means (i) the acquisition (whether for cash, property, services, assumption of Indebtedness, securities or otherwise) of assets (other than equipment, inventory, supplies or other assets acquired in the ordinary course of business of the Company), capital stock, bonds, notes, debentures, partnership, joint venture or other ownership interests or other securities of any Person, (ii) any deposit with, or advance, loan or other extension of credit to, or on behalf of, any Person (other than deposits made in connection with the purchase of equipment, inventory, services, leases, supplies or other assets in the ordinary course of business of the Company), and (iii) any other capital contribution to or investment in any Person, including, without limitation, any guaranty obligation incurred for the benefit of any Person. For the sake of clarity, Investments shall include any transfer of property or assets by the Company to any of its Subsidiaries or by any Subsidiary of the Company to any other Subsidiary. 1.17 "January Lenders" shall mean Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P. 1.18 "January Note Agreement" shall mean the Convertible Note Purchase Agreement, dated January 16, 2004, among the January Lenders and the Company. 1.19 "January 2004 Notes" shall mean the Convertible Subordinated Promissory Notes, each dated January 16, 2003, issued by the Company to the January Lenders pursuant to the January Note Agreement. 3 1.20 "Loan Documents" shall have the meaning set forth in the Security Agreement. 1.21 "Note" shall mean this note, and in the plural, shall mean all notes issued to the Lenders pursuant to the terms of the Note Purchase Agreement, including this Note, and all amendments, modifications and extensions thereto. 1.22 "Note Purchase Agreement" means that certain Convertible Note Purchase Agreement, dated March 9, 2004, among the Company, the Holder and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.23 "Permitted Investments" means (i) Investments in cash or cash equivalents, (ii) accounts receivable created, acquired or made in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (iii) Investments existing on the closing date, and listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty obligations permitted by Section 5.3 of this Agreement, (v) loans to employees, directors or officers of the Company in connection with the award of convertible bonds or capital stock under a stock incentive plan, stock option plan or other equity-based compensation plan or arrangement, (vi) other advances or loans to employees, directors, officers or agents of the Company in the ordinary course of business not to exceed $500,000 in the aggregate at any time outstanding; (vii) loans, advances and investments in foreign Subsidiaries (that are not incorporated or otherwise organized under the laws of the United States of America or any state thereof) in an amount not to exceed $1,000,000 in the aggregate at any time outstanding; (viii) any acquisition for which the prior written consent of the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement has been obtained, (ix) other loans, advances and investments of a nature not contemplated by the foregoing sections in an amount not to exceed $500,000 in the aggregate at any time outstanding or (x) Investments by the Company in the Guarantor. 1.24 "Permitted Liens" shall have the meaning set forth in Section 5.4. 1.25 "Person" means any individual, firm, corporation, partnership, trust, joint venture, joint stock company, limited liability company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. 1.26 "Price Per Share" shall have the meaning attributed to such term in the Series E Certificate of Determination, as filed with the Secretary of State of the State of California. 1.27 "Purchase and Exchange Agreement" shall mean the Convertible Note Purchase and Exchange Agreement, dated November 18, 2003, among the Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended. 4 1.28 "Qualified Asset Sale" means the sale, transfer or other disposition of any of the assets of the Company or any of its Subsidiaries, other than (a) sales of assets in the ordinary course of business, (b) sales of assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the sale, transfer or other disposition of assets of the Company where the proceeds are applied to the purchase price or traded in for credit against the purchase price of other assets, provided that any such purchase is made, or credit issued, within 90 days of the sale, transfer or other disposition, and (d) one or more sales of the Company's assets (other than sales otherwise included in clauses (a), (b), and (c) immediately above) which collectively yield up to an aggregate of one million dollars ($1,000,000) in gross proceeds to the Company while this Note is outstanding. 1.29 "Restricted Payment" means (a) any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Company or any of its Subsidiaries or (b) any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any shares of any class of capital stock of the Company or any Subsidiary or any option, warrant or other right to acquire any such shares of capital stock of the Company or any Subsidiary. 1.30 "Security Agreement" means that certain Guaranty and Security Agreement, of even date herewith between the Company, Compass Holding Corp., the Lenders and the other parties thereto from time to time, and all amendments, modifications and extensions thereto. 1.31 "Series E Conversion Price" shall have the meaning set forth in the Series E Certificate of Determination. 1.32 "Series E Preferred Stock" means the Series E Preferred Stock, par value $0.001, of the Company. 1.33 "Subordination Agreement" shall have the meaning set forth in Section 5.3. 1.34 "Subsequent Closing Date" shall have the meaning set forth in Section 2.4(e) of the Note Purchase Agreement. 1.35 "SVB" means Silicon Valley Bank, a California chartered bank, or any Affiliates thereof. 1.36 "Ten Percent Holder" means, with respect to a class of equity securities of the Company, a Person (together with such Person's Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such class of equity securities of the Company, as defined by Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 1.37 "UCC" shall have the meaning set forth in Section 5.4. 5 2. Interest. Simple interest shall accrue at the rate of ten percent (10%) per annum (or such lesser amount as shall equal the highest rate of interest allowable under applicable law) (the "Interest Rate"), on the outstanding principal of this Note from the date of this Note until the Maturity Date or the date this Note is otherwise repaid. The Company shall not be obligated to make any payments of interest which shall have accrued under this Note prior to the Maturity Date. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. In the event that the principal amount of this Note, any interest, or any amount payable hereunder is not paid in full when such amount becomes due and payable, or upon the occurrence of an Event of Default, interest shall accrue at the lesser of (a) the initial Interest Rate plus five percent (5%) per annum or (b) the highest rate of interest allowable under applicable law, on the balance of all amounts outstanding until such overdue amounts are paid or the Event of Default is cured, and such interest shall be payable on demand. 3. Conversion. 3.1 Conversion. (a) On the Conversion Date, the principal amount of this Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall be automatically converted into the number of fully paid and nonassessable shares of Series E Preferred Stock equal to the quotient obtained by dividing (a) the entire principal amount of this Note plus the Interest Amount by (b) the Price Per Share. (b) In the event that the Conversion Date has not occurred on or prior to August 15, 2004 (the "Common Conversion Date"), then, following the Common Conversion Date, the principal amount of this Note plus the Interest Amount shall be convertible, at the option of Holder and from time to time, only into Common Stock at a conversion price per share equal to $2.18, as adjusted for any stock dividends, stock splits or similar consolidations or subdivisions, following the date hereof; provided, however, that Holder shall not be permitted to convert any portion of the principal of this Note or the Interest Amount into Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion, the conversion would cause Holder to be a Ten Percent Holder. 3.2 Notice of Conversion. Upon conversion of this Note as provided in Section 3.1, Holder shall surrender this Note to the Company and shall state the name or names in which the certificate or certificates for such shares of Series E Preferred Stock or Common Stock, as the case may be, are to be issued. The Person or Persons entitled to receive the shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion shall be treated for all purposes as the record holder or holders (a) of such shares of Series E Preferred Stock as of the Conversion Date and (b) of such shares of Common Stock as of the date of any conversion pursuant to Section 3.1(b). 3.3 Delivery of Stock Certificates. Upon conversion of this Note as provided in Section 3.1, the Company at its expense will issue and deliver to 6 Holder of this Note a certificate or certificates (bearing such legends as are required by applicable state and federal securities laws in the opinion of counsel to the Company) for the number of full shares of Series E Preferred Stock or Common Stock, as the case may be, issuable upon such conversion. 3.4 Mechanics and Effect of Conversion. No fractional shares of Series E Preferred Stock or Common Stock, as the case may be, shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to Holder upon the conversion of this Note, the Company shall pay to Holder the amount of outstanding principal and interest that is not so converted. Upon conversion of all amounts due under this Note, the Company shall be released from all of its obligations under this Note. 4. Adjustments. The number of shares of Series E Preferred Stock or Common Stock convertible hereunder are subject to adjustment from time to time as follows: 4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at any time while this Note remains outstanding and unexpired there shall be (a) a reorganization (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), (b) a merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise or (c) a sale or transfer of the Company's stock, properties or assets as, or substantially as, an entirety to any other Person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that Holder shall thereafter be entitled to receive by converting this Note the number of shares of stock or other securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon conversion of this Note would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Note had been converted immediately before such reorganization, merger, consolidation, sale or transfer (notwithstanding that the Stockholder Approval may not yet have been obtained), all subject to further adjustment as provided in this Section 4. The foregoing provisions of this Section 4.1 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation. If the per share consideration payable to Holder hereof for shares in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors based on the amount the Holder would have otherwise been entitled to receive had the transaction or transactions not occurred. In all events, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of Holder after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon conversion of 7 this Note. The Company shall be obligated to retain and set aside, or otherwise make fair provision for exercise of the right of the Holder to receive, the shares of stock and/or other securities, cash or other property provided for in this Section 4.1. 4.2 Election of Holder upon Merger or Sale of Assets. Notwithstanding anything to the contrary contained herein, if an event shall occur as provided in Section 4.1 hereof that would otherwise result in the occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first paragraph of this Note, then the Holder may, in its sole discretion, by written notice to the Company elect to convert the principal amount of this Note plus the Interest Amount into the number of shares of stock or other securities or property described in Section 4.1, in lieu of receiving payment in full of all amounts outstanding under this Note. The number of shares of stock or other securities or property to be issued upon such conversion shall be determined in accordance with Section 4.1 hereof, taking into account the occurrence of such event. 4.3 Reclassification, Etc. If the Company shall, at any time while this Note, or any portion thereof, remains outstanding and unexpired, by reclassification of securities or otherwise, change any of the securities as to which conversion rights under this Note exist into the same or a different number of securities of any other class or classes, this Note shall thereafter represent the right to acquire such number and kind of securities as would have been issuable with respect to the securities that were subject to the conversion rights under this Note immediately prior to such reclassification or other change, and the Price Per Share shall be appropriately adjusted, all subject to further adjustment as provided in this Section 4. 4.4 Split, Subdivision or Combination of Shares. If the Company at any time while this Note, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the shares of Series E Preferred Stock or Common Stock into a different number of securities of the same class, the Price Per Share or conversion price, as the case may be, shall be proportionately adjusted. 4.5 Series E Adjustments. The initial Series E Conversion Price of the shares of Series E Preferred Stock issued upon conversion of this Note pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on the Conversion Date, subject to the adjustment of such Series E Conversion Price from time to time thereafter as provided in the Series E Certificate of Determination. 4.6 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 4, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. 4.7 No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all 8 such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 5. Covenants. The Company covenants and agrees that until the earlier of (i) the date on which all Obligations (as defined in the Security Agreement) have been paid in full or (ii) the date on which all amounts outstanding under the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b): 5.1 Financial Statements and Other Information. The Company shall deliver to the Holder of this Note the financial statements and other information required to be delivered under Section 8.1 of the Note Purchase Agreement. 5.2 Financial Covenants. The Company shall at all times comply with the financial and other covenants set forth in Schedule 8.5 to the Note Purchase Agreement as if such covenants were set forth herein. 5.3 Indebtedness. The Company shall not, and shall not permit any Subsidiary to, issue, incur, assume, create or have outstanding any Indebtedness, provided, however, that the foregoing shall not restrict nor operate to prevent: (a) Indebtedness in favor of the Holders under the Loan Documents; (b) Indebtedness existing on the date hereof, as set forth on Schedule 3.22 to the Note Purchase Agreement; (c) Indebtedness for accounts payable incurred in the ordinary course of business by the Company; (d) Indebtedness incurred solely for the purpose of financing the acquisition of any equipment, machinery, software, improvements or any other similar property, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, that the aggregate outstanding principal amount of all Indebtedness permitted pursuant to this clause (d) outstanding for more than sixty (60) days after the incurrence of such Indebtedness shall not at any time exceed $500,000; (e) Indebtedness of the Company evidenced by Capitalized Lease Obligations, provided, that in no event shall the aggregate principal amount of Capitalized Lease Obligations permitted by this clause (e) exceed $500,000 at any time outstanding; and (f) Any extension, renewal, refinancing, refunding, or replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and (e) above, on such terms and conditions as are, on the whole, not materially more onerous to the Company than the terms and conditions of such original Indebtedness on the date of such refinancing (including that the principal amount of such refinancing Indebtedness 9 does not exceed the principal amount of, plus the amount of accrued and unpaid interest on, the Indebtedness so refinanced (plus the amount of reasonable premium and fees and expenses incurred in connection therewith)), provided that, in the case of a refinancing of Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall only apply to the extent consistent with the Subordination Agreement, dated as of the date hereof, by and among SVB, the Holders and the Company (the "Subordination Agreement"). 5.4 Liens. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of the Company or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable), or assign any right to receive income or permit the filing of any financing statement under the Uniform Commercial Code, as from time to time in effect in the relevant jurisdiction (the "UCC"), or any other similar notice of Lien under any similar recording or notice statute; provided, that the provisions of this Section 5.4 shall not prevent the creation, incurrence, assumption or existence of the following: (a) Liens arising in the ordinary course of business by statute in connection with worker's compensation, unemployment insurance, old age benefits, social security obligations, statutory obligations or other similar charges (other then Liens arising under ERISA), good faith cash deposits in connection with tenders, contracts or leases to which the Company or any Subsidiary is a party or other cash deposits required to be made in the ordinary course of business, provided, that such Liens do not have a material adverse effect on the ability of the Company to repay amounts due under the Notes; (b) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (c) Liens in respect of property or assets of the Company or its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (i) which do not in the aggregate materially detract from the value of the Company's and its Subsidiaries' property or assets taken as a whole or result in a material adverse effect on the Condition of the Company or (ii) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; 10 (d) the pledge of assets for the purpose of securing an appeal, stay or discharge in the course of any legal proceeding, provided that the aggregate amount of liabilities of the Company and its Subsidiaries secured by a pledge of assets permitted under this subsection, including interest and penalties thereon, if any, shall not be in excess of $500,000 at any one time outstanding; (e) any interest or title of a lessor under any operating lease; (f) easements, rights-of-way, restrictions and other similar encumbrances against real property incurred in the ordinary course of business; (g) the Liens existing on the date hereof identified on Schedule 3.22 to the Note Purchase Agreement; (h) Liens on cash deposited with account debtors to secure performance by the Company or any Subsidiary in the ordinary course of business subject to customary and reasonable terms; (i) Liens upon assets of the Company or its Subsidiaries subject to Capitalized Lease Obligations, provided, that (A) such Liens only serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising under such Capitalized Lease Obligation and (B) the Lien encumbering the asset giving rise to the Capitalized Lease Obligation does not encumber any other asset of the Company or its Subsidiaries; (j) Liens placed upon equipment, machinery, software, improvements or any other similar property, used in the ordinary course of business of the Company or any of its Subsidiaries at the time of the acquisition thereof by the Company or any of its Subsidiaries or within ninety (90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above; provided, that the Liens encumbering the equipment, machinery software, improvements or any other similar property so acquired do not encumber any other asset of the Company or its Subsidiaries; (k) set-off rights of depository institutions; and (l) Liens created by the Security Agreement (collectively with clauses (a) through (k) hereof, the "Permitted Liens"). 5.5 Fundamental Changes. The Company will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or a series of transactions) all or substantially all of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time and immediately after giving effect thereto no Event of Default shall have occurred and be continuing (i) the Company or any of its Subsidiaries may, with the prior written 11 consent of the Holders, merge with or into any other Person; (ii) any wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with or into the Company or any other wholly-owned Subsidiary of the Company; (iii) any Subsidiary (other than the Guarantor, and except as otherwise prohibited by this Note) may sell, transfer, lease or otherwise dispose of its assets to the Company or to another wholly-owned Subsidiary of the Company; and (iv) any Subsidiary may liquidate or dissolve if the board of directors of the Company determine in good faith that such liquidation or dissolution is in its best interests and is not disadvantageous to the Holders. 5.6 Restricted Payments. The Company will not, and the Company will not permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that (i) any Subsidiary may make a Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any Restricted Payment required by the terms of the Note Purchase Agreement and the other documents executed in connection therewith. 5.7 Transactions with Affiliates. The Company will not, and the Company will not permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions that are at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arm's length basis from unrelated third parties, (b) transactions exclusively between the Company and the Guarantor and (c) transactions under the agreements listed on Schedule 3.17 to the Note Purchase Agreement. 5.8 Investments. The Company will not, and the Company will not permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment in any Person, except for Permitted Investments. 5.9 Nature of Business. The Company will not, and the Company will not permit any Subsidiary to, engage in any business other than that conducted on the date hereof and any businesses reasonably related thereto. 5.10 Property of Existing Domestic Subsidiaries. The Company will not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise organized under the laws of the United States of America or any state thereof (a "Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease, license, purchase or otherwise acquire any personal or real property (excluding any material intellectual property) in excess of $50,000 for all property held by such Subsidiary, or $250,000 in the aggregate for all property held by all Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own or otherwise hold any rights to any material intellectual property or (iv) otherwise conduct any business or maintain operations. 5.11 Formation of Subsidiaries. The Company will not, and will not cause or permit any of its Subsidiaries to, form, acquire or permit the existence of any 12 new domestic Subsidiary, without causing such domestic Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes and related security document, in form and substance satisfactory to the Holders. 5.12 Books and Records. The Company shall keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Company and its Subsidiaries in accordance with GAAP consistently applied. 5.13 Inspection. The Company shall, and shall cause each of its Subsidiaries to, permit representatives of the Holders to visit and inspect any of its properties, to examine its corporate, financial and operating records and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with their respective directors, officers and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably requested upon notice to the Company. 5.14 Maintenance of Business. The Company shall, and shall cause each Subsidiary to, preserve and maintain its existence. The Company shall, and shall cause each Subsidiary to, preserve and keep in force and effect all licenses, permits, franchises, approvals, patents, trademarks, trade names, trade styles, copyrights, and other property rights necessary to the proper conduct of its business, except where the failure to do so could not reasonably be expected to have a material adverse effect on the Condition of the Company or on the prospects of repayment of the Notes. 5.15 Maintenance of Properties. The Company shall, and shall cause each Subsidiary to, maintain, preserve and keep its property and equipment in good repair, working order and condition (ordinary wear and tear excepted) and shall from time to time make all needful and proper repairs, renewals, replacements, additions and betterments thereto so that at all times the efficiency thereof shall by fully preserved and maintained, except in each case to the extent that, in the reasonable business judgment of such Person, any such property or equipment is no longer necessary for the proper conduct of the business of such Person. 6. The occurrence of any one or more of the following events shall constitute an "Event of Default": 6.1 Failure To Pay. (i) The failure of the Company to pay any principal due under any of the Notes when due and payable (whether by acceleration, declaration, extension or otherwise), or (ii) the failure of the Company to pay any other amounts due under any of the Notes when due and payable if such failure is not cured within five (5) days of Company's receipt of notice thereof from any of the Holders. 6.2 Financial Covenants. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2. 13 6.3 Other Covenants and Agreements. The failure of Company or any of its Subsidiaries to perform, observe or comply with any of the covenants of this Note, the Security Agreement or any of the other Loan Documents (other than the Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by reference in this Note in Section 5.2), if such failure is not cured within sixty (60) days. 6.4 Representations and Warranties. If any representation or warranty made by the Company or any of its Subsidiaries in the Loan Documents is not true and correct in all material respects on the Initial Closing Date. 6.5 Default on Other Obligations. The occurrence of any condition or default under any other indebtedness for borrowed money of the Company or any of its Subsidiaries with a principal amount of at least five hundred thousand dollars ($500,000) that results in the acceleration of such indebtedness which is not cured within sixty (60) days. 6.6 Involuntary Bankruptcy. There shall be filed against the Company or any of its Subsidiaries an involuntary petition or other pleading seeking the entry of a decree or order for relief under the United States Bankruptcy Code or any similar federal or state insolvency or similar laws ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a reorganization of the Company or any of its Subsidiaries or the business and affairs of the Company or any of its Subsidiaries or (c) the appointment of a receiver, liquidator, assignee, custodian, trustee or similar official for the Company or any of its Subsidiaries of the property of the Company or any of its Subsidiaries. 6.7 Voluntary Bankruptcy. The commencement by the Company or any of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any federal or state insolvency or similar laws or the consent by the Company or any of its Subsidiaries to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian or similar official for the Company or any of its Subsidiaries of any of the property of the Company or any of its Subsidiaries or the making by the Company or any of its Subsidiaries of an assignment for the benefit of creditors, or the failure by Company or any of its Subsidiaries generally to pay its debts as the debts become due. 6.8 Judgments, Awards. Any judgment or order for the payment of money is rendered against the Company or any of its Subsidiaries in an amount in excess of five hundred thousand dollars ($500,000) individually or in the aggregate and either (i) enforcement proceedings are commenced by any creditor upon such judgment or order and not stayed, or (ii) there is any period of sixty (60) consecutive days during which such judgment has not been paid in full or a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, is not in effect. 6.9 Attachment by Lenders. Any assets of the Company or any of its Subsidiaries shall be attached, levied upon, seized or repossessed, or come into the 14 possession of a trustee, receiver or other custodian and a determination by any Holder, in good faith but in its sole discretion, that the same could have a material adverse effect on the prospect for the Holders to fully and punctually realize the full benefits conferred on the Holders by the Loan Documents. 6.10 Adverse Change in Financial Condition. Any event having a material adverse effect on the business, operations, assets, properties or condition of the Company and its Subsidiaries taken as a whole shall have occurred and be continuing or a material adverse effect on the validity or enforceability of this or any of the other Loan Documents or the rights or remedies of the Holders hereunder or thereunder. 7. Remedies. Upon and after the occurrence of an Event of Default, the Holder shall be entitled to the exercise the rights and remedies set forth in the Security Agreement, the other Loan Documents and under applicable law, all such rights and remedies being cumulative and enforceable alternatively, successively or concurrently. 8. Prepayment. The Company may not prepay this Note prior to the Maturity Date without the prior written consent of the Holders. 9. Seniority. (a) Except as set forth in the Subordination Agreement, the Notes will rank senior in right of payment to all other indebtedness of the Company, other than the GA Notes and the January 2004 Notes, with respect to which the Notes will be pari passu in right of payment in accordance with the Intercreditor Agreement. (b) Notwithstanding anything to the contrary contained in the Notes, this Note and the other Notes, and the terms and the conditions hereof and thereof, are subject to the Intercreditor Agreement. 10. Assignment. Subject to the restrictions on transfer described in Section 12 below, the rights and obligations of the Company and Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. The Company shall not be permitted to assign this Note without the prior written consent of the Holders. 11. Waiver of Notice. The Company hereby waives notice, presentment, demand, protest and notice of dishonor. 12. Transfer of This Note. With respect to any offer, sale or other disposition of this Note, Holder will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such Holder's counsel, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect); provided, that no opinion shall be required for any transfer to an Affiliate or if the transfer is made in compliance with the Securities Act, so long as the transferee can make the same representations and warranties at the time of transfer as set forth in Sections 4.5, 4.6, 4.7, 15 4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly upon delivering such written notice and opinion, if so required, Holder may sell or otherwise dispose of this Note, all in accordance with the terms of the notice delivered to the Company. Each Note thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. Notwithstanding the foregoing, the Holder shall not be permitted to transfer this Note to any Person who is not an Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of written notice from the Company that Stockholder Approval cannot be obtained, or the occurrence of an actual vote of the Company's shareholders entitled to vote (whether by written consent or at a meeting specially called for such purpose), the result of which is a decision by a majority of the Company's shareholders entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of an Event of Default. This Note is registered as to both principal and stated interest with the Company (or its agent) within the meaning of section 1.871-14(c)(1)(i) of the Income Tax Regulations. Accordingly, notwithstanding anything to the contrary in this paragraph, this Note, together with any interest thereon, may be transferred only (i) upon surrender of the Note by the transferor to the Company (or its agent) and the reissuance of the Note (or the issuance of a new Note) to the transferee, or (ii) by transfer of the right to principal and interest through a book-entry system meeting the requirements of section 1.871-14(c)(1)(i)(B) of the Income Tax Regulations that is maintained by the Company (or its agent). In the case of a Holder that is not a "United States person" within the meaning of section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the "Code"), so long as an exception under section 871(h) or section 881(c) of the Code does not apply, the Company (or its agent) shall not withhold any U.S. federal income tax with respect to such Holder provided that the Holder timely provides the Company (or its agent) with a statement that meets the requirements of section 871(h)(5) of the Code. 13. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 14. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally recognized courier service or mailed by registered or certified mail, postage prepaid, to the respective addresses of the parties as set forth on the signature pages hereto or if sent by facsimile to the respective facsimile numbers of the parties set forth on the signature pages hereto. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given and received when personally delivered or three (3) business days after deposited in the mail or one business day after sent by courier or upon confirmation of facsimile delivery in the manner set forth above. 16 15. No Stockholder Rights. Nothing contained in this Note shall be construed as conferring upon Holder or any other Person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. 16. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law relating to conflict of laws. 17. Amendments and Waivers. No amendments or waivers of any provision of this Note, and no consent by the Holder to any departure by the Company, shall in any event be effective unless the same shall be in writing, and signed by the Holders of a majority of the outstanding principal amount of all of the Notes issued by the Company pursuant to the Note Purchase Agreement, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 18. Severability. Any provision of this Note that is prohibited or unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF 17 THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. 20. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except as otherwise indicated, all references herein to Sections refer to Sections hereof. [the remainder of this page intentionally left blank] 18 IN WITNESS WHEREOF, the Company has caused this Note to be issued this 9th day of March, 2004. COMPANY: CRITICAL PATH, INC., a California corporation By: /s/ William E. McGlashan, Jr. ---------------------------------- Name: William E. McGlashan, Jr. Title: Chairman, Chief Executive Officer Critical Path, Inc. 350 The Embarcadero San Francisco, CA 94105-1204 Telecopy: (415) 541-2300 Attention: Chief Financial Officer With a copy to: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Telecopy: (415) 983-1200 Attention: Gregg Vignos, Esq. Name of Holder: CAPITAL VENTURES INTERNATIONAL Address: c/o Heights Capital Management, Inc. 425 California Street, Suite 1100 San Francisco, CA 94104 Attention: Martin Kobinger Telephone: (415) 403-6500 Facsimile: (415) 403-6525 EX-4.44 29 f97295exv4w44.txt EXHIBIT 4.44 Exhibit 4.44 ================================================================================ THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT among CRITICAL PATH, INC. GENERAL ATLANTIC PARTNERS 74, L.P., GAP COINVESTMENT PARTNERS II, L.P., GAPSTAR, LLC, GAPCO GMBH & CO. KG and THE OTHER PARTIES LISTED HEREIN ---------------------------- Dated: March 9, 2004 ---------------------------- ================================================================================ TABLE OF CONTENTS

Page ---- 1. Definitions...................................................................2 2. General; Securities Subject to this Agreement.................................7 (a) Grant of Rights........................................................7 (b) Registrable Securities.................................................7 (c) Holders of Registrable Securities......................................7 3. Demand Registration...........................................................8 (a) Request for Demand Registration........................................8 (b) Incidental or "Piggy-Back" Rights with Respect to a Demand Registration9 (c) Effective Demand Registration..........................................9 (d) Expenses...............................................................9 (e) Underwriting Procedures...............................................10 (f) Selection of Underwriters.............................................10 4. Incidental or "Piggy-Back" Registration......................................11 (a) Request for Incidental Registration...................................11 (b) Expenses..............................................................11 5. Holdback Agreements..........................................................11 (a) Restrictions on Public Sale by Designated Holders.....................11 (b) Restrictions on Public Sale by the Company............................12 6. Registration Procedures......................................................12 (a) Obligations of the Company............................................12 (b) Seller Information....................................................15 (c) Notice to Discontinue.................................................15 (d) Registration Expenses.................................................15 7. Indemnification; Contribution................................................16 (a) Indemnification by the Company........................................16 (b) Indemnification by Designated Holders.................................16 (c) Conduct of Indemnification Proceedings................................17 (d) Contribution..........................................................17 8. Rule 144.....................................................................18 9. Miscellaneous................................................................18 (a) Recapitalizations, Exchanges, etc.....................................18 (b) No Inconsistent Agreements............................................19 (c) Remedies..............................................................19 (d) Amendments and Waivers................................................19 (e) Notices...............................................................19 (f) Successors and Assigns; Third Party Beneficiaries.....................22

i

Page ---- (g) Counterparts..........................................................22 (h) Headings..............................................................22 (i) Governing Law.........................................................23 (j) Severability..........................................................23 (k) Rules of Construction.................................................23 (l) Entire Agreement......................................................23 (m) Further Assurances....................................................23 (n) Other Agreements......................................................23 (o) Effective Date and Termination........................................23

ii THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated March 9, 2004 (this "Agreement"), among Critical Path, Inc., a California corporation (the "Company"), General Atlantic Partners 74, L.P., a Delaware limited partnership ("GAP LP"), GAP Coinvestment Partners II, L.P., a Delaware limited partnership ("GAP Coinvestment"), GapStar, LLC, a Delaware limited liability company ("GapStar"), GAPCO GmbH & Co. KG, a German limited partnership ("GmbH Coinvestment"), Cenwell Limited ("Cenwell"), Campina Enterprises Limited ("Campina"), Great Affluent Limited ("Great Affluent"), Dragonfield Limited ("Dragonfield"), Lion Cosmos Limited ("Lion Cosmos"), Vectis CP Holdings, LLC, a Delaware limited liability company ("Vectis"), Permal U.S. Opportunities Limited ("Permal"), Zaxis Equity Neutral, L.P. ("Zaxis Equity"), Zaxis Institutional Partners, L.P. ("Zaxis Institutional"), Zaxis Offshore Limited ("Zaxis Offshore"), Zaxis Partners, L.P. ("Zaxis Partners"), Guggenheim Portfolio Company XIII ("Guggenheim" and collectively with Permal, Zaxis Equity, Zaxis Institutional, Zaxis Offshore and Zaxis Partners, "Apex Capital"), Passport Master Fund, L.P. ("Passport Capital"), Crosslink Crossover Fund IV, L.P. ("Crosslink"), Sagamore Hill Hub Fund, Ltd. ("Sagamore"), Criterion Capital Partners, Ltd. ("Criterion Limited"), Criterion Capital Partners, Institutional ("Criterion Institutional"), Criterion Capital Partners, L.P. ("Criterion LP" and together with Criterion Limited and Criterion Institutional, "Criterion") and Capital Ventures International ("Heights Capital"); WHEREAS, pursuant to the Stock and Warrant Purchase Agreement, dated November 8, 2001, as amended from time to time (the "Stock Purchase Agreement"), among the Company, GAP LP, GAP Coinvestment, GapStar, Cenwell, Campina and Vectis, the Company has (i) issued and sold to GAP LP, GAP Coinvestment, GapStar, Cenwell, Campina and Vectis, an aggregate of 2,162,582 shares of Series D Cumulative Redeemable Convertible Participating Series D Preferred Stock, par value $0.001 per share, of the Company, as amended from time to time (the "Series D Preferred Stock"), (ii) issued and delivered to GAP LP, GAP Coinvestment and GapStar an aggregate of 1,837,418 shares of Series D Preferred Stock in exchange for a certain amount of convertible subordinated notes of the Company and (iii) issued and sold to GAP LP, GAP Coinvestment and GapStar warrants to purchase shares of Common Stock (as hereinafter defined) (the "Warrants"); WHEREAS, pursuant to the Convertible Note Purchase and Exchange Agreement, dated November 18, 2003 (the "Convertible Note Purchase and Exchange Agreement"), among the Company, GAP LP, GAP Coinvestment, GapStar, GAP-W, LLC, a Delaware limited liability company, GmbH Coinvestment, Campina, Cenwell, Great Affluent, Dragonfield and Lion Cosmos, as amended, (i) the Company has issued and sold to GAP LP, GAP Coinvestment, GapStar and GmbH Coinvestment convertible promissory notes (the "GA Notes") which are convertible into shares, par value $0.001 per share, of Series E Redeemable Convertible Preferred Stock of the Company (the "Series E Preferred Stock") and (ii) Campina, Cenwell, Great Affluent, Dragonfield and Lion Cosmos agreed upon the satisfaction of certain conditions to exchange their CK Sub Notes (as hereinafter defined) for shares of Series E Preferred Stock; WHEREAS, pursuant to the Convertible Note Purchase Agreement, dated January 16, 2004, among the Company, Permal, Zaxis Equity, Zaxis Institutional, Zaxis Offshore, Zaxis Partners and Passport Capital (the "January Convertible Note Agreement"), the Company has issued and sold to Permal, Zaxis Equity, Zaxis Institutional, Zaxis Offshore, Zaxis Partners and Passport Capital convertible promissory notes (the "January 2004 Notes") which are convertible into shares of Series E Preferred Stock; WHEREAS, pursuant to the Convertible Note Purchase Agreement, dated March 9, 2004, among the Company, Apex Capital, Crosslink, Sagamore, Criterion and Heights Capital (the "March Convertible Note Agreement" and, together with the January Convertible Note Agreement, the "Convertible Note Agreements"), the Company has issued and sold to Apex Capital, Crosslink, Sagamore, Criterion and Heights Capital convertible promissory notes in the principal amount of up to $18,500,000 (the "March 2004 Notes" and, collectively with the GA Notes and the January 2004 Notes, the "Notes") which are convertible into shares of Series E Preferred Stock; and WHEREAS, in order to induce (i) each of GAP LP, GAP Coinvestment, GapStar, GmbH Coinvestment, Apex Capital, Passport Capital, Crosslink, Sagamore, Criterion and Heights Capital to purchase the Notes and (ii) Campina, Cenwell, Great Affluent, Dragonfield and Lion Cosmos to exchange the CK Sub Notes for shares of Series E Preferred Stock, the Company has agreed to grant registration rights with respect to the Registrable Securities (as hereinafter defined) as set forth in this Agreement: NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Definitions. As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated: "Affiliate" shall mean any Person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. "Agreement" means this Agreement as the same may be amended, supplemented or modified in accordance with the terms hereof. "Amended and Restated Stockholders Agreement" shall mean the Amended and Restated Stockholders Agreement, dated the date hereof, among the Company, GAP LP, GAP Coinvestment, GapStar, GmbH Coinvestment and the Persons listed therein as "Coinvestors." "Apex Capital" has the meaning set forth in the preamble to this Agreement. "Apex Stockholders" means Apex Capital, Passport Capital, Crosslink, Sagamore, Criterion and Heights Capital and any Affiliate thereof that, after the date hereof, acquires Registrable Securities. 2 "Approved Underwriter" has the meaning set forth in Section 3(f) of this Agreement. "Board of Directors" means the Board of Directors of the Company. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in the State of New York are authorized or required by law or executive order to close. "Campina" has the meaning set forth in the preamble to this Agreement. "Cenwell" has the meaning set forth in the preamble to this Agreement. "Coinvestor Stockholders" means Cenwell, Campina, Great Affluent, Dragonfield, Lion Cosmos and any Affiliate thereof that, after the date hereof, acquires Registrable Securities. "CK Sub Notes" means the 53/4% Convertible Subordinated Notes due April 1, 2005 issued by the Company in the principal face amount of thirty-two million seven hundred ninety-five thousand dollars ($32,795,000), pursuant to the Company's Indenture, dated March 31, 2000. "Commission" means the Securities and Exchange Commission or any similar agency then having jurisdiction to enforce the Securities Act. "Common Stock" means the Common Stock, par value $0.001 per share, of the Company or any other capital stock of the Company into which such stock is reclassified or reconstituted and any other common stock of the Company. "Company" has the meaning set forth in the preamble to this Agreement. "Company Underwriter" has the meaning set forth in Section 4(a) of this Agreement. "Conversion" has the meaning set forth in the Convertible Note Agreements. "Conversion and Exchange" has the meaning set forth in the Convertible Note Purchase and Exchange Agreement. "Convertible Note Purchase and Exchange Agreement" has the meaning set forth in the recitals to this Agreement. "Convertible Note Agreements" has the meaning set forth in the recitals to this Agreement. "Criterion" has the meaning set forth in the preamble to this Agreement. "Crosslink" has the meaning set forth in the preamble to this Agreement. 3 "Daily Trade Amount" means, (a) as to each of the General Atlantic Stockholders, the Coinvestor Stockholders, the Vectis Stockholders and the Apex Stockholders (other than Passport Capital, Crosslink, Sagamore, Criterion and Heights Capital), the greater of (i) with respect to any date a proposed sale pursuant to a Registration Statement is to be executed, 20% of the daily trading volume of the Common Stock on the Nasdaq National Market System on the date a proposed trade is to take place and (ii) 20% of the average daily trading volume of the Common Stock on the Nasdaq National Market for the five trading days immediately preceding such date, (b) as to Passport Capital, the greater of (i) 6.7% of the daily trading volume of the Common Stock on the Nasdaq National Market System on the date a proposed trade is to take place and (ii) 6.7% of the average daily trading volume of the Common Stock on the Nasdaq National Market for the five trading days immediately preceding such date, (c) as to Crosslink, the greater of (i) 8.9% of the daily trading volume of the Common Stock on the Nasdaq National Market System on the date a proposed trade is to take place and (ii) 8.9% of the average daily trading volume of the Common Stock on the Nasdaq National Market for the five trading days immediately preceding such date, (d) as to Sagamore, the greater of (i) 5.3% of the daily trading volume of the Common Stock on the Nasdaq National Market System on the date a proposed trade is to take place and (ii) 5.3% of the average daily trading volume of the Common Stock on the Nasdaq National Market for the five trading days immediately preceding such date, (e) as to Criterion, the greater of (i) 6.2% of the daily trading volume of the Common Stock on the Nasdaq National Market System on the date a proposed trade is to take place and (ii) 6.2% of the average daily trading volume of the Common Stock on the Nasdaq National Market for the five trading days immediately preceding such date and (f) as to Heights Capital, the greater of (i) 3.6% of the daily trading volume of the Common Stock on the Nasdaq National Market System on the date a proposed trade is to take place and (ii) 3.6% of the average daily trading volume of the Common Stock on the Nasdaq National Market for the five trading days immediately preceding such date; provided, however, that for the purpose of calculating the Daily Trade Amount, a block trade effected by a party outside the Nasdaq National Market System shall be disregarded for purposes of calculating the amount disposed of by the party and the daily trading volume. The Daily Trade Amount shall apply to each such stockholder severally and not jointly, shall not be aggregated among or between such stockholders, and such stockholders shall not be required hereby to coordinate their sales or dispositions of Common Stock. "Demand Registration" has the meaning set forth in Section 3(a) of this Agreement. "Designated Holder" means each of the General Atlantic Stockholders, the Coinvestor Stockholders, the Vectis Stockholders and the Apex Stockholders and any transferee of any of them to whom Registrable Securities have been transferred in accordance with Section 9(f) of this Agreement, other than a transferee to whom Registrable Securities have been transferred pursuant to a Registration Statement under the Securities Act or Rule 144 (or any successor rule thereto). "Dragonfield" has the meaning set forth in the recitals to this Agreement. 4 "Exchange" has the meaning set forth in the Convertible Note Purchase and Exchange Agreement. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder. "GA Notes" has the meaning set forth in the recitals to this Agreement. "GAP Coinvestment" has the meaning set forth in the preamble to this Agreement. "GAP LLC" means General Atlantic Partners, LLC, a Delaware limited liability company and the general partner of GAP LP and the managing member of GapStar, and any successor to such entity. "GAP LP" has the meaning set forth in the preamble to this Agreement. "GapStar" has the meaning set forth in the preamble to this Agreement. "General Atlantic Stockholders" means GAP LP, GAP Coinvestment, GapStar, GmbH Coinvestment and any Affiliate of GAP LLC that, after the date hereof, acquires Registrable Securities. "GmbH Coinvestment" means GAPCO GmbH & Co. KG, a German limited partnership. "Great Affluent" has the meaning set forth in the recitals to this Agreement. "Heights Capital" has the meaning set forth in the preamble to this Agreement. "Holders' Counsel" has the meaning set forth in Section 6(a)(i) of this Agreement. "Incidental Registration" has the meaning set forth in Section 4(a) of this Agreement. "Indemnified Party" has the meaning set forth in Section 7(c) of this Agreement. "Indemnifying Party" has the meaning set forth in Section 7(c) of this Agreement. "Initiating Holders" has the meaning set forth in Section 3(a) of this Agreement. "Inspector" has the meaning set forth in Section 6(a)(vii) of this Agreement. "January Convertible Note Agreement" has the meaning set forth in the recitals to this Agreement. "January 2004 Notes" has the meaning set forth in the recitals to this Agreement. 5 "Liability" has the meaning set forth in Section 7(a) of this Agreement. "Lion Cosmos" has the meaning set forth in the recitals to this Agreement. "March Convertible Note Agreement" has the meaning set forth in the recitals to this Agreement. "March 2004 Notes" has the meaning set forth in the recitals to this Agreement. "NASD" means the National Association of Securities Dealers, Inc. "Passport Capital" has the meaning set forth in the preamble to this Agreement. "Person" means any individual, firm, corporation, partnership, limited liability company, trust, incorporated or unincorporated association, joint venture, joint stock company, limited liability company, government (or an agency or political subdivision thereof) or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. "Public Offering" means any public offering of the shares of Common Stock of the Company pursuant to an effective Registration Statement filed under the Securities Act. "Records" has the meaning set forth in Section 6(a)(vii) of this Agreement. "Registrable Securities" means each of the following: (a) any and all shares of Common Stock issued or issuable upon conversion of shares of Series D Preferred Stock or exercise of the Warrants, and, subject to Stockholder Approval, any and all shares of Common Stock issued or issuable upon conversion of shares of Series E Preferred Stock, (b) if the Subsequent Closing does not occur by August 15, 2004, the shares of Common Stock issued upon conversion of the January 2004 Notes and the March 2004 Notes, (c) any other shares of Common Stock acquired or owned by any of the Designated Holders after the date hereof if such Designated Holder is an Affiliate of the Company and (d) any shares of Common Stock issued or issuable to any of the Designated Holders with respect to the Registrable Securities by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise and any shares of Common Stock or voting common stock issuable upon conversion, exercise or exchange thereof. "Registration Expenses" has the meaning set forth in Section 6(d) of this Agreement. "Registration Statement" means a Registration Statement filed pursuant to the Securities Act. "Rights Offering" has the meaning set forth in the Convertible Note Purchase and Exchange Agreement. "Sagamore" has the meaning set forth in the preamble to this Agreement. 6 "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "Series D Preferred Stock" has the meaning set forth in the recitals to this Agreement. "Series E Preferred Stock" has the meaning set forth in the recitals to this Agreement. "Stock Purchase Agreement" has the meaning set forth in the recitals to this Agreement. "Stockholder Approval" has the meaning set forth in the Convertible Note Purchase and Exchange Agreement. "Valid Business Reason" has the meaning set forth in Section 3(a) of this Agreement. "Vectis" has the meaning set forth in the preamble of this Agreement. "Vectis Stockholders" means Vectis and any Affiliate thereof that, after the date hereof, acquires Registrable Securities. "Warrants" has the meaning set forth in the recitals to this Agreement. 2. General; Securities Subject to this Agreement. (a) Grant of Rights. The Company hereby grants registration rights to the Designated Holders upon the terms and conditions set forth in this Agreement. (b) Registrable Securities. For the purposes of this Agreement, Registrable Securities will cease to be Registrable Securities, when (i) a Registration Statement covering such Registrable Securities has been declared effective under the Securities Act by the Commission and such Registrable Securities have been disposed of pursuant to such effective Registration Statement, (ii) (x) the entire amount of the Registrable Securities owned by a Designated Holder may be sold in a single sale, in the opinion of counsel satisfactory to the Company and such Designated Holder, each in their reasonable judgment, without any limitation as to volume pursuant to Rule 144 (or any successor provision then in effect) under the Securities Act and (y) such Designated Holder owning such Registrable Securities owns less than one percent (1%) of the outstanding shares of Common Stock on a fully diluted basis, or (iii) the Registrable Securities are proposed to be sold or distributed by a Person not entitled to the registration rights granted by this Agreement. (c) Holders of Registrable Securities. A Person is deemed to be a holder of Registrable Securities whenever such Person owns of record Registrable Securities, or holds an option to purchase, or a security convertible into or exercisable or exchangeable for, Registrable Securities whether or not such acquisition or conversion has actually been effected. If the Company receives conflicting instructions, notices or elections from two or more Persons with 7 respect to the same Registrable Securities, the Company may act upon the basis of the instructions, notice or election received from the registered owner of such Registrable Securities. Registrable Securities issuable upon exercise of an option or upon conversion of another security shall be deemed outstanding for the purposes of this Agreement. 3. Demand Registration. (a) Request for Demand Registration. At any time after the earliest of (i) the expiration or consummation of the exercise of the right of the General Atlantic Stockholders and the Coinvestor Stockholders (or their respective permitted transferees) to purchase those shares of Series E Preferred Stock offered in the Rights Offering but not acquired by holders of shares of the Company's Common Stock, (ii) the termination of the Rights Offering and the occurrence of the special meeting to seek Stockholder Approval and (iii) August 15, 2004, if the Conversion and Exchange and the Conversion have not occurred on or prior to such date, each of (A) the General Atlantic Stockholders, (B) the Coinvestor Stockholders, (C) Apex Capital, (D) Passport Capital, (E) Crosslink, (F) Sagamore, (G) Criterion and (H) Heights Capital (the "Initiating Holders"), may each make a written request to the Company to register, and the Company shall register, under the Securities Act and on an appropriate registration statement form as reasonably determined by the Company and approved by the Initiating Holders (a "Demand Registration"), the number of Registrable Securities stated in such request; provided, however, that the Company shall not be obligated to effect more than one such Demand Registration for the General Atlantic Stockholders (subject to Section 3(e)(ii) below), more than one such Demand Registration for the Coinvestor Stockholders (subject to Section 3(e)(ii) below), more than one such Demand Registration for Apex Capital (subject to Section 3(e)(ii) below), more than one such Demand Registration for Passport Capital (subject to Section 3(e)(ii) below), more than one such Demand Registration for Crosslink (subject to Section 3(e)(ii) below), more than one such Demand Registration for Sagamore (subject to Section 3(e)(ii) below), more than one such Demand Registration for Criterion (subject to Section 3(e)(ii) below) and more than one such Demand Registration for Heights Capital (subject to Section 3(e)(ii) below). If following receipt of a written request for a Demand Registration the Board of Directors, in its good faith judgment, determines that any registration of Registrable Securities should not be made or continued because it would materially interfere with any material financing, acquisition, corporate reorganization or merger or other material transaction involving the Company (a "Valid Business Reason"), the Company may (x) postpone filing a Registration Statement relating to a Demand Registration until such Valid Business Reason no longer exists, but in no event for more than ninety (90) days, and (y) in case a Registration Statement has been filed relating to a Demand Registration, if the Valid Business Reason has not resulted from actions taken by the Company, the Company, upon the approval of a majority of the Board of Directors, such majority to include at least one Director appointed by the General Atlantic Stockholders, may cause such Registration Statement to be withdrawn and its effectiveness terminated or may postpone amending or supplementing such Registration Statement. The Company shall give written notice of its determination to postpone or withdraw a Registration Statement and of the fact that the Valid Business Reason for such postponement or withdrawal no longer exists, in each case, promptly after the occurrence thereof. Notwithstanding anything to the contrary contained herein, the Company may not postpone or withdraw a filing under this Section 3(a) more than once in any twelve (12) month period. Each request for a Demand Registration by the Initiating 8 Holders shall state the amount of the Registrable Securities proposed to be sold and the intended method of disposition thereof. (b) Incidental or "Piggy-Back" Rights with Respect to a Demand Registration. Each of the Designated Holders (other than Initiating Holders which have requested a registration under Section 3(a)) may offer its or his Registrable Securities under any Demand Registration pursuant to this Section 3(b). Within five (5) days after the receipt of a request for a Demand Registration from an Initiating Holder, the Company shall (i) give written notice thereof to all of the Designated Holders (other than Initiating Holders which have requested a registration under Section 3(a)) and (ii) subject to Section 3(e), include in such registration all of the Registrable Securities held by such Designated Holders from whom the Company has received a written request for inclusion therein within ten (10) days of the receipt by such Designated Holders of such written notice referred to in clause (i) above. Each such request by such Designated Holders shall specify the number of Registrable Securities proposed to be registered. The failure of any Designated Holder to respond within such 10 day period referred to in clause (ii) above shall be deemed to be a waiver of such Designated Holder's rights under this Section 3 with respect to such Demand Registration. Any Designated Holder may waive its rights under this Section 3 prior to the expiration of such 10-day period by giving written notice to the Company, with a copy to the Initiating Holders. If a Designated Holder sends the Company a written request for inclusion of part or all of such Designated Holder's Registrable Securities in a registration, such Designated Holder shall not be entitled to withdraw or revoke such request without the prior written consent of the Company in its sole discretion unless, as a result of facts or circumstances arising after the date on which such request was made relating to the Company or to market conditions, such Designated Holder reasonably determines that participation in such registration would have a material adverse effect on such Designated Holder. (c) Effective Demand Registration. The Company shall use all commercially reasonable efforts to cause any such Demand Registration to be filed not later than thirty (30) days after it receives a request under Section 3(a) hereof and to become and remain effective as soon as practicable thereafter but, in any event, not later than ninety (90) days (or, if the Company is eligible to effect such registration on Form S-3, sixty (60) days) after such filing. A registration shall not constitute a Demand Registration unless it has become effective and remains continuously effective until the earlier of the date (i) on which all Registrable Securities registered in the Demand Registration are sold and (ii) that is the second anniversary of the effectiveness of the Registration Statement relating to such Demand Registration; provided, however, that a registration shall not constitute a Demand Registration if (x) after such Demand Registration has become effective, such registration or the related offer, sale or distribution of Registrable Securities thereunder is interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason not attributable to the Initiating Holders and such interference is not thereafter eliminated or (y) the conditions specified in the underwriting agreement, if any, entered into in connection with such Demand Registration are not satisfied or waived, other than by reason of a failure by the Initiating Holder. (d) Expenses. The Company shall pay all Registration Expenses in connection with a Demand Registration, whether or not such Demand Registration becomes 9 effective, except for an underwritten Demand Registration pursuant to Section 3(e)(i)(y) below, as to which each participating Designated Holder shall bear its pro rata portion of expenses based on the number of shares of Common Stock registered pursuant thereto. (e) Underwriting Procedures. (i) If (x) any of the Initiating Holders so elects for itself or (y) with respect to any given trading day, a Designated Holder proposes to sell or dispose of more than the Daily Trade Amount and the Company's board of directors determines in good faith that it is necessary for an orderly distribution to be made pursuant to a firm commitment underwritten offering, then the Company shall use all commercially reasonable efforts to cause such Demand Registration to be in the form of, and such Designated Holder or Designated Holders shall be obligated to sell or dispose of its or their Registrable Securities pursuant to, a firm commitment underwritten offering and the managing underwriter or underwriters selected for such offering shall be the Approved Underwriter selected in accordance with Section 3(f). In connection with any Demand Registration under this Section 3 involving an underwritten offering, none of the Registrable Securities held by any Designated Holder making a request for inclusion of such Registrable Securities pursuant to Section 3(b) hereof shall be included in such underwritten offering unless such Designated Holder accepts the terms of the offering as agreed upon by the Company, the Initiating Holders and the Approved Underwriter, and then only in such quantity as will not, in the opinion of the Approved Underwriter, jeopardize the success of such offering by the Initiating Holders. If the Approved Underwriter advises the Company in its reasonable opinion that the aggregate amount of such Registrable Securities requested to be included in such offering is sufficiently large to have a material adverse effect on the success of such offering, then the Company shall include in such registration only the aggregate amount of Registrable Securities that the Approved Underwriter believes may be sold without any such material adverse effect and shall reduce the amount of Registrable Securities to be included in such registration by removing from such registration securities owned, first by the Company and second by the Designated Holders (including the Initiating Holders) pro rata based on the number of Registrable Securities owned by each such Designated Holder. (ii) If an Initiating Holder makes a request for a Demand Registration and, pursuant to Section 3(e)(i) above, the Approved Underwriter advises the Company to reduce the aggregate amount of Registrable Securities requested to be included in such offering such that less than seventy-five percent (75%) of the Registrable Securities requested to be included by any Initiating Holder are ultimately included in and sold pursuant to such Demand Registration, the Initiating Holder shall have the right to require the Company to effect an additional Demand Registration; provided, however, that in no event shall the aggregate number of Demand Registrations to be effected by the Company for any one Initiating Holder exceed two (2). (f) Selection of Underwriters. If any Demand Registration of Registrable Securities is in the form of an underwritten offering, the Company shall select and obtain an investment banking firm of national reputation to act as the managing underwriter of the offering (the "Approved Underwriter"); provided, however, that the Approved Underwriter shall, in any case, also be approved by the Initiating Holders. 10 4. Incidental or "Piggy-Back" Registration. (a) Request for Incidental Registration. If at any time the Company proposes to file a Registration Statement under the Securities Act with respect to an offering by the Company for its own account (other than a Registration Statement on Form S-4 or S-8 or any successor thereto) or for the account of any stockholder of the Company other than the Designated Holders, then the Company shall give written notice of such proposed filing to each of the Designated Holders at least twenty (20) days before the anticipated filing date, and such notice shall describe the proposed registration and distribution and offer such Designated Holders the opportunity to register the number of Registrable Securities as each such Designated Holder may request (an "Incidental Registration"). The Company shall use all commercially reasonable efforts (within twenty (20) days of the notice provided for in the preceding sentence) to cause the managing underwriter or underwriters in the case of a proposed underwritten offering (the "Company Underwriter") to permit each of the Designated Holders who have requested in writing to participate in the Incidental Registration to include its or his Registrable Securities in such offering on the same terms and conditions as the securities of the Company or the account of such other stockholder, as the case may be, included therein. In connection with any Incidental Registration under this Section 4(a) involving an underwritten offering, the Company shall not be required to include any Registrable Securities in such underwritten offering unless the Designated Holders thereof accept the terms of the underwritten offering as agreed upon between the Company, such other stockholders, if any, and the Company Underwriter, and then only in such quantity as the Company Underwriter believes will not jeopardize the success of the offering by the Company. If the Company Underwriter determines that the registration of all or part of the Registrable Securities which the Designated Holders have requested to be included would materially adversely affect the success of such offering, then the Company shall be required to include in such Incidental Registration, to the extent of the amount that the Company Underwriter believes may be sold without causing such adverse effect, first, all of the securities to be offered for the account of the Company or on the account of the selling stockholder that caused the registration statement that has triggered the Incidental Registration to be filed, as the case may be; second, the Registrable Securities to be offered for the account of the Designated Holders pursuant to this Section 4, pro rata based on the number of Registrable Securities owned by each such Designated Holder; and third, any other securities requested to be included in such offering. (b) Expenses. The Company shall bear all Registration Expenses in connection with any Incidental Registration pursuant to this Section 4, whether or not such Incidental Registration becomes effective. 5. Holdback Agreements. (a) Restrictions on Public Sale by Designated Holders. To the extent (i) requested (A) by the Company or the Initiating Holders, as the case may be, in the case of a non-underwritten public offering and (B) by the Approved Underwriter or the Company Underwriter, as the case may be, in the case of an underwritten public offering and (ii) all of the Company's officers, directors and holders in excess of one percent (1%) of its outstanding capital stock execute agreements identical to those referred to in this Section 5(a), each Designated Holder agrees (x) not to effect any public sale or distribution of any Registrable 11 Securities or of any securities convertible into or exchangeable or exercisable for such Registrable Securities, including a sale pursuant to Rule 144 under the Securities Act, or offer to sell, contract to sell (including without limitation any short sale), grant any option to purchase or enter into any hedging or similar transaction with the same economic effect as a public sale any Registrable Securities and (y) not to make any request for a Demand Registration under this Agreement, during the ninety (90) day period or such shorter period, if any, mutually agreed upon by such Designated Holder and the requesting party beginning on the effective date of the Registration Statement (except as part of such registration) for such public offering. No Designated Holder of Registrable Securities subject to this Section 5(a) shall be released from any obligation under any agreement, arrangement or understanding entered into pursuant to this Section 5(a) unless all other Designated Holders of Registrable Securities subject to the same obligation are also released. All Designated Holders of Registrable Securities shall be automatically released from any obligations under any agreement, arrangement or understanding entered into pursuant to this Section 5(a) immediately upon the expiration of the 90 day period, and in any case, on the date that is two years from the date of this Agreement. (b) Restrictions on Public Sale by the Company. The Company agrees not to effect any public sale or distribution of any of its securities, or any securities convertible into or exchangeable or exercisable for such securities (except pursuant to registrations on Form S-4 or S-8 or any successor thereto), during the period beginning on the effective date of any Registration Statement in which the Designated Holders of Registrable Securities are participating and ending on the earlier of (i) the date on which all Registrable Securities registered on such Registration Statement are sold and (ii) 120 days after the effective date of such Registration Statement (except as part of such registration). 6. Registration Procedures. (a) Obligations of the Company. Whenever registration of Registrable Securities has been requested pursuant to Section 3 or Section 4 of this Agreement, the Company shall use all commercially reasonable efforts to effect the registration and sale of such Registrable Securities in accordance with the intended method of distribution thereof as quickly as practicable, and in connection with any such request, the Company shall, as expeditiously as possible: (i) prepare and file with the Commission a Registration Statement on any form for which the Company then qualifies or which counsel for the Company shall deem appropriate and which form shall be available for the sale of such Registrable Securities in accordance with the intended method of distribution thereof, and cause such Registration Statement to become effective; provided, however, that (x) before filing a Registration Statement or prospectus or any amendments or supplements thereto, the Company shall provide counsel selected by the Designated Holders holding a majority of the Registrable Securities being registered in such registration ("Holders' Counsel") with an adequate opportunity to review and comment on such Registration Statement and each prospectus included therein (and each amendment or supplement thereto) to be filed with the Commission, subject to such documents being under the Company's control, and (y) the Company shall notify the Holders' Counsel and each seller of Registrable Securities of any stop order issued or threatened by the Commission and take all action required to prevent the entry of such stop order or to remove it if entered; 12 (ii) prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for the lesser of (x) 120 days and (y) such shorter period which will terminate when all Registrable Securities covered by such Registration Statement have been sold, and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement; (iii) furnish to each seller of Registrable Securities, prior to filing a Registration Statement, at least one copy of such Registration Statement as is proposed to be filed, and thereafter such number of copies of such Registration Statement, each amendment and supplement thereto (in each case including all exhibits thereto), and the prospectus included in such Registration Statement (including each preliminary prospectus) and any prospectus filed under Rule 424 under the Securities Act as each such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller; (iv) register or qualify such Registrable Securities under such other securities or "blue sky" laws of such jurisdictions as any seller of Registrable Securities may request, and to continue such qualification in effect in such jurisdiction for as long as permissible pursuant to the laws of such jurisdiction, or for as long as any such seller requests or until all of such Registrable Securities are sold, whichever is shortest, and do any and all other acts and things which may be reasonably necessary or advisable to enable any such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller; provided, however, that the Company shall not be required to (x) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 6(a)(iv), (y) subject itself to taxation in any such jurisdiction or (z) consent to general service of process in any such jurisdiction; (v) notify each seller of Registrable Securities at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such Registration Statement contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and the Company shall promptly prepare a supplement or amendment to such prospectus and furnish to each seller of Registrable Securities a reasonable number of copies of such supplement to or an amendment of such prospectus as may be necessary so that, after delivery to the purchasers of such Registrable Securities, such prospectus shall not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (vi) enter into and perform customary agreements (including an underwriting agreement containing representations, warranties, covenants and indemnities for securities law matters and otherwise in customary form with the Approved Underwriter or Company Underwriter, if any, selected as provided in Section 3 or Section 4, as the case may be) and take such other actions as are prudent and reasonably required in order to expedite or 13 facilitate the disposition of such Registrable Securities, including causing its officers to participate in "road shows" and other information meetings organized by the Approved Underwriter or Company Underwriter; (vii) make available at reasonable times for inspection by any seller of Registrable Securities, any managing underwriter participating in any disposition of such Registrable Securities pursuant to a Registration Statement, Holders' Counsel and any attorney, accountant or other agent retained by any such seller or any managing underwriter (each, an "Inspector" and collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries (collectively, the "Records") as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's and its subsidiaries' officers, directors and employees, and the independent public accountants of the Company, to supply all information reasonably requested by any such Inspector in connection with such Registration Statement. Records that the Company determines, in good faith, to be confidential and which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors (and the Inspectors shall confirm their agreement in writing in advance to the Company if the Company shall so request) unless (x) the disclosure of such Records is necessary, in the Company's judgment, to avoid or correct a misstatement or omission in the Registration Statement, (y) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction after exhaustion of all appeals therefrom or (z) the information in such Records was known to the Inspectors on a non-confidential basis prior to its disclosure by the Company or has been made generally available to the public. Each seller of Registrable Securities agrees that it shall, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at the Company's expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential; (viii) if such sale is pursuant to an underwritten offering, obtain a "cold comfort" letter dated the effective date of the Registration Statement and the date of the closing under the underwriting agreement from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by "cold comfort" letters as the managing underwriter reasonably requests; (ix) furnish, at the request of any seller of Registrable Securities on the date such securities are delivered to the underwriters for sale pursuant to such registration or, if such securities are not being sold through underwriters, on the date the Registration Statement with respect to such securities becomes effective, an opinion, if reasonably available, dated such date, of counsel representing the Company for the purposes of such registration, addressed to the underwriters, if any, and to the seller making such request, covering such legal matters with respect to the registration in respect of which such opinion is being given as the underwriters, if any, and such seller may reasonably request and are customarily included in such opinions; (x) comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable but no later than fifteen (15) months after the effective date of the Registration Statement, an earnings statement covering a period of twelve (12) months beginning after the effective date of the 14 Registration Statement, in a manner which satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; (xi) cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed, provided that the applicable listing requirements are satisfied; (xii) cooperate with each seller of Registrable Securities and each underwriter participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the NASD; and (xiii) take all other steps reasonably necessary to effect the registration of the Registrable Securities contemplated hereby. (b) Seller Information. The Company may require each seller of Registrable Securities as to which any registration is being effected to furnish, and such seller shall furnish, to the Company such information regarding the distribution of such securities as the Company may from time to time reasonably request in writing. (c) Notice to Discontinue. Each Designated Holder agrees that, not more than two times in any 12-month period, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 6(a)(v), such Designated Holder shall, for a total period not longer than 90 days during each such 12-month period (inclusive of any delay pursuant to a Valid Business Reason under Section 3(a) or period during which the Designated Holder is unable to dispose of Registrable Securities under the Registration Statement pursuant to a notice by the Company under Section 6(a)(v) hereof), forthwith discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Designated Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 6(a)(v) and, if so directed by the Company, such Designated Holder shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Designated Holder's possession, of the prospectus covering such Registrable Securities which is current at the time of receipt of such notice. If the Company shall give any such notice, the Company shall extend the period during which such Registration Statement shall be maintained effective pursuant to this Agreement (including, without limitation, the period referred to in Section 6(a)(ii)) by the number of days during the period from and including the date of the giving of such notice pursuant to Section 6(a)(v) to and including the date when sellers of such Registrable Securities under such Registration Statement shall have received the copies of the supplemented or amended prospectus contemplated by and meeting the requirements of Section 6(a)(v). (d) Registration Expenses. The Company shall pay all expenses arising from or incident to its performance of, or compliance with, this Agreement, including, without limitation, (i) Commission, stock exchange and NASD registration and filing fees, (ii) all fees and expenses incurred in complying with securities or "blue sky" laws (including reasonable fees, charges and disbursements of counsel to any underwriter incurred in connection with "blue sky" qualifications of the Registrable Securities as may be set forth in any underwriting agreement), (iii) all printing, messenger and delivery expenses and (iv) the fees, charges and 15 expenses of counsel to the Company and of its independent public accountants and any other accounting fees, charges and expenses incurred by the Company (including, without limitation, any expenses arising from any "cold comfort" letters or any special audits incident to or required by any registration or qualification) and any reasonable legal fees, charges and expenses incurred by one counsel for the General Atlantic Stockholders. All of the expenses described in the preceding sentence of this Section 6(d) are referred to herein as "Registration Expenses." The Designated Holders of Registrable Securities sold pursuant to a Registration Statement shall bear the expense of any underwriter's discount or commission relating to registration and sale of such Designated Holders' Registrable Securities. 7. Indemnification; Contribution. (a) Indemnification by the Company. The Company agrees to indemnify and hold harmless each Designated Holder, its partners, directors, officers, affiliates and each Person who controls (within the meaning of Section 15 of the Securities Act) such Designated Holder from and against any and all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) (each, a "Liability" and collectively, "Liabilities"), arising out of or based upon any untrue, or allegedly untrue, statement of a material fact contained in any Registration Statement, prospectus or preliminary prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which such statements were made, except insofar as such Liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission contained in such Registration Statement, preliminary prospectus or final prospectus in reliance and in conformity with information concerning such Designated Holder furnished in writing to the Company by such Designated Holder expressly for use therein, including, without limitation, the information furnished to the Company pursuant to Section 7(b). The Company shall also provide customary indemnities to any underwriters of the Registrable Securities, their officers, directors and employees and each Person who controls such underwriters (within the meaning of Section 15 of the Securities Act) to the same extent as provided above with respect to the indemnification of the Designated Holders of Registrable Securities. (b) Indemnification by Designated Holders. In connection with any Registration Statement in which a Designated Holder is participating pursuant to Section 3 or Section 4 hereof, each such Designated Holder shall promptly furnish to the Company in writing such information with respect to such Designated Holder as the Company may reasonably request or as may be required by law for use in connection with any such Registration Statement or prospectus and all information required to be disclosed in order to make the information previously furnished to the Company by such Designated Holder not materially misleading or necessary to cause such Registration Statement not to omit a material fact with respect to such Designated Holder necessary in order to make the statements therein not misleading. Each Designated Holder agrees to indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the Registration Statement, any underwriter retained by the Company and each Person who controls the Company or such underwriter (within the meaning of Section 15 of the Securities Act) to the same extent as the foregoing indemnity from the Company to the Designated Holders, but only if such statement or alleged statement or omission 16 or alleged omission was made in reliance upon and in conformity with information with respect to such Designated Holder furnished in writing to the Company by such Designated Holder expressly for use in such Registration Statement or prospectus, including, without limitation, the information furnished to the Company pursuant to this Section 7(b); provided, however, that the total amount to be indemnified by such Designated Holder pursuant to this Section 7(b) shall be limited to the net proceeds (after deducting the underwriters' discounts and commissions) received by such Designated Holder in the offering to which the Registration Statement or prospectus relates. (c) Conduct of Indemnification Proceedings. Any Person entitled to indemnification hereunder (the "Indemnified Party") agrees to give prompt written notice to the indemnifying party (the "Indemnifying Party") after the receipt by the Indemnified Party of any written notice of the commencement of any action, suit, proceeding or investigation or threat thereof made in writing for which the Indemnified Party intends to claim indemnification or contribution pursuant to this Agreement; provided, however, that the failure so to notify the Indemnifying Party shall not relieve the Indemnifying Party of any Liability that it may have to the Indemnified Party hereunder (except to the extent that the Indemnifying Party is materially prejudiced or otherwise forfeits substantive rights or defenses by reason of such failure). If notice of commencement of any such action is given to the Indemnifying Party as above provided, the Indemnifying Party shall be entitled to participate in and, to the extent it may wish, jointly with any other Indemnifying Party similarly notified, to assume the defense of such action at its own expense, with counsel chosen by it and reasonably satisfactory to such Indemnified Party. The Indemnified Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be paid by the Indemnified Party unless (i) the Indemnifying Party agrees to pay the same, (ii) the Indemnifying Party fails to assume the defense of such action with counsel reasonably satisfactory to the Indemnified Party or (iii) the named parties to any such action (including any impleaded parties) include both the Indemnifying Party and the Indemnified Party and such parties have been advised by such counsel that either (x) representation of such Indemnified Party and the Indemnifying Party by the same counsel would be inappropriate under applicable standards of professional conduct or (y) there may be one or more legal defenses available to the Indemnified Party which are different from or additional to those available to the Indemnifying Party. In any of such cases, the Indemnifying Party shall not have the right to assume the defense of such action on behalf of such Indemnified Party, it being understood, however, that the Indemnifying Party shall not be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all Indemnified Parties. No Indemnifying Party shall be liable for any settlement entered into without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the consent of such Indemnified Party, effect any settlement of any pending or threatened proceeding in respect of which such Indemnified Party is a party and indemnity has been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability for claims that are the subject matter of such proceeding. (d) Contribution. If the indemnification provided for in this Section 7 from the Indemnifying Party is unavailable to an Indemnified Party hereunder in respect of any Liabilities referred to herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a 17 result of such Liabilities in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions which resulted in such Liabilities, as well as any other relevant equitable considerations. The relative faults of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the Liabilities referred to above shall be deemed to include, subject to the limitations set forth in Sections 7(a), 7(b) and 7(c), any legal or other fees, charges or expenses reasonably incurred by such party in connection with any investigation or proceeding; provided that the total amount to be contributed by such Designated Holder shall be limited to the net proceeds (after deducting the underwriters' discounts and commissions) received by such Designated Holder in the offering. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 7(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. 8. Rule 144. The Company covenants that it shall (a) file any reports required to be filed by it under the Exchange Act and (b) take such further action as each Designated Holder may reasonably request (including providing any information necessary to comply with Rule 144 under the Securities Act), all to the extent required from time to time to enable such Designated Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 under the Securities Act, as such rule may be amended from time to time or (ii) any similar rules or regulations hereafter adopted by the Commission. The Company shall, upon the request of any Designated Holder, deliver to such Designated Holder a written statement as to whether it has complied with such requirements. 9. Miscellaneous. (a) Recapitalizations, Exchanges, etc. The provisions of this Agreement shall apply to the full extent set forth herein with respect to (i) the shares of Common Stock, (ii) any and all shares of voting common stock of the Company into which the shares of Common Stock are converted, exchanged or substituted in any recapitalization or other capital reorganization by the Company and (iii) any and all equity securities of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in conversion of, in exchange for or in substitution of, the shares of Common Stock and shall be appropriately adjusted for any stock dividends, splits, reverse splits, combinations, recapitalizations and the like occurring after the date hereof. The Company shall use all commercially reasonable efforts to cause any successor or assign (whether by merger, consolidation, sale of assets or otherwise) to enter into a new registration rights agreement with the Designated Holders on terms substantially the same as this Agreement as a condition of any such transaction. 18 (b) No Inconsistent Agreements. The Company shall not enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Designated Holders in this Agreement or grant any additional registration rights to any Person or with respect to any securities which are not Registrable Securities which are prior in right to or inconsistent with the rights granted in this Agreement. (c) Remedies. The Designated Holders, in addition to being entitled to exercise all rights granted by law, including recovery of damages, shall be entitled to specific performance of their rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees to waive in any action for specific performance the defense that a remedy at law would be adequate. (d) Amendments and Waivers. Except as otherwise provided herein, the provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless consented to in writing by (i) the Company and (ii) the General Atlantic Stockholders, Coinvestor Stockholders, Vectis Stockholders and Apex Stockholders holding Registrable Securities representing (after giving effect to any adjustments) at least a majority of the aggregate number of Registrable Securities owned by all of the General Atlantic Stockholders, Coinvestor Stockholders, Vectis Stockholders and Apex Stockholders; provided, however, that to the extent any amendment or waiver shall adversely affect any of such stockholders, such amendment or waiver shall require the prior written consent of each stockholder so adversely affected. Any such written consent shall be binding upon the Company and all of the Designated Holders. (e) Notices. All notices, demands and other communications provided for or permitted hereunder shall be made in writing and shall be made by registered or certified first-class mail, return receipt requested, telecopier, courier service or personal delivery: (i) if to the Company: Critical Path, Inc. 350 The Embarcadero San Francisco, CA 94105-1204 Telecopy: (415) 541-2300 Attention: Chief Financial Officer with a copy to: Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Telecopy: (415) 983-1200 Attention: Gregg F. Vignos, Esq. 19 (ii) if to the General Atlantic Stockholders: c/o General Atlantic Service Company 3 Pickwick Plaza Greenwich, CT 06830 Telecopy: (203) 622-8818 Attention: Matthew Nimetz Thomas J. Murphy with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison LLP 1285 Avenue of the Americas New York, NY 10019-6064 Telecopy: (212) 757-3990 Attention: Douglas A. Cifu, Esq. (iii) if to Campina, Great Affluent, Dragonfield or Lion Cosmos: c/o 7th Floor Cheung Kong Center 2 Queen's Road Central Hong Kong Telecopy: (852) 2845-2057 Attention: Mr. Edmond Ip (iv) if to Cenwell: c/o 22nd Floor Hutchison House 10 Harcourt Road Hong Kong Telecopy: (852) 2128-1778 Attention: Company Secretary (v) if to Vectis: c/o Vectis Group, LLC 117 Greenwich Street San Francisco, CA 94111 Telecopy: 415-352-5310 Attention: Matthew Hobart 20 with a copy to: Kirkland & Ellis 153 East 53rd Street New York, NY 10022-4675 Telecopy: 212-446-4900 Attention: Michael Movsovich, Esq. (vi) if to Apex Capital: Apex Capital, LLC 25 Orinda Way, Suite 300 Orinda, CA 94563 Telecopy: (925) 253-1809 Attention: Adam Fiore, General Counsel (vii) if to Passport Capital: Passport Capital, LLC One Sansome Street, 39th Floor San Francisco, CA 94104 Telecopy: (415) 399-7608 Attention: John Burbank, Managing Partner (viii) if to Crosslink: Crosslink Capital Two Embarcadero Center, Suite 2200 San Francisco, CA 94111 Telecopy: (415) 617-1801 Attention: Jason Sanders (ix) if to Sagamore: Sagamore Hill Hub Fund, Ltd. c/o Sagamore Hill Capital Management 10 Glenville Street, 3rd Floor Greenwich, CT 06831 Telecopy: (203) 422-7214 Attention: Legal Department (x) if to Criterion: Criterion Capital Management One Maritime Plaza, Suite 1460 San Francisco, CA 94111 Telecopy:___________________ 21 Attention: R. Daniel Beckham (xi) if to Heights Capital: Capital Ventures International c/o Heights Capital Management, Inc. 425 California Street, Suite 1100 San Francisco, CA 94104 Telecopy: (415) 403-6525 Attention: Martin Kobinger (xii) if to any other Designated Holder, at its address as it appears on the record books of the Company. All such notices, demands and other communications shall be deemed to have been duly given when delivered by hand, if personally delivered; when delivered by courier, if delivered by commercial courier service; five (5) Business Days after being deposited in the mail, postage prepaid, if mailed; and when receipt is mechanically acknowledged, if telecopied. Any party may by notice given in accordance with this Section 9(e) designate another address or Person for receipt of notices hereunder. (f) Successors and Assigns; Third Party Beneficiaries. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto as hereinafter provided. The Demand Registration rights and related rights of the General Atlantic Stockholders, the Coinvestor Stockholders or the Apex Stockholders contained in Section 3 hereof shall be (i) with respect to any Registrable Security that is transferred to an Affiliate of a General Atlantic Stockholder, a Coinvestor Stockholder or an Apex Stockholder, automatically transferred to such Affiliate and (ii) with respect to any Registrable Security that is transferred in all cases to a non-Affiliate, transferred only with the consent of the Company which consent shall not be unreasonably withheld, conditioned or delayed. The incidental or "piggy-back" registration rights of the Designated Holders contained in Sections 3(b) and 4 hereof and the other rights of each of the Designated Holders with respect thereto shall be, with respect to any Registrable Security, automatically transferred to any Person who is the transferee of such Registrable Security so long as such transferee agrees to be bound by this Agreement. All of the obligations of the Company hereunder shall survive any such transfer. Except as provided in Section 7, no Person other than the parties hereto and their successors and permitted assigns is intended to be a beneficiary of this Agreement. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 22 (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. (j) Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof. (k) Rules of Construction. Unless the context otherwise requires, references to sections or subsections refer to sections or subsections of this Agreement. (l) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto with respect to the subject matter contained herein. There are no restrictions, promises, representations, warranties or undertakings with respect to the subject matter contained herein, other than those set forth or referred to herein. Subject to Section 9(o), upon the Subsequent Closing (as defined in the Convertible Note Purchase and Exchange Agreement and the Convertible Note Agreements), this Agreement shall supersede all prior agreements and understandings among the parties with respect to such subject matter. (m) Further Assurances. Each of the parties shall execute such documents and perform such further acts as may be reasonably required or desirable to carry out or to perform the provisions of this Agreement. (n) Other Agreements. Nothing contained in this Agreement shall be deemed to be a waiver of, or release from, any obligations any party hereto may have under, or any restrictions on the transfer of Registrable Securities or other securities of the Company imposed by, any other agreement including, but not limited to, the Stock Purchase Agreement, the Convertible Note Purchase and Exchange Agreement, the Convertible Note Agreements or the Amended and Restated Stockholders Agreement. (o) Effective Date and Termination. Subject to the provisions of this Section 9(o), this Agreement shall become effective immediately following the Subsequent Closing. If the Subsequent Closing does not occur and the obligation to consummate the Conversion and the Exchange and the Conversion has been terminated pursuant to Article IX of the Convertible Note Purchase and Exchange Agreement or Article IX of the Convertible Note Agreements, then this Agreement shall become effective as of the date of such termination; provided, however, that Registrable Securities shall not include any shares of Common Stock issued or issuable upon conversion of the Series E Preferred Stock. [the remainder of this page intentionally left blank] 23 IN WITNESS WHEREOF, the undersigned have executed, or have caused to be executed, this Amended and Restated Registration Rights Agreement on the date first written above. CRITICAL PATH, INC. By: /s/ William E. McGlashan -------------------------------------------- Name: William E. McGlashan Title: Chairman, Chief Executive Officer SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT GENERAL ATLANTIC PARTNERS 74, L.P. By: GENERAL ATLANTIC PARTNERS, LLC, its General Partner By: /s/ Steven A. Denning ------------------------------------ Name: Steven A. Denning Title: A Managing Member GAP COINVESTMENT PARTNERS II, L.P. By: /s/ Steven A. Denning -------------------------------------------- Name: Steven A. Denning Title: A General Partner GAPSTAR, LLC By: GENERAL ATLANTIC PARTNERS, LLC, its Managing Member By: /s/ Steven A. Denning ------------------------------------ Name: Steven A. Denning Title: A Managing Member GAPCO GMBH & CO. KG By: GAPCO MANAGEMENT GMBH, its General Partner By: /s/ Steven A. Denning ------------------------------------ Name: Steven A. Denning Title: A Managing Director SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT VECTIS CP HOLDINGS, LLC, a Delaware limited liability company By: VECTIS GROUP, LLC its Managing Member By: /s/ Matthew T. Hobart -------------------------------------------- Name: Matthew T. Hobart Title: Managing Director SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT CENWELL LIMITED By: /s/ Ip Tak Chuen, Edmond -------------------------------------------- Name: Ip Tak Chuen, Edmond Title: Authorised Person CAMPINA ENTERPRISES LIMITED By: /s/ Ip Tak Chuen, Edmond -------------------------------------------- Name: Ip Tak Chuen, Edmond Title: Director GREAT AFFLUENT LIMITED By: /s/ Ip Tak Chuen, Edmond -------------------------------------------- Name: Ip Tak Chuen, Edmond Title: Director DRAGONFIELD LIMITED By: /s/ Paul Yee Wan, Ezra -------------------------------------------- Name: Paul Yee Wan, Ezra Title: Authorised Person LION COSMOS LIMITED By: /s/ Paul Yee Wan, Ezra -------------------------------------------- Name: Paul Yee Wan, Ezra Title: Director SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT PERMAL U.S. OPPORTUNITIES LIMITED By: Apex Capital, LLC, its Authorized Investment Advisor By: /s/ Sanford J. Colen ----------------------------------------- Name: Sanford J. Colen Title: Manager and Principal ZAXIS PARTNERS, L.P. By: Apex Capital, LLC, its General Partner By: /s/ Sanford J. Colen ----------------------------------------- Name: Sanford J. Colen Title: Manager and Principal ZAXIS EQUITY NEUTRAL, L.P. By: Apex Capital, LLC, its General Partner By: /s/ Sanford J. Colen ----------------------------------------- Name: Sanford J. Colen Title: Manager and Principal ZAXIS OFFSHORE LIMITED By: Apex Capital, LLC, its Authorized Investment Advisor By: /s/ Sanford J. Colen ----------------------------------------- Name: Sanford J. Colen Title: Manager and Principal SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT ZAXIS INSTITUTIONAL PARTNERS, L.P. By: Apex Capital, LLC, its General Partner By: /s/ Sanford J. Colen ----------------------------------------- Name: Sanford J. Colen Title: Manager and Principal GUGGENHEIM PORTFOLIO COMPANY XIII By: Apex Capital, LLC, its Authorized Investment Advisor By: /s/ Sanford J. Colen ----------------------------------------- Name: Sanford J. Colen Title: Manager and Principal SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT PASSPORT MASTER FUND, LP By: /s/ John Burbank -------------------------------------------- Name: John Burbank Title: Managing Partner SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT CROSSLINK CROSSOVER FUND IV, L.P. By: Crossover Fund IV Management, L.L.C., its General Partner By: /s/ Michael J. Stark ----------------------------------------- Name: Michael J. Stark Title: Managing Member SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT SAGAMORE HILL HUB FUND, LTD. By: Sagamore Hill Capital Management L.P., Investment Manager By: /s/ Steven H. Bloom ----------------------------------------- Name: Steven H. Bloom Title: President SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT CAPITAL VENTURES INTERNATIONAL By: Heights Capital Management, Inc., an authorized signatory By: /s/ Martin Kobinger ----------------------------------------- Name: Martin Kobinger Title: Investment Manager SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT CRITERION CAPITAL PARTNERS, LTD. By: Derivatives Portfolio Management, an authorized signatory By: /s/ Guy J. Castranova ----------------------------------------- Name: Guy J. Castranova Title: Chief Operating Officer CRITERION CAPITAL PARTNERS, INSTITUTIONAL By: Criterion Capital Partners, LLC, an authorized signatory By: /s/ R. Daniel Beckham ----------------------------------------- Name: R. Daniel Beckham Title: Chief Operating Officer CRITERION CAPITAL PARTNERS, L.P. By: Criterion Capital Partners, LLC, an authorized signatory By: /s/ R. Daniel Beckham ----------------------------------------- Name: R. Daniel Beckham Title: Chief Operating Officer SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT EX-4.45 30 f97295exv4w45.txt EXHIBIT 4.45 Exhibit 4.45 NOTE AMENDMENT AGREEMENT This NOTE AMENDMENT AGREEMENT (this "Amendment") is made on March 12, 2004 by and among Critical Path, Inc., a California corporation (the "Company") and the undersigned holders (each, a "Holder" and collectively, the "Holders") of the Notes (as hereinafter defined). All capitalized terms not otherwise defined in this Amendment or by reference to another agreement shall have the respective meanings assigned thereto in the Notes. RECITALS: A. During the years 2002 and 2003, the Holders purchased a 5-3/4% Convertible Subordinated Note Due April 1, 2005 (collectively, the "Notes") in the respective face principal amount set forth in the Schedule on the terms and subject to the Indenture, dated March 31, 2000, between the Company and State Street Bank and Trust Company of California, N.A. B. Pursuant to that certain Convertible Note Purchase and Exchange Agreement, dated November 18, 2003, among the Company, General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, and the Holders, as amended by the Amendment to Convertible Note Purchase and Exchange Agreement dated January 16, 2004 and the Amendment No. 2 to Convertible Note Purchase and Exchange Agreement dated March 9, 2004 (the "Purchase Agreement"), the Holders agreed to exchange the Notes for approximately 21.9 million shares of Series E Redeemable Convertible Preferred Stock of the Company (the "Series E Preferred Stock") subject to Stockholder Approval (as defined in the Purchase Agreement). C. The Company and the Holders have agreed to amend the terms of the Notes in the event that the Stockholder Approval (as defined in the Purchase Agreement) is not obtained on its first attempt and, in any event, by August 15, 2004. AGREEMENT NOW, THEREFORE, for adequate mutual consideration given and received, subject to the fulfillment of the conditions precedent (the "Conditions Precedent") and the conditions subsequent (the "Conditions Subsequent"), respectively, provided in Sections 2 and 3 hereof, the Company and the Holders do hereby agree to the following amendments. 1. Amendment to the Notes. Notwithstanding anything in the Notes to the contrary, the Notes are hereby amended as follows: (a) Each reference to "April 1, 2005" of the Notes is deleted in its entirety and substituted with "April 1, 2006." 1 (b) The end of the first sentence of the Notes which reads "and to pay interest thereon, from March 31, 2000, or from the most recent Interest Payment Date (as defined below) to which interest has been paid or duly provided for, semi-annually in arrears on April 1 and October 1 in each year (each, an "Interest Payment Date"), commencing October 1, 2000, at the rate of 5-3/4% per annum, until the principal hereof is due, and at a rate of 5-3/4% per annum on any overdue principal and premium, if any, and, to the extent permitted by law, on any overdue interest" is deleted in its entirety and the following substituted therefor: "and to pay interest thereon, from March 31, 2000, or from the most recent Interest Payment Date (as defined below) to which interest has been paid or duly provided for, semi-annually in arrears on April 1 and October 1 in each year (each, an "Interest Payment Date"), commencing October 1, 2000, at the rate of 5-3/4% per annum for the period from March 31, 2000 to March 31, 2005 and at the rate of 7-1/2% per annum from April 1, 2005 until the principal hereof is due, and at the interest rate then in effect on any overdue principal and premium, if any, and, to the extent permitted by law, on any overdue interest. Any such interests shall be paid by the Company in cash without any deduction or setoff." 2. Conditions Precedent. (a) The Company does not obtain the Stockholder Approval (as defined in the Purchase Agreement) on its first attempt and in any event by August 15, 2004; and (b) The Company shall, on the earlier of (i) the date of the special meeting of the Company's stockholders pursuant to which the Company does not obtain the Stockholder Approval or (ii) August 15, 2004, pay USD100,000 to the Holders or their nominees on a pro-rata basis in accordance with the percentage set out in the third column of the Schedule hereto against their respective names, and in such manner and to such accounts as designated by the respective Holders. 3. Conditions Subsequent. The Company shall (a) on June 30, 2005 pay USD700,000 and (b) on September 30, 2005 pay USD700,000, to the Holders or their nominees on a pro-rata basis in accordance with the percentage set out in the third column of the Schedule hereto against their respective names, and in such manner and to such accounts as designated by the respective Holders. 4. Term of Amendment. This Amendment shall become effective upon the fulfillment of all the Conditions Precedent. The Company shall promptly notify the Holders in writing upon fulfillment of all the Conditions Precedent. 5. Termination. This Amendment shall become null and void and be of no force or effect (except as provided in Section 6 hereof) in the event that (i) any of the Conditions 2 Precedent is not fulfilled by August 15, 2005, (ii) any of the Conditions Subsequent is not fulfilled by September 30, 2005; or (iii) the Company receives an opinion in connection with the audit report of its independent accountants for the fiscal year ended December 31, 2003 which is qualified or contains a going concern qualification, and the parties hereby acknowledge that this Amendment shall not prejudice any interests and rights of the parties under the Notes or otherwise. 6. Option To Purchase Notes Upon Rights Offering. As soon as reasonably practicable after consummation of the Rights Offering (as defined in the Purchase Agreement) pursuant to which at least 80% of the rights distributed thereto are purchased, the Company shall submit to the Company's board of directors for its consideration, the existing option, pursuant to that certain Repurchase Option Agreement, dated December 15, 2003, among the Company and the Holders, to repurchase up to 10,930,000 shares of Series E Preferred Stock held by the Holders. Notwithstanding the provisions of Sections 4 and 5 hereof, the obligations under this Section 6 shall become effective on the date hereof and shall survive the termination of any other provision of this Amendment. 7. Representations and Warranties of the Company. The Company hereby represents and warrants to each of the Holders that :- (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the corporate power and authority to execute, deliver and perform its obligations under this Amendment. (b) The execution, delivery and performance by the Company of this Amendment and the transactions contemplated hereby have been duly authorized by all necessary corporate action of the Company; do not contravene the terms of the Articles of Incorporation or the By-laws; do not violate, conflict with or result in any breach or contravention of the law applicable to the Company. (c) No approval, consent, compliance, exemption, authorization or other action by, or notice to, or filing with, any governmental authority or any other person is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Company of this Amendment or the transactions contemplated hereby. (d) This Amendment has been duly executed and delivered by the Company, and this Amendment will constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with its terms. 8. Representations and Warranties of the Holders. Each of the Holders hereby represents and warrants, severally and not jointly, to the Company that it is the beneficial owner of the Notes and that this Amendment has been duly authorized, validly executed and constitutes legal, valid and binding obligations of the Holders, enforceable against the Holders in accordance with its terms. 3 9. Delivery of Annual Business Plan to Holders. Upon the effectiveness of this Amendment pursuant to Section 4 hereof, subject to the receipt of a non-disclosure agreement executed by the Holders, the Company shall deliver to the Holders a budget and business plan (the "Business Plan") for each forthcoming fiscal year, 30 calendar days prior to the beginning of any forthcoming fiscal quarter, as such Business Plan may be revised and updated by the Company. The Holders shall have 15 business days (excluding Saturdays) to review the Business Plan and to provide comments, suggestions and direction (collectively, "Input") to the Company with respect to the Business Plan. During the first 10 business days (excluding Saturday(s)), the Holders may request that the Company make a presentation of the Business Plan to the Holders and make management available by telephone during reasonable business hours to discuss the Business Plan and answer any reasonable questions the Holders may have in connection with the Business Plan. The Company agrees that it shall review and consider any Input received from the Holders in connection with any Business Plan when revising and updating such Business Plan, which shall be subject to the approval of the board of directors. The obligations of the Company under this Section 9 shall terminate upon payment of all principal and accrued interest under the Notes. 10. Indemnity The Company agrees to indemnify and keep the Holders fully indemnified against all costs, expenses, loss and damages in connection with or arising out of any claim, proceedings, demand and/or actions of any third party regarding any terms of this Amendment and any payment of the Company to the Holders hereunder. 11. Additional Actions and Documentation. The Holders and the Company hereby agree to cooperate with one another and take such reasonable actions and execute such additional documents and instruments as may be reasonably necessary or appropriate to effectuate the provisions of this Amendment in the event the Company does not obtain the Stockholder Approval (as defined in the Purchase Agreement). 12. Miscellaneous. (a) Except as specifically amended hereby, all the provisions of the Notes shall remain unamended and in full force and effect. (b) This Amendment may be executed in any number of counterparts, each of which shall be deemed an original hereof, and all such counterparts shall constitute but one and the same instrument. (c) This Amendment shall be governed by and construed and interpreted in accordance with the laws of the State of New York. (d) All notices, demands and other communications provided for or permitted hereunder shall be made in writing and shall be by registered or certified first-class mail, return receipt requested, telecopier, courier service or personal delivery: 4 if to the Company: Critical Path, Inc. 350 The Embarcadero San Francisco, CA 94105 Telecopy: (415) 541-2500 Attention: Chief Financial Officer if to Campina Enterprises Limited, Great Affluent Limited, Dragonfield Limited or Lion Cosmos Limited c/o 7th Floor Cheung Kong Center 2 Queen's Road Central Hong Kong Telecopy: (852) 2845-2057 Attention: Mr. Edmond Ip if to Cenwell Limited 22nd Floor Hutchison House 10 Harcourt Road Hong Kong (852) 2128-1778 Attention: Company Secretary All such notices, demands and other communications shall be deemed to have been duly given when delivered by hand, if personally delivered; when delivered by courier, if delivered by commercial courier service; five (5) Business Days after being deposited in the mail, postage prepaid, if mailed; and when receipt is mechanically acknowledged, if telecopied. Any party may by notice given in accordance with this Section 12(d) designate another address or Person for receipt of notices hereunder. 5 IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the date first written above. CRITICAL PATH, INC., a California corporation By: /s/ Michael J. Zukerman ------------------------------------ Name: Michael J. Zukerman Title: Senior Vice President and General Counsel 1 HOLDERS: CAMPINA ENTERPRISES LIMITED By: /s/ Ip Tak Chuen, Edmond ------------------------------------ Name: Ip Tak Chuen, Edmond Title: Director CENWELL LIMITED By: /s/ Ip Tak Chuen, Edmond ------------------------------------ Name: Ip Tak Chuen, Edmond Title: Authorised Person GREAT AFFLUENT LIMITED By: /s/ Ip Tak Chuen, Edmond ------------------------------------ Name: Ip Tak Chuen, Edmond Title: Director 2 DRAGONFIELD LIMITED By: /s/ Pau Yee Wan, Ezra ------------------------------------ Name: Pau Yee Wan, Ezra Title: Authorised Person LION COSMOS LIMITED By: /s/ Pau Yee Wan, Ezra ------------------------------------ Name: Pau Yee Wan, Ezra Title: Director 3 SCHEDULE

Holder Face Principal Amount Percentage Campina Enterprises Limited $5,085,000 15.51% Cenwell Limited $4,670,000 14.24% Great Affluent Limited $19,375,000 59.08% Dragonfield Limited $1,000,000 3.05% Lion Cosmos Limited $2,665,000 8.13% Total: $32,795,000 100%

EX-4.46 31 f97295exv4w46.txt EXHIBIT 4.46 EXHIBIT 4.46 THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 BELOW, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION. WARRANT TO PURCHASE STOCK Company: Critical Path, Inc., a California corporation Number of Shares: 100,000 Class of Stock: Common Stock Warrant Price: $2.07 per Share Issue Date: March 12, 2004 Expiration Date: March 12, 2011 THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for other good and valuable consideration, SILICON VALLEY BANK ("Holder") is entitled to purchase the number of fully paid and nonassessable shares of the class of securities (the "Shares") of the company (the "Company") at the Warrant Price all as set forth above and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant. ARTICLE 1. EXERCISE. 1.1. Method of Exercise. Holder may exercise this Warrant by delivering a duly executed Notice of Exercise, in substantially the form attached hereto as Appendix 1, to the principal office of the Company. Unless Holder is exercising the conversion right set forth in Article 1.2, Holder shall also deliver to the Company a check, wire transfer (to an account designated by the Company), or other from of payment acceptable to the Company, for the aggregate Warrant Price for the Shares being purchased. 1.2. Conversion Right. In lieu of exercising this Warrant as specified in Article 1.1, Holder may from time to time convert this Warrant, in whole or in part, into a number of Shares determined by dividing (i) the aggregate fair market value of the Shares or other securities otherwise issuable upon exercise of this Warrant minus the aggregate Warrant Price of such Shares by (ii) the fair market value of one Share. The fair market value of the Shares shall be determined pursuant to Article 1.3. 1.3. Fair Market Value. If the Company's common stock is traded in a public market and the shares are common stock, the fair market value of each Share shall be the closing price of a Share reported for the business day immediately before Holder delivers its Notice of Exercise to the Company (or in the instance where the Warrant is exercised immediately prior to the effectiveness of the Company's initial public offering, the "price to public" per share price specified in the final prospectus relating to such offering). If the Company's common stock is traded in a public market and the Shares are preferred stock, the fair market value of a Share shall be the closing price of a share of the Company's common stock reported for the business day immediately before Holder delivers its Notice of Exercise to the Company (or, in the instance where the Warrant is exercised immediately prior to the effectiveness of the Company's initial public offering, the initial "price to public" per share price specified in the final prospectus relating to such offering), in both cases, multiplied by the number of shares of the Company's common stock into which a Share is convertible. If the Company's common stock is not traded in a public market, the Board of Directors of the Company shall determine fair market value in its reasonable good faith judgment. 1.4. Delivery of Certificate and New Warrant. Promptly after Holder exercises or converts this Warrant and, if applicable, the Company receives payment of the aggregate Warrant Price, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired. 1.5. Replacement of Warrants. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, surrender and cancellation of this Warrant, the Company shall execute and deliver to Holder, in lieu of this Warrant, a new warrant of like tenor. 1.6. Treatment of Warrant Upon Acquisition of Company. 1.6.1 "Acquisition". For the purpose of this Warrant, "Acquisition" means any sale, license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, or merger of the Company where the holders of the Company's securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction. 1.6.2 Treatment of Warrant at Acquisition. (a) Upon the written request of the Company, Holder agrees that, in the event of an Acquisition that is not an asset sale and in which the sole consideration is cash and the per-share value of the Company's common stock at the time of such sale is at least ten times the Warrant Price, either (i) Holder shall exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the consummation of such Acquisition or (ii) if Holder elects not to exercise the Warrant, this Warrant will expire upon the consummation of such Acquisition. The Company shall provide Holder with written notice of its request relating to the foregoing (together with such reasonable information as Holder may request in connection with such contemplated Acquisition giving rise to such notice), which is to be delivered to Holder not less than thirty (30) days prior to the closing of the proposed Acquisition. (b) Upon the written request of the Company, Holder agrees that, in the event of an Acquisition that is an "arms length" sale of all or substantially all of the Company's assets (and only its assets) to a third party that is not an Affiliate (as defined below) of the Company (a "True Asset Sale"), either (i) Holder may exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the consummation of such Acquisition or (ii) if Holder elects not to exercise the Warrant, this Warrant will continue until the Expiration Date if the Company continues as a going concern following the closing of any such True Asset Sale. The Company shall provide Holder with written notice of its request relating to the foregoing (together with such reasonable information as Holder may request in connection with such contemplated Acquisition giving rise to such notice), which is to be delivered to Holder not less than thirty (30) days prior to the closing of the proposed Acquisition. (c) Upon the closing of any Acquisition other than those particularly described in subsections (a) and (b) above, the successor entity shall assume the obligations of this Warrant, and this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. The Warrant Price and/or number of Shares shall be adjusted accordingly. As used herein "Affiliate" shall mean any person or entity that owns or controls directly or indirectly ten (10) percent or more of the stock of Company, any person or entity that controls or is controlled by or is under common control with such persons or entities, and each of such person's or entity's officers, directors, joint venturers or partners, as applicable. 2 ARTICLE 2. ADJUSTMENTS TO THE SHARES. 2.1. Stock Dividends, Splits, Etc. If the Company declares or pays a dividend on the Shares payable in its common stock or other securities, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares of record as of the date on which the dividend occurred. If the Company subdivides the Shares by reclassification or otherwise into a greater number of shares or takes any other action which increase the amount of stock into which the Shares are convertible, the number of shares purchasable hereunder shall be proportionately increased and the Warrant Price shall be proportionately decreased. If the outstanding shares are combined or consolidated, by reclassification or otherwise, into a lesser number of shares, the Warrant Price shall be proportionately increased and the number of Shares shall be proportionately decreased. 2.2. Reclassification, Exchange, Combinations or Substitution. Upon any reclassification, exchange, combination, substitution or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, combination, substitution or other event. Such an event shall include any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Shares to common stock pursuant to the terms of the Company's Articles of Incorporation upon the closing of a registered public offering of the Company's common stock. The Company or its successor shall promptly issue to Holder an amendment to this Warrant setting forth the number and kind of such new securities or other property issuable upon exercise or conversion of this Warrant as a result of such reclassification, exchange, combination, substitution or other event that results in a change of the number and/or class of securities issuable upon exercise or conversion of this Warrant. The amendment to this Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Article 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events. 2.3. Adjustments for Diluting Issuances. The Warrant Price and the number of Shares issuable upon exercise of this Warrant or, if the Shares are Preferred Stock, the number of shares of common stock issuable upon conversion of the Shares, shall be subject to adjustment, from time to time in the manner set forth in the Company's Articles or Certificate of Incorporation as if the Shares were issued and outstanding on and as of the date of any such required adjustment. The provisions set forth for the Shares in the Company's Articles of Incorporation relating to the above in effect as of the Issue Date may not be amended, modified or waived without the prior written consent of Holder unless such amendment, modification or waiver affects the rights associated with the Shares in the same manner as such amendment, modification or waiver affects the rights associated with all other shares of the same series and class as the Shares granted to the Holder. 2.4. No Impairment. The Company shall not, by amendment of its Articles of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out of all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holder's rights under this Article against impairment. 2.5. Fractional Shares. No fractional Shares shall be issuable upon exercise or conversion of the Warrant, and the number of Shares to be issued shall be rounded down to the nearest whole Share. If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying Holder the amount computed by multiplying the fractional interest by the fair market value of a full Share. 3 2.6. Certificate as to Adjustments. Upon each adjustment of the Warrant Price, the Company shall promptly notify Holder in writing and, at the Company's expense, promptly compute such adjustment and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder with a certificate setting forth the Warrant Price in effect upon the date thereof and the series of adjustments leading to such Warrant Price. ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY. 3.1. Representations and Warranties. The Company represents and warrants to the Holder as follows: (a) The initial Warrant Price referenced on the first page of this Warrant is not greater than (i) the price per share at which the Shares were last issued in an arms-length transaction in which the Shares were sold and (ii) the fair market value of the Shares as of the date of this Warrant. (b) All Shares which may be issued upon the exercise of the purchase right represented by this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall upon issuance be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws. (c) The Capitalization Table previously provided to Holder remains true and complete as of the Issue Date. 3.2. Notice of Certain Events. If the Company proposes at any time (i) to declare any dividend or distribution upon any of its stock, whether in cash, property, stock or other securities and whether or not a regular cash dividend, (ii) to offer for sale additional shares of any class or series of the Company's stock, (iii) to effect any reclassification or recapitalization of any of its stock, (iv) to merge or consolidate with or into any other corporation, or sell, lease, license or convey all or substantially all of its assets, or liquidate, dissolve or wind up, or (v) to offer holders of registration rights the opportunity to participate in an underwritten public offering of the company's securities for cash, then, in connection with each such event, the Company shall give Holder: (1) at least 30 days prior written notice of the date on which a record will be taken for such dividend, distribution or subscription rights (and specifying the date on which the holders of common stock will be entitled thereto) or for determining rights to vote (if any) in respect of the matters referred to in (i) and (ii) above; (2) in the case of the matters referred to in (iii) and (iv) above at least 30 days prior written notice of the date when the same will take place (and specifying the date on which the holders of common stock will be entitled to exchange their common stock for securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (v) above, the same notice as is given to the holders of such registration rights. 3.3. Registration Under Securities Act of 1933, as amended (the "Act"). The Company agrees that the Shares (or, if the Shares are convertible into common stock of the Company, such common stock) shall have certain incidental, or "Piggyback," and Form S-3 registration rights pursuant to and as set forth in the Company's Investor Rights Agreement or similar agreement. The provisions set forth in the Company's Investors' Right Agreement or similar agreement relating to the above in effect as of the Issue Date may not be amended, modified or waived without the prior written consent of Holder unless such amendment, modification or waiver affects the rights associated with the Shares in the same manner as such amendment, modification or waiver affects the rights associated with all other shares of the same series and class as the Shares granted to the Holder. 3.4. No Shareholder Rights. Except as provided in this Warrant, the Holder will not have any rights as a shareholder of the Company until the exercise of this Warrant. 4 ARTICLE 4. REPRESENTATIONS, WARRANTIES OF THE HOLDER. THE HOLDER REPRESENTS AND WARRANTS TO THE COMPANY AS FOLLOWS: 4.1. Purchase for Own Account. This Warrant and the securities to be acquired upon exercise of this Warrant by the Holder will be acquired for investment for the Holder's account, not as a nominee or agent, and not with a view to the public resale or distribution within the meaning of the Act. Holder also represents that the Holder has not been formed for the specific purpose of acquiring this Warrant or the Shares. 4.2. Disclosure of Information. The Holder has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the acquisition of this Warrant and its underlying securities. The Holder further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of this Warrant and its underlying securities and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to the Holder or to which the Holder has access. 4.3. Investment Experience. The Holder understands that the purchase of this Warrant and its underlying securities involves substantial risk. The Holder has experience as an investor in securities of companies in the development stage and acknowledges that the Holder can bear the economic risk of such Holder's investment in this Warrant and its underlying securities and has such knowledge and experience in financial or business matters that the Holder is capable of evaluating the merits and risks of its investment in this Warrant and its underlying securities and/or has a preexisting personal or business relationship with the Company and certain of its officers, directors or controlling persons of a nature and duration that enables the Holder to be aware of the character, business acumen and financial circumstances of such persons. 4.4. Accredited Investor Status. The Holder is an "accredited investor" within the meaning of Regulation D promulgated under the Act. 4.5. No Registration. The Holder understands that this Warrant and the Shares issuable upon exercise or conversion hereof have not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Holder's investment intent as expressed herein. The Holder understands that this Warrant and the Shares issued upon any exercise or conversion hereof must be held indefinitely unless subsequently registered under the Act and qualified under applicable state securities laws, or unless exemption from such registration and qualification are otherwise available. ARTICLE 5. MISCELLANEOUS. 5.1. Term. This Warrant is exercisable in whole or in part at any time and from time to time on or before the Expiration Date (except as otherwise expressly provided in Sections 1.6 and 1.7 hereof). 5.2. Legends. This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form: THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE ACT, OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 BELOW, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF 5 LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION. 5.3. Compliance with Securities Laws on Transfer. This Warrant and the Shares issuable upon exercise of this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require Holder to provide an opinion of counsel if the transfer is to Silicon Valley Bancshares (Holder's parent company) or any other affiliate of Holder. Additionally, the Company shall also not require an opinion of counsel if there is no material question as to the availability of current information as referenced in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e) in reasonable detail, the selling broker represents that it has complied with Rule 144(f), and the Company is provided with a copy of Holder's notice of proposed sale. 5.4. Transfer Procedure. Upon receipt by Holder of the executed Warrant, Holder will transfer all of this Warrant to Silicon Valley Bancshares, Holder's parent company, by execution of an Assignment substantially in the form of Appendix 2. Subject to the provisions of Article 5.3 and upon providing Company with written notice, Silicon Valley Bancshares and any subsequent Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the Shares issuable directly or indirectly, upon conversion of the Shares, if any) to any transferee, provided, however, in connection with any such transfer, Silicon Valley Bancshares or any subsequent Holder will give the Company notice of the portion of the Warrant being transferred with the name, address and taxpayer identification number of the transferee and Holder will surrender this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable). The Company may refuse to transfer this Warrant or the Shares to any person who directly competes with the Company, unless, in either case, the stock of the Company is publicly traded. 5.5. Notices. All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or the Holder, as the case may (or on the first business day after transmission by facsimile) be, in writing by the Company or such holder from time to time. Effective upon receipt of the fully executed Warrant and the initial transfer described in Article 5.4 above, all notices to the Holder shall be addressed as follows until the Company receives notice of a change of address in connection with a transfer or otherwise: Silicon Valley Bancshares Attn: Treasury Department 3003 Tasman Drive, HA 200 Santa Clara, CA 95054 Telephone: 408-654-7400 Facsimile: 408-496-2405 Notice to the Company shall be addressed as follows until the Holder receives notice of a change in address: _________________________ Attn:____________________ _________________________ _________________________ Telephone: (___) _______________ Facsimile: (___) _______________ 6 5.6. Waiver. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. 5.7. Attorneys' Fees. In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys' fees. 5.8. Automatic Conversion upon Expiration. In the event that upon the Expiration Date the fair market value of one Share (or other security issuable upon the exercise hereof) as determined in accordance with Section 1.3 above is greater than the Exercise Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be converted pursuant to Section 1.2 above as to all Shares (or such other securities) for which it shall not previously have been exercised or converted, and the Company shall promptly deliver a certificate representing the Shares (or such other securities) issued upon such conversion to the Holder. 5.9. Counterparts. This Warrant may be executed in counterparts, all of which together shall constitute one and the same agreement. 7 5.10. Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law. "HOLDER" Silicon Valley Bank By: /s/ Brian Harrison ------------------------------------- Name: Brian Harrison ---------------------------------- (Print) Title: Vice President "COMPANY" Critical Path, Inc. a California corporation By: /s/ William E. McGlashan, Jr. ------------------------------------- Name: /s/ William E. McGlashan, Jr. ----------------------------------- (Print) Title: Chairman of the Board, President or Vice President By: /s/ James A. Clark ------------------------------------- Name: James A. Clark ---------------------------------- (Print) Title: Chief Financial Officer, Secretary, Assistant Treasurer or Assistant Secretary 8 APPENDIX 1 NOTICE OF EXERCISE 1. Holder elects to purchase ___________ shares of the Common/Series ______ Preferred [strike one] Stock of _________________ pursuant to the terms of the attached Warrant, and tenders payment of the purchase price of the shares in full. [or] 1. Holder elects to convert the attached Warrant into Shares/cash [strike one] in the manner specified in the Warrant. This conversion is exercised for _____________________ of the Shares covered by the Warrant. [Strike paragraph that does not apply.] 2. Please issue a certificate or certificates representing the shares in the name specified below: ___________________________________________ Holders Name ___________________________________________ ___________________________________________ (Address) 3. By its execution below and for the benefit of the Company, Holder hereby restates each of the representations and warranties in Article 4 of the Warrant as the date hereof. HOLDER: By:_____________________________________ Name:___________________________________ Title:__________________________________ (Date):_________________________________ 9 APPENDIX 2 ASSIGNMENT For value received, Silicon Valley Bank hereby sells, assigns and transfers unto Name: Silicon Valley Bancshares Address: 3003 Tasman Drive (HA-200) Santa Clara, CA 95054 Tax ID: 91-1962278 that certain Warrant to Purchase Stock issued by Critical Path, Inc. (the "Company"), on March 11, 2004 (the "Warrant") together with all rights, title and interest therein. SILICON VALLEY BANK By:_____________________________________ Name:___________________________________ Title:__________________________________ Date: [insert Issue Date] ________________ By its execution below, and for the benefit of the Company, Silicon Valley Bancshares makes each of the representations and warranties set forth in Article 4 of the Warrant as of the date hereof. SILICON VALLEY BANCSHARES By:_____________________________________ Name:___________________________________ Title:__________________________________ 10 EX-10.42 32 f97295exv10w42.txt EXHIBIT 10.42 EXHIBIT 10.42 AMENDMENT TO EMPLOYMENT AGREEMENT AND RELEASE OF CLAIMS This Amendment to Employment Agreement and Release of Claims ("Agreement") is made by and between CRITICAL PATH, INC. (the "Company"), and Bernard Harguindeguy ("Employee") (collectively referred to herein as the "Parties") and dated as of May 16, 2003. WHEREAS, Employee has been employed by the Company pursuant to an Employment Agreement by and between the Parties dated as of January 14, 2002 ("Employment Agreement"); WHEREAS, Employee and Company hereby agree to terminate certain terms and conditions of such Employment Agreement, and amend and replace in its entirety that certain Employment Agreement; and WHEREAS, Employee and Company hereby agree to the terms and conditions of a modified employment relationship going forward; NOW THEREFORE, in consideration of the mutual promises made herein, the Company and Employee hereby agree as follows: 1. Modification of Employment. Employee's full-time employment as Executive Vice President and Chief Marketing Officer, including all payment of regular base salary and eligibility for bonuses, will terminate as of May 16, 2003 ("Effective Date"), and the Employment Agreement shall thereafter be null and void and have no further force and effect, except as specifically contemplated and described herein. As of the Effective Date, Employee's services to the Company shall continue as General Manager, Identity Management, reporting to Bill McGlashan. As of the Effective Date, Employee shall provide services in this capacity and shall be compensated in accordance with a new Compensation Plan ("Plan"), as mutually identified, agreed and determined by the Parties, no later than June 20, 2003. Such Plan shall be appended to this Agreement in the form of EXHIBIT A hereto, as soon as such Plan is finalized and shall thereafter be incorporated by reference and form a part of this Agreement. The failure for any reason to finalize the plan shall not affect any provision of this Agreement or the validity of any release given hereunder.. Employee shall continue to be covered by all employee health and welfare benefit plans pursuant to the terms and conditions of the Employment Agreement other than Paid Time Off which ceased accruing as of January 2003. Employee's right to continued indemnification under the Employment Agreement shall terminate as of the Effective Date. 2. Consideration. Upon the Effective Date, the Company agrees to pay Employee three-hundred thousand dollars and zero cents ($300,000.00), which equals twelve (12) month's salary at the Employee's then current base salary and will be paid less all the applicable withholdings, in accordance with the Company's standard payroll practices (the "Employment Agreement Amount"). 3. Vesting of Stock Options. As of the Effective Date, you shall continue to vest in all previously granted options to purchase shares of Company common stock in accordance with the applicable vesting schedules found in each Stock Option Agreement and as provided in the Employment Agreement. Nothing in this Agreement is intended to otherwise supersede or modify the terms and conditions of the Company's Stock Option Plans or any agreements issued in connection with those plans including any provision contained in any agreement (including the Employment Agreement) for accelerated vesting and/or any change of control arrangement. 4. Benefits. Employee shall continue to receive all applicable health and welfare benefit plans as previously provided. Nothing in this Agreement is intended to supercede or modify the terms and conditions of the Company's health benefits plans. The other benefits provided for under the Employment Agreement which shall continue under this Agreement shall include reimbursement for amounts used for the lease of an automobile, parking and commute fuel expenses. 5. Payment of Salary. On the Effective Date, Company shall pay Employee for final earned but unpaid salary through the Effective Date. Company will continue to reimburse Employee for approved business related expenses incurred in accordance with the current Company travel and expense policies applicable to Employee and properly submitted. In addition, Company shall pay Employee any salary, variable compensation or other amounts as agreed in the Plan. However, if the Plan is not agreed upon, Employee shall have no claim for salary, wages or any other amounts due other than as expressly set forth in this Agreement. 6. Release of Claims. a. Civil Code Section 1542. In connection with all releases given under this Agreement ("Release"), Employee expressly waives any rights or benefits under Section 1542 of the California Civil Code, or any other equivalent statute. California Civil Code Section 1542 (or similar state statutes), provides as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. Without limiting the generality of the foregoing, Employee fully understands that if any fact, with respect to any matter, covered by this Release is found hereafter to be other than or different from the facts now believed by him to be true, he expressly agrees that this Release shall be and remain effective, notwithstanding such difference in the facts. b. Release. Employee agrees that the Employment Agreement Amount represents adequate consideration for the purpose of this Release and such Employment Agreement Amount constitutes settlement in full of all outstanding obligations owed to Employee by the Company under the Employment Agreement. Except for the promises or obligations made or undertaken in this Agreement and in exchange for the payments and other consideration provided hereunder, Employee, on behalf of himself, and his respective heirs, family members, executors, and assigns, hereby fully and forever releases, acquits, and discharges the Company and its respective officers, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations, and assigns, from, and agrees not to sue concerning, any claim, duty, obligation or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that he or she may possess arising from any omissions, acts or facts that have occurred up until the Effective Date, including, without limitation, any and all claims relating to or arising from Employee's employment relationship with the Company and the termination or modification of that relationship; any and all claims relating to, or arising from, Employee's right to purchase, or actual purchase of shares of stock of the Company, including, without limitation, any claims for rights of rescission, personal tax liabilities, fraud, misrepresentation, breach of fiduciary duty, breach of duty under applicable state corporate law, and securities fraud under any state or federal law; any and all claims for wrongful discharge of employment, wages or other compensation, including but not limited to bonuses and commissions; breach of contract, both express and implied; breach of a covenant of good faith and fair dealing, both express and implied; negligent or intentional infliction of emotional distress; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; defamation; negligence; personal injury; discrimination, disability discrimination; violation of public policy; retaliation; harassment; any tort claims, including wrongful discharge, assault; battery; harassment; invasion of privacy; false imprisonment; and conversion; any and all claims for violation of any federal, state or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, the Fair Labor Standards Act, the California Fair Employment and Housing Act, and Labor Code section 201, et seq., and all as may be amended from time to time; any and all claims arising out of any other laws and regulations relating to employment or employment discrimination; and any and all claims for attorneys' fees and costs. This release extends to any and all administrative or criminal charges whether before the Division of Labor Standards, Equal Employment Opportunity Commission or the Department of Fair Employment and Housing or any other court or agency to which Employee currently is or shall later become a party. Should Employee ever become a party to any such proceeding, he shall immediately ask any such administrative agency or court to withdraw any such charge as to him. The parties acknowledge and agree that all potential or actual disputes between them with respect to the Employment Agreement have been fully and finally settled to their complete satisfaction, leaving no disputes, controversies, claims or grievances of any kind between them. The parties therefore covenant and agree that, except as may be compelled by legal process, they will not raise or in any way pursue any claims which are being released and discharged in this Agreement in any forum of any kind, including, without limitation, the federal, state or local courts, or federal, state or local agencies or offices of any kind, be they administrative, regulatory, judicial, quasi-judicial, or otherwise. The parties further agree that, except as compelled by legal process, they will not aid, assist, abet or in any way encourage any third party to in any way pursue any claims which are being released and discharged in this Agreement. Except pursuant to formal process with appropriate prior notice to Company's counsel, the parties further agree that they will not provide documents, information or testimony to any prospective or actual claimant against one another. The Parties represent and warrant that they have not, to date, discussed with any third party the possibility of that third party pursuing claims against the other party; that they have not encouraged any such pursuit of claims. If either Party at any time commences or in any manner seeks relief against any of the other Party through any suit or other legal proceeding, then that Party shall pay in addition to any other damages caused thereby, all attorneys' fees and costs incurred by the other Party in defending or otherwise responding to said suit or proceeding. Employee agrees that the release set forth in this section shall be and remain in effect in all respects as a complete general release as to the matters released. Employee understands and agrees that this Release extinguishes all claims by the Employee as of the Effective Date whether known or unknown and foreseen or unforeseen. c. Acknowledgment of Waiver of Claims under ADEA. To the extent applicable, Employee further acknowledges that he is waiving and releasing any rights he may have under the Age Discrimination in Employment Act of 1967 ("ADEA") and that this waiver and release is knowing and voluntary. Employee and the Company agree that this waiver and release does not apply to any rights or claims that may arise under ADEA after the Effective Date. Employee acknowledges that the consideration given for this waiver and release Agreement is in addition to anything of value to which Employee was already entitled. To the extent the ADEA is applicable to Employee, Employee further acknowledges that he or she has been advised by this writing, as required by the ADEA, that (a) he or she has the right to and should consult with an attorney prior to executing this Agreement (although he or she may execute this Agreement voluntarily earlier); (b) he or she has at least forty-five (45) days within which to consider this Agreement; (c) Employee has been advised that a roster of all individuals affected by the current reduction in force plan of the Company is immediately available to Employee upon request from the Human Resources department; (d) he or she has seven (7) days following the execution of this Agreement to revoke the Agreement by sending a written notice to the Company to the attention of General Counsel, Critical Path, Inc., 350 The Embarcadero, 6th Floor, San Francisco, California 94105-1204; and (e) this Agreement shall not be effective until the revocation period has expired, which shall be the eighth day after it is signed by Employee and Company. 7. Confidentiality. Employee understands and agrees that because of his former senior executive level position with the Company, comments by him concerning the Company, its plans, prospects, its personnel or any other aspect of the Company's past or future performance could be understood as being based on substantial information not available to the public. Accordingly, Employee agrees to continue to remain in compliance with all terms and conditions of all Confidentiality Agreements (as defined in Section 8) executed by Employee and not to otherwise comment on such aspects of the Company after the Effective Date. In addition, the terms of this Agreement are highly confidential and the Parties hereto each agree to use their best efforts to maintain in confidence the existence of this Agreement, the contents and terms of this Agreement, and the consideration for this Agreement (hereinafter collectively referred to as "Settlement Information"). Each Party hereto agrees to take every reasonable precaution to prevent disclosure of any Settlement Information to third parties, and each agrees that there will be no publicity, directly or indirectly, concerning any Settlement Information, except where such disclosure is required by law and as required the by the regulations promulgated under the Securities and Exchange Act of 1934, as amended. The Parties hereto agree to take every precaution to disclose Settlement Information only to those employees, officers, directors, attorneys, accountants, governmental entities, and family members who have a reasonable need to know of such Settlement Information. 8. Proprietary Information and Inventions Agreement and/or Non-Disclosure Agreement. Employee acknowledges and is reminded of, and affirms his agreement to abide by, the terms and conditions of a previously executed Proprietary Information and Inventions Agreement and/or a Non-Disclosure Agreement (together the "Confidentiality Agreement") between the Parties. Employee further agrees and understands that he may not disclose to any person or entity any confidential information in violation of the Confidentiality Agreement, whether directly or indirectly, or use or misuse such information in any way. A copy of this Confidentiality Agreement shall be made available to Employee upon request. 9. Insider Trading. Employee acknowledges that Employee may continue to be considered an "Affiliate" of the Company as such meaning is defined under the U.S. Securities and Exchange Act of 1934, as amended, for a certain period after the Effective Date and that such Employee's trading activities and conduct will continue to be governed by the terms of the Company Insider Trading Policy. 10. Intentionally Deleted. 11. Arbitration. The Parties agree that any and all future disputes or claims arising out of the terms of this Agreement, their interpretation, its breach, and any of the matters herein released, shall be subject to binding arbitration in San Francisco County, California, before the American Arbitration Association under its Employment Dispute Resolution Rules. In addition to arbitration, the Company is entitled to enforce the terms of this Agreement by seeking injunctive relief in any court of competent jurisdiction. The Parties agree that the prevailing party in any arbitration shall be entitled to injunctive relief in any court of competent jurisdiction to enforce the arbitration award. The Company shall bear the costs of the arbitration except that Employee may be required to pay costs to the same extent as in a civil action filed in the State of California, unless the arbitrator orders otherwise. Parties agree that the prevailing party in any claim for injunctive relief shall pay each of their own attorney's fees and costs. 12. Non-Disparagement. Each party agrees to refrain from any defamation, libel or slander of the other, or tortious interference with the contracts and relationships of the other. Employee agrees that he or she will refrain from disparaging the Company's business and any and all of its past or present officers, director or other employees. 13. Authority. The Company represents and warrants that the undersigned has the authority to act on behalf of the Company and to bind the Company and all who may claim through it to the terms and conditions of this Agreement. Employee represents and warrants that he or she has the capacity to act on his or her own behalf and on behalf of all who might claim through him or her to bind them to the terms and conditions of this Agreement. Each Party warrants and represents that there are no liens, or claims of lien, or assignments in law or equity or otherwise of or against any of the claims or causes of action released herein. 14. No Representations. Neither party has relied upon any representations or statements made by the other party hereto which are not specifically set forth in this Agreement. 15. Severability. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision. Such provision shall be modified by the court so as to be rendered enforceable insofar as possible consistent with the intent of the Parties to all remaining portions of the Agreement. 16. Entire Agreement. This Agreement represents the entire agreement and understanding between the Company and Employee concerning Employee's employment with and separation from the Company, and supersedes and replaces any and all prior agreements and understandings, whether oral or written, concerning Employee's relationship with the Company and his or her compensation by the Company, except for (i) the Confidentiality Agreement (as defined herein), (ii) any prior agreement or understanding to indemnify Employee as against third party claims which may arise in connection with Employee's service as an executive officer, including but not limited to employee's Indemnification Agreement and (iii) employee's stock option agreements and the provisions of any other agreement related to such stock option agreements. Parole evidence shall be inadmissible to show agreement by and between the Parties as to any term or condition contrary to or in addition to the terms and conditions hereof, including without limitation any intermediate drafts of this Agreement. Any and all such prior agreements and understandings with respect to the subject matter herein, including agreements for compensation, including bonuses and commissions, are also hereby terminated and of no further force and effect, and Employee hereby expressly disclaims any and all rights in connection with any previous agreements, if any, whether oral or written. 17. No Oral Modification. This Agreement may only be amended in writing signed by Employee and the Chief Executive Officer or Chief Financial Officer of the Company. 18. Governing Law. This Agreement shall be governed by the laws of the State of California. Both Parties submit to jurisdiction in California and further agree that any cause of action arising under this Agreement shall be brought before an arbitrator in a court in San Francisco County, California. 19. Counterparts. This Agreement may be executed in counterparts, and each counterpart shall have the same force and effect as an original and shall constitute an effective, binding agreement on the part of each of the undersigned. 20. Voluntary Execution of Agreement. This Agreement is executed voluntarily and without any duress or undue influence on the part or behalf of the Parties hereto, with the full intent of releasing all claims. Employee acknowledges that: (a) he or she has read this Agreement; (b) has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of his or her own choice or that he or she has voluntarily declined to seek such counsel; (c) understands the terms and consequences of this Agreement and of the releases it contains; (d) is fully aware of the legal and binding effect of this Agreement. IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date set forth on the first page of this Agreement. Dated: As of May 16, 2003 By /s/ Paul H. Bartlett ------------------------------------ Name: Paul H. Bartlett Title: Chief Financial Officer & EVP of Corporate Development Dated: As of May 16, 2003 By /s/ Bernard Harguindeguy ------------------------------------ Bernard Harguindeguy EX-10.43 33 f97295exv10w43.txt EXHIBIT 10.43 EXHIBIT 10.43 INCENTIVE BONUS AGREEMENT This Incentive Bonus Agreement (the "Agreement"), effective as of October 23, 2003 ("Effective Date"), is by and between Bernard Harguindeguy ("Harguindeguy") and Critical Path, Inc. ("CP") (each a "Party"; together the "Parties"). A. CP is currently pursuing options relating to a possible sale (the "Sale") to a third party (the "Buyer") of a portion of its products and related assets and business constituting its Identity Management business (the "Business"). B. Harguindeguy is willing to assist CP in consummating a Sale as requested by CP. NOW, THEREFORE, in consideration of the foregoing premises and the covenants, representations, conditions and agreements contained herein, the Parties hereby agree as follows: 1. Mr. Harguindeguy will fully cooperate with any potential Buyer in regards to due diligence efforts, and the identification of employees who may transition out of CP to the Buyer's employ. 2. Subject to the conditions specified herein, within 30 days after the close of a Sale in which Harguindeguy has fully cooperated, made material contributions and played an active and positive role in closing, Harguindeguy will be paid a bonus based on the net proceeds received by the CP for the Sale in accordance with the schedule attached hereto as Exhibit A. 3. At the request of CP or a Buyer, Harguindeguy agrees to remain employed by the Buyer for a period of 6 months after the close of the Sale to assist in the transition of the Business to the Buyer, provided he is reasonably compensated for such services in an amount no less than an annual base salary of $200,000, paid in a manner to be determined by the Buyer. 4. The Parties acknowledge and agree that this Agreement is not an employment contract and that Harguindeguy has the right to resign and the CP has the right to terminate his employment at any time, for any reason, with or without cause. Harguindeguy acknowledges and agrees that this Agreement does not purport to set forth or modify any of the terms and conditions of his employment, and that as an employee of CP he has obligations to CP which are not set forth in this Agreement. 5. The terms and conditions contained herein constitute the entire agreement between the Parties and supersede all other previous and contemporaneous agreements and understandings, whether oral or written, between the Parties hereto with respect to the subject matter hereof. This Agreement, and all disputes arising out of or related thereto, shall be governed by and construed under the laws of the State of California without reference to conflict of laws principles. No amendment or modification of this Agreement, nor waiver of any rights under this Agreement, shall be valid unless in writing signed by each Party. The waiver of a breach of any term hereof shall in no way be construed as a waiver of any term or other breach hereof. If any provision of this Agreement is held by a court of competent jurisdiction to be contrary to law the remaining provisions of this Agreement shall remain in full force and effect. Page 1 of 2 IN WITNESS WHEREOF, the Parties have executed this Agreement effective as of the date first written above. Bernard Harguindeguy CRITICAL PATH, INC. By: /s/ Bernard Harguindeguy By: /s/ Michael J. Zukerman ----------------------------- ------------------------------ Name: Bernard Harguindeguy Name: Michael J. Zukerman Title: SVP and General Counsel Date: October 23, 1999 Date: October 23, 1999 Page 2 of 2 EX-10.44 34 f97295exv10w44.txt EXHIBIT 10.44 EXHIBIT 10.44 AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment to Employment Agreement and Release of Claims ("Agreement") is made by and between CRITICAL PATH, INC. (the "Company"), and Paul H. Bartlett ("Executive") (collectively referred to herein as the "Parties") and dated as of August 31, 2003 (the "Effective Date"). WHEREAS, Executive has been employed by the Company pursuant to a signed Offer Letter dated April 8, 2002 ("Employment Agreement") under which he was hired as EVP, Corporate Development; WHEREAS, in February 2003, Executive was appointed Chief Financial Officer and on August 1, 2003 Executive was appointed Chief Operating Officer; WHEREAS, Executive is, at the request of the Company, relocating to Dublin, Ireland; and WHEREAS, in Executive and Company hereby agree to amend certain terms and conditions of such Employment Agreement; NOW THEREFORE, in consideration of the mutual promises made herein, the Company and Executive hereby agree as follows: 1. Modification of Position. Executive is and shall be Chief Operating Officer and Chief Financial Officer, shall report to the Chairman and Chief Executive Officer (the "CEO") and shall serve on an at-will basis at the pleasure of the CEO and the Company's Board of Directors. 2. Location of Employment. As of September 1, 2003, Executive shall relocate to the Company's Dublin, Ireland offices. It is presently anticipated that the Employee shall continue to work out of the Dublin, Ireland office until no later than June 30, 2004. 3. Compensation. As of September 1, 2003, Executive's base salary shall be $200,000. 4. Reimbursement of Expenses. Until the first to occur of (a) June 30, 2004 or (b) until (i) Executives employment is terminated and (ii) Executive obtains other full time employment, the Company shall reimburse (or directly pay to the vendor) for reasonable expenses as follows: A. Housing Allowance not to exceed $217 per day, or $6,500 per month. B. Meals and Incidentals Allowance not to exceed $100 per day, or $3,000 per month. C. Health Insurance Coverage (through August 31, 2004) that may be used in both Ireland and the US. D. Qualifying moving expenses not to exceed $25,000 per move (up to 2 moves, California to Ireland and Ireland to California). E. Airline Tickets (2 sets of round trip airline tickets for 5 people between San Francisco, California and Dublin, Ireland), 5. Tax Equalization. Depending on the length of your stay in the host country, and a combination of other factors, you may incur additional foreign tax liabilities as a result of this international assignment. It is the Company's intention to minimize your tax cost (within certain limitations) to an amount approximately equal to what you would have paid had you not received allowances for working overseas. To this end, the Company will use best efforts to work with you and its tax advisors to achieve tax equalization for the tax year the assignment begins through the end of the calendar year after your assignment ends. Tax equalization is limited to income associated with your international assignment. While an assignee is equalized on personal and salary income, certain items, such as the tax on the gain of the sale of a home, will not be included. Income tax on any income earned outside of the assignment will be your responsibility. 6. Amendment of Employment Agreement. The following provisions shall be added to Executive's Employment Agreement. All capitalized terms shall have the meaning given to them in the Employment Agreement: A. If, prior to a Change of Control, Executive's employment is terminated by the Company other than for Cause), or if Executive resigns for Good Reason, then the Company will provide Executive with salary continuation until the first to occur of (i) nine (9) months following Executive's termination date, or (ii) Executive obtains other regular employment; provided, however that to the extent that such other employment is for a salary less than $270,000 per year ($22,500 per month), such salary continuation shall continue for the remainder such nine (9) month period to the extent of the difference between $22,500 per month and the salary from such other employment. B. Notwithstanding anything set forth to the contrary in the Change of Control Severance Agreement dated as of May 29, 2003 between the Company and Executive (the "C of C Agreement"), it is understood and agreed that the Executive's annual base salary referred to in Section 4(a)(1) of the C of C Agreement shall be deemed to be $270,000 for purposes of such Section. 6. Governing Law. This Agreement shall be governed by the internal laws of the State of California without reference to its conflict of laws rules. IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date set forth on the first page of this Agreement. Dated: As of August 31, 2003 By /s/ William E. McGlashan, Jr. ---------------------------------- Name: William E. McGlashan, Jr. Title: Chairman and CEO Dated: As of August 31, 2003 By /s/ Paul H. Bartlett ---------------------------------- Paul H. Bartlett, Personally EX-10.45 35 f97295exv10w45.txt EXHIBIT 10.45 EXHIBIT 10.45 PAUL H. BARTLETT RELOCATION SUMMARY OF EXPENSE REIMBURSEMENT DESCRIPTION OF QUALIFYING REIMBURSEABLE EXPENSES 1. Housing Allowance. Qualifying expenses under this category will be limited to monthly rental costs associated with one (1) temporary primary residence for the Paul H. Bartlett ("Employee") and his family in Dublin, Ireland. 2. Meals and Incidentals Allowance. Qualifying expenses under this category will be limited to school tuition for the Employee's children in Dublin, Ireland, not to exceed $10,000 per twelve-month period and the use of an automobile and related insurance, not to exceed $15,000 per twelve-month period. 3. Other Qualifying Expenses. Qualifying expenses include: Airline Tickets (2 sets of round trip airline tickets for 5 people between San Francisco, California and Dublin, Ireland), health insurance coverage for the Employee and his family for use in both Ireland and the United States. 4. Business Expenses. Qualifying expenses include reasonable business expenses pursuant to the applicable Critical Path, Inc. Travel and Entertainment Policy. 5. Moving Expenses. Qualifying expenses include all Deductible Expenses allowed under I.R.C. Section 217, not to exceed $50,000 per twelve-month period. Such reasonable expenses of moving household goods and personal effects from the former residence to the new residence include, but are not limited to: - Packing, crating and postage charges - Fees associated with connecting or disconnecting utilities - Transportation and lodging for yourself and members of your household while traveling from the former residence to the new place of residence, including expenses the day you arrive. This does NOT include expenses for meals. - Parking fees and tolls DESCRIPTION OF THE PROCESS FOR REIMBURSEMENT The Employee will need to establish/allocate two separate accounts to facilitate the reimbursement process during his temporary relocation: (1) a primary bank account in Ireland funded upon relocation for the purpose of funding all living expenses during the relocation period ("IRE Capital Account"), and (2) a primary bank account in the United States for the purpose of receiving salary, if applicable, reimbursement of qualifying expenses in the United States ("US Bank Account"). Expenses should be reimbursed as follows: 1. Housing Allowance. Expenses should be funded out of the Employee's IRE Capital Account and reimbursed from the United States into the Employee's US Bank Account. 2. Meals and Incidentals Allowance. Expenses should be funded out of the Employee's IRE Capital Account and reimbursed from the United States into the Employee's US Bank Account. As it relates to qualifying automobile expenses, they will be paid by Critical Path Ireland and they should be refunded by the Employee prior to the end of each calendar year and subsequently reimbursed to the Employee's US Bank Account by Critical Path, Inc. 3. Other Qualifying Expenses. Expenses should be funded out of the Employee's IRE Capital Account and reimbursed from the United States into the Employee's US Bank Account. 4. Business Expenses. Credit card and cash qualifying business expenses should be reimbursed from the United States into the Employee's US Bank Account. 5. Personal Expenses. Credit card and cash personal expenses should be paid for by the Employee through the Employee's IRE Capital Account. 6. Moving Expenses. Expenses should be funded out of the Employee's IRE Capital Account and reimbursed from the United States into the Employee's US Bank Account. The Parties have executed this Summary Of Expense Reimbursement as of the date set forth on the first page of this Agreement. Dated: As of August 31, 2003 By /s/ William E. McGlashan, Jr. -------------------------------- Name: William E. McGlashan, Jr. Title: Chairman and CEO Dated: As of August 31, 2003 By /s/ Paul H. Bartlett --------------------------------- Paul H. Bartlett, Personally EX-10.46 36 f97295exv10w46.txt EXHIBIT 10.46 EXHIBIT 10.46 AMENDMENT TO EMPLOYMENT AGREEMENT AND RELEASE OF CLAIMS This Amendment to Employment Agreement and Release of Claims ("Agreement") is made by and between CRITICAL PATH, INC. (the "Company"), and Paul H. Bartlett ("Executive") (collectively referred to herein as the "Parties") and dated as of November 24, 2003 (the "Effective Date"). WHEREAS, Executive has been employed by the Company pursuant to a signed Offer Letter dated April 8, 2002 (the "Employment Agreement), and subsequently amended as of August 31, 2003 (the "August 31 Amendment") and has signed a Change of Control Severance Agreement dated as of May, 29, 2003 (the "C of C Agreement") (collectively, the "Amended Employment Agreements"); WHEREAS, Executive and Company hereby agree to amend and/or terminate certain terms and conditions of such Amended Employment Agreements; and WHEREAS, Executive and Company hereby agree to the terms and conditions of a modified employment relationship going forward; NOW THEREFORE, in consideration of the mutual promises made herein, the Company and Executive hereby agree as follows: 1. Modification and Termination of Employment. Effective immediately, Executive shall no longer have the responsibilities or the title of Chief Financial Officer. Executive shall continue to be Chief Operating Officer. However, Executive's employment shall terminate no later than June 30, 2004; during the period from the date of this Agreement to June 30, 2004, Executive's duties shall principally consist of transitional responsibilities, and other duties as requested from time to time by the CEO. Executive's employment shall continue to be an at-will relationship as provided under the Amended Employment Agreements. 2. Payment of Salary; Salary Continuation; Reimbursement of Expenses. As of December 1, all payment of regular base salary and eligibility for general executive bonuses will terminate. Commencing December 1, 2003 Executive shall be paid the salary continuation amounts as contemplated under Section 6. A. of the August 31 Amendment, less all applicable withholdings in accordance with the Company's standard payroll practices (the "Severance Amount"). No other salary or general executive bonuses are due or payable to the Executive now or at any future time, except as specifically contemplated or described in this agreement or the Amended Employment Agreements. In the event that Executive's employment is terminated by the Company earlier than June 30, 2004, then Executive shall receive a lump sum payment equal to the remaining Severance Amount pro-rated from the date of early termination. In the event that Executive's employment is terminated by Executive earlier than June 30, 2004, Executive shall continue to receive the Severance Amount as salary continuation subject to the limitations contained in Section 6 A. (ii) of the August 31 Amendment pertaining to other employment. It is understand and agreed between the parties that no Involuntary Termination (as such term is defined in the C of C Agreement) of Executive has occurred by virtue of this Agreement or otherwise, and that, solely for purposes of determining any benefits due Executive under the C of C Agreement, Executive's Involuntary Termination shall not be deemed to occur earlier than June 30, 2004, except in the case of a termination for Cause (as defined in the C of C Agreement). Company will continue to reimburse Executive for approved business related expenses (including those contemplated in the August 31 Amendment) and incurred in accordance with the current Company travel and expense policies applicable to Executive and properly submitted. 3. Stock Options. As of the Effective Date, Executive shall continue to vest in all previously granted options to purchase shares of Company common stock in accordance with the applicable vesting schedules found in each Stock Option Agreement and as provided in the Amended Employment Agreement. Except as provided below, nothing in this Agreement is intended to otherwise supersede or modify the terms and conditions of the Company's Stock Option Plans or any agreements issued in connection with those plans including any provision contained in any agreement (including the Amended Employment Agreement) for accelerated vesting and/or any change of control arrangement. Notwithstanding the foregoing, it shall be recommended to the compensation committee of the Board of Directors of the Company that (i) Executive's Option grant dated April 24, 2003 in the amount of 250,000 shares (on an as-adjusted for split basis) shall be fully vested and exercisable as of the date of Executive's termination of employment, and (ii) Executive shall have a period of eighteen (18) months from the last day of his employment in which to exercise his previously granted options. 4. Benefits. Executive shall continue to be covered by all employee health and welfare benefit plans pursuant to the terms and conditions of the Amended Employment Agreement. Nothing in this Agreement is intended to supercede or modify the terms and conditions of the Company's health and benefits plans. 5. Release of Claims. a. Civil Code Section 1542. In connection with all releases given under this Agreement ("Release"), Executive expressly waives any rights or benefits under Section 1542 of the California Civil Code, or any other equivalent statute, which provides as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. b. Release. Executive agrees that the acceleration of vesting and extended time to exercise hereunder and the Severance Amount constitute settlement in full of all outstanding obligations owed to Executive by the Company under the Amended Employment Agreement. Except for the promises or obligations made or undertaken in this Agreement and in exchange for the payments and other consideration provided hereunder, Executive, on behalf of himself, and his respective heirs, family members, executors, and assigns, hereby fully and forever releases, acquits, and discharges the Company and its respective officers, directors, employees, investors, shareholders, affiliates, divisions, subsidiaries, predecessor and successor corporations, and assigns, from, and agrees not to sue concerning, any claim, duty, obligation or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that he or she may possess arising from any omissions, acts or facts that have occurred or may occur through and including the last day of Executive's employment. The foregoing release shall include, without limitation, any and all claims relating to or arising from Executive's employment relationship with the Company and the termination or modification of that relationship; any and all claims relating to, or arising from, Executive's right to purchase, or actual purchase of shares of stock of the Company, including, without limitation, any claims for rights of rescission, personal tax liabilities, fraud, misrepresentation, breach of fiduciary duty, breach of duty under applicable state corporate law, and securities fraud under any state or federal law; any and all claims for wrongful discharge of employment, wages or other compensation, including but not limited to bonuses and commissions; breach of contract, both express and implied; breach of a covenant of good faith and fair dealing, both express and implied; negligent or intentional infliction of emotional distress; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; defamation; negligence; personal injury; discrimination, disability discrimination; violation of public policy; retaliation; harassment; any tort claims, including wrongful discharge, assault; battery; harassment; invasion of privacy; false imprisonment; and conversion; any and all claims for violation of any federal, state or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, the Fair Labor Standards Act, the California Fair Employment and Housing Act, and Labor Code section 201, et seq., and all as may be amended from time to time; any and all claims arising out of any other laws and regulations relating to employment or employment discrimination; and any and all claims for attorneys' fees and costs. This release extends to any and all administrative or criminal charges whether before the Division of Labor Standards, Equal Employment Opportunity Commission or the Department of Fair Employment and Housing or any other court or agency to which Executive currently is or shall later become a party. Should Executive ever become a party to any such proceeding, he shall immediately ask any such administrative agency or court to withdraw any such charge as to him. The parties acknowledge and agree that all potential or actual disputes between them with respect to the Amended Employment Agreement have been fully and finally settled to their complete satisfaction, leaving no disputes, controversies, claims or grievances of any kind between them. The parties therefore covenant and agree that, except as may be compelled by legal process, they will not raise or in any way pursue any claims which are being released and discharged in this Agreement in any forum of any kind, including, without limitation, the federal, state or local courts, or federal, state or local agencies or offices of any kind, be they administrative, regulatory, judicial, quasi-judicial, or otherwise. The parties further agree that, except as compelled by legal process, they will not aid, assist, abet or in any way encourage any third party to in any way pursue any claims which are being released and discharged in this Agreement. Executive agrees that the release set forth in this section shall be and remain in effect in all respects as a complete general release as to the matters released. Executive understands and agrees that this Release extinguishes all claims by the Executive as of the Effective Date whether known or unknown and foreseen or unforeseen. c. Acknowledgment of Waiver of Claims under ADEA. To the extent applicable, Executive further acknowledges that he is waiving and releasing any rights he may have under the Age Discrimination in Employment Act of 1967 ("ADEA") and that this waiver and release is knowing and voluntary. Executive and the Company agree that this waiver and release does not apply to any rights or claims that may arise under ADEA after the Effective Date. Executive acknowledges that the consideration given for this waiver and release Agreement is in addition to anything of value to which Executive was already entitled. To the extent the ADEA is applicable to Executive, Executive further acknowledges that he or she has been advised by this writing, as required by the ADEA, that (a) he or she has the right to and should consult with an attorney prior to executing this Agreement (although he or she may execute this Agreement voluntarily earlier); (b) he or she has at least forty-five (45) days within which to consider this Agreement; (c) he or she has seven (7) days following the execution of this Agreement to revoke the Agreement by sending a written notice to the Company to the attention of General Counsel, Critical Path, Inc., 350 The Embarcadero, 6th Floor, San Francisco, California 94105-1204; and (d) this Agreement shall not be effective until the revocation period has expired, which shall be the eighth day after it is signed by Executive and Company. 6. Confidentiality. Executive understands and agrees that the terms of this Agreement are confidential and the Parties hereto each agree to use their best efforts to maintain in confidence the existence of this Agreement, the contents and terms of this Agreement, and the consideration for this Agreement (hereinafter collectively referred to as "Settlement Information"). Each Party hereto agrees to take every reasonable precaution to prevent disclosure of any Settlement Information to third parties, and each agrees that there will be no publicity, directly or indirectly, concerning any Settlement Information, except where such disclosure is required by law and as required by the regulations promulgated under the Securities and Exchange Act of 1934, as amended. The Parties hereto agree to take every precaution to disclose Settlement Information only to those employees, officers, directors, attorneys, accountants, governmental entities, and family members who have a reasonable need to know of such Settlement Information. 7. No Representations. Neither party has relied upon any representations or statements made by the other party hereto which are not specifically set forth in this Agreement. 8. Severability. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision. Such provision shall be modified by the court so as to be rendered enforceable insofar as possible consistent with the intent of the Parties to all remaining portions of the Agreement. 9. Entire Agreement. This Agreement represents the entire agreement and understanding between the Company and Executive concerning Executive's employment with the Company, and supersedes and replaces any and all prior agreements and understandings, whether oral or written, concerning Executive's relationship with the Company and his or her compensation by the Company, except for (i) the Amended Employment Agreement, to the extent not expressly modified hereunder, (ii) any prior agreement or understanding to indemnify Executive as against third party claims which may arise in connection with Executive's service as an executive officer, including but not limited to employee's Indemnification Agreement and (iii) employee's stock option agreements and the provisions of any other agreement related to such stock option agreements. This Agreement may only be amended in writing signed by Executive and the Chief Executive Officer or Chief Financial Officer of the Company. Any term of the Amended Employment Agreement not expressly amended hereunder shall remain in full force and effect. In the event of any conflict between the terms of the Amended Employment Agreement and this Amendment, this Amendment shall control. 10. Governing Law. This Agreement shall be governed by the laws of the State of California, without regard to its conflicts of laws principles. 11. Voluntary Execution of Agreement. This Agreement is executed voluntarily and without any duress or undue influence on the part or behalf of the Parties hereto, with the full intent of releasing all claims. Executive acknowledges that: (a) he or she has read this Agreement; (b) has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of his or her own choice or that he or she has voluntarily declined to seek such counsel; (c) understands the terms and consequences of this Agreement and of the releases it contains; (d) is fully aware of the legal and binding effect of this Agreement. IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date set forth on the first page of this Agreement. Dated: As of November 24, 2003 By /s/ William E. McGlashan, Jr. ------------------------------ Name: William E. McGlashan, Jr. Title: Chairman and CEO Dated: As of November 24, 2003 By /s/ Paul H. Bartlett ------------------------------ Paul H. Bartlett EX-10.47 37 f97295exv10w47.txt EXHIBIT 10.47 EXHIBIT 10.47 Amendment No. 1 to First Amended and Restated Employment Agreement This Amendment No. 1 (this "Amendment"), dated as of September 1, 2003 amends that certain First Amended and Restated Employment Agreement dated as of January 7, 2002 (the "Agreement") by and between William E. McGlashan, Jr. ("Executive") and Critical Path, Inc. (the "Company"). All capitalized terms used herein and not defined shall have the meanings assigned to them in the Agreement. RECITALS 1. Executive desires to voluntarily reduce his base salary to $300,000 per annum. 2. The Compensation Committee of the Board of Directors of the Company have determined that it is in the best interests of the Company to accept Executive's voluntary salary reduction and to amend the Agreement to reflect the terms of such reduction as stated herein. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agrees as follows: 1. Section 4 of the Agreement is hereby amended to provide that Executive's base salary shall henceforth be $300,000 per annum. 2. Such salary reduction shall be effective until such time as (i) the Company is EBITDA profitable or (ii) has secured additional working capital funding proceeds of at least $15,000,000 through an asset sale, an equity-based financing (including convertible debt), or a combination thereof. Upon the occurrence of any such event, Executive's base salary shall revert to the amount in effect immediately prior to this reduction ($405,000). 3. Notwithstanding anything set forth to the contrary in the Change of Control Severance Agreement dated as of May 29, 2003 between the Company and Executive, it is understood and agreed that the Executive's annual base salary referred to in Section 4(a)(1) of such agreement shall be deemed to be $405,000 for purposes of such Section. 4. This Amendment and the Agreement constitute the entire understanding between the parties with respect to the subject matter contained herein. Except as modified herein, all other terms and conditions of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the Effective Date. CRITICAL PATH, INC. /s/ William E. McGlashan, Jr. /s/ Michael J. Zukerman - ------------------------------------ ----------------------------------- William E. McGlashan, Jr. Name: Michael Zukerman Title: SVP EX-10.48 38 f97295exv10w48.txt EXHIBIT 10.48 EXHIBIT 10.48 [CRITICAL PATH LOGO] February 4, 2004 Mr. James Clark 3075 Welwyn Place Walnut Creek, CA 94598 Dear Jim, On behalf of Critical Path, Inc. (the "Company"), I am pleased to offer you the position of Executive Vice President, Chief Financial Officer. Speaking for myself, as well as other members of the Company's management team, we are all very impressed with your credentials and we look forward to your future success in this position. The terms of your employment with the Company are set forth below: POSITION You will be an Executive Vice President, Chief Financial Officer for the Company, reporting to William E. McGlashan, Jr., Chief Executive Officer, working out of the Company's offices in San Francisco, CA, or from your home office. This is an exempt position. You agree to the best of your ability and experience that you will at all times loyally and conscientiously perform all of the duties and obligations required of and from you pursuant to the express and implicit terms hereof, and to the reasonable satisfaction of the Company. During the term of your employment, you further agree that you will devote all of your business time and attention to the business of the Company. START DATE Subject to fulfillment of any conditions imposed by this letter agreement, you will commence this new position with the Company on a date to be determined. Kim Trask of our Human Resources Department will contact you regarding your new hire orientation. COMPENSATION Your base salary will be $250,000.00 on an annualized basis. Your salary will be payable in two equal payments per month pursuant to the Company's regular payroll practices. Your base salary will be increased to $300,000.00 once the Company is EBITDA profitable. BONUS You will be eligible to participate in the 2004 Critical Path Bonus Plan, once finalized and approved by our Board of Directors, at 30% of base salary, on a prorated basis based on your date of hire. REVIEW Your base salary will be reviewed annually as part of the Company's salary review process. However, nothing in this provision changes the at-will nature of the employment relationship. BENEFITS The Company offers you and your eligible dependents generous Medical, Dental, and Vision benefits. You will also receive Short-term Disability, Long-term Disability, and Life Insurance. In addition, the Company offers employees the opportunity to participate in its Flexible Spending Account, Employee Assistance Program, 401(k) Plan, and Critical Path, Inc. Page 1 Employee Stock Purchase Plan. A complete overview of benefits will be presented to you on or around your date of hire. PAID TIME OFF Members of the executive staff are not eligible to accrue Paid Time Off (PTO). You should schedule time off for the year based on your tenure with the Company and the number of days allowed per year according to our policy, a copy of which will be given to you at orientation. If you should leave the Company for any reason, you will not receive any PTO payout on your final paycheck. STOCK OPTIONS In connection with the commencement of your employment, the Company will recommend that the Board Compensation Committee grant you an option to purchase 350,000 shares of the Company's Common Stock ("Shares") with an exercise price equal to the closing price of Critical Path's stock on the last trading day prior to the date of Grant. These Shares will vest over four years, with 12.5% vesting on your six-month anniversary with the Company, and 1/48th of the original grant amount vesting monthly thereafter. Vesting will, of course, depend on your continued employment with the Company. These Shares will be subject to the terms of the applicable Company Stock Option Plan and the Stock Option Agreement between you and the Company. In the event of a Change of Control of the Company, any unvested Shares originally granted will vest immediately should your employment be terminated without Cause or if you terminate your employment for Good Reason, each such event occurring within six (6) months of such Change of Control, all as such terms are defined in Appendix A. SEVERANCE To the extent you are terminated for any reason without Cause (as defined on Appendix A), you will receive, upon termination, a severance payment equal to six (6) months base salary. PROOF OF RIGHT TO WORK For purposes of federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. A list of acceptable documents is available for your reference. Please have your identity and employment eligibility document(s) with you for your new hire orientation. PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT Your acceptance of this offer and commencement of employment with the Company is contingent upon the execution and submission of the Company's Proprietary Information and Inventions Agreement ("Proprietary Agreement"), a copy of which has been provided to you with this offer letter. AT-WILL EMPLOYMENT Notwithstanding the Company's obligation described herein, your employment with the Company will be on an "at-will" basis, meaning that either you or the Company may terminate your employment at any time for any reason or no reason, without further obligation or liability. DISPUTE RESOLUTION PROCEDURE You and the Company ("the parties") agree that any dispute arising out of or related to the employment relationship between them, including the termination of that relationship and any allegations of unfair or discriminatory treatment arising under state or federal law or otherwise, that cannot be resolved through the Company's informal grievance procedure, shall be resolved by final and binding arbitration in San Francisco, California, except where the law specifically forbids the use of arbitration as a final and binding remedy. The following dispute resolution shall apply: (a) The complainant shall provide the other party with a written statement of the claim identifying any supporting witnesses or documents and the requested relief. Critical Path, Inc. Page 2 (b) The respondent shall furnish a statement of the relief, if any, that it is willing to provide, and identify supporting witnesses or documents. If the matter is not resolved, the parties shall submit the dispute to nonbinding mediation, paid for by the Company, before a mediator to be selected by the parties. (c) If the matter is not resolved through mediation, the parties agree that the dispute shall be resolved by binding arbitration. If the parties are unable to jointly select an arbitrator, they will obtain a list of arbitrators in San Francisco County, California, from the Federal Mediation and Conciliation Service and select an arbitrator by striking names from that list. (d) The arbitrator shall have the authority to determine whether the conduct complained of in section (a) of this section violates the complainant's rights and, if so, to grant any relief authorized by law; subject to the exclusions of section (g) below. The arbitrator shall not have the authority to modify, change, or refuse to enforce the terms of any employment agreement between the parties, or change any lawful policy or benefit plan. (e) The Company shall bear the costs of the arbitration if you prevail. If the Company prevails, you will pay half the cost of the arbitration or $500, whichever is less. Each party shall pay its own attorney's fees, unless the arbitrator orders otherwise pursuant to applicable law. (f) ARBITRATION SHALL BE THE EXCLUSIVE FINAL REMEDY FOR ANY DISPUTE BETWEEN THE PARTIES, SUCH AS DISPUTES INVOLVING CLAIMS FOR DISCRIMINATION OR HARASSMENT (SUCH AS CLAIMS UNDER THE FAIR EMPLOYMENT AND HOUSING ACT, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE AMERICANS WITH DISABILITIES ACT, OR THE AGE DISCRIMINATION IN EMPLOYMENT ACT), WRONGFUL TERMINATION, BREACH OF CONTRACT, BREACH OF PUBLIC POLICY, PHYSICAL OR MENTAL HARM OR DISTRESS, OR ANY OTHER DISPUTES, AND THE PARTIES AGREE THAT NO DISPUTE SHALL BE SUBMITTED TO ARBITRATION WHERE THE COMPLAINANT HAS NOT COMPLIED WITH THE PRELIMINARY STEPS PROVIDED FOR IN SECTIONS (A) AND (B) ABOVE. (g) The parties agree that the arbitration award shall be enforceable in any court having jurisdiction to enforce this agreement, so long as the arbitrator's findings of fact are supported by substantial evidence on the whole and the arbitrator has not made errors of law; however, either party may bring an action in a court of competent jurisdiction regarding or related to inventions that you may claim to have developed prior to joining the Company, pursuant to California Labor Code Section 2870 ("Disputes Related to Inventions"). The parties further agree that for Disputes Related to Inventions which the parties have elected to submit to arbitration, each party retains the right to seek preliminary injunctive relief in court in order to preserve the status quo or prevent irreparable injury before the matter can be heard in arbitration. OFFER CONDITIONS This offer is null and void if not accepted or declined by close of business on February 2, 2004. This offer is also contingent upon receiving your completed employment application and the successful results of our independent verification of your application and reference checks. We are delighted to be able to extend you this offer and look forward to working with you. To indicate your acceptance of the Company's offer, please sign and date this letter in the space provided below and return it to Donna Spinola in the Human Resources department (if by fax, then to 415.541.2301), along with a signed and dated copy of the Proprietary Agreement. This letter, together with the Proprietary Agreement, constitute the full, complete, and exclusive agreement between you and the Company regarding the matters herein and supersedes any prior representations or agreements, whether written or Critical Path, Inc. Page 3 oral. This letter may not be modified or amended except by a written agreement, signed by the Company and by you. ACCEPTED AND AGREED: CRITICAL PATH, INC. Name: James Clark By: /s/ William E. McGlashan, Jr. ------------------------------------ William E. McGlashan, Jr. Chairman and Chief Executive Officer Signed: /s/ James Clark --------------------------- Date: February 4, 2004 Critical Path, Inc. Page 4 APPENDIX A "Change of Control" shall mean the consummation of one of the following: (i) the acquisition of 50% or more of the outstanding stock of the Company pursuant to a tender or exchange offer validly made under any federal or state law (other than a tender offer by the Company) or other share acquisition transaction; (ii) a merger, consolidation or other reorganization of the Company (other than a reincorporation of the Company), if after giving effect to such merger, consolidation or other reorganization of the Company, the shareholders of the Company immediately prior to such merger, consolidation or other reorganization do not represent a majority in interest of the holders of voting securities (on a fully diluted basis) with the ordinary voting power to elect directors of the surviving entity after such merger, consolidation or other reorganization; (iii) the sale of all or substantially all of the assets of the Company to a third party who is not an affiliate of the Company. "Cause" shall mean (i) failure or refusal to perform a lawful directive of the CEO or the Board of Directors of the Company that is consistent with your duties and responsibilities as set forth in this Agreement, (ii) willful misconduct or material violation of your fiduciary obligations to the Company , (iii) you perform your duties in a grossly negligent manner, or (iv) you are convicted of any crime that has a material adverse impact on (A) your ability to perform your duties hereunder, (B) the Company or (C) the Company's business. "Good Reason" shall be deemed to occur if there is (a)(1) a material adverse change in your position causing such position to be of significantly less stature or of significantly less responsibility, (2) a material adverse change in title, (3) a material reduction of employee's base salary, or (4) a material change in your bonus structure or bonus targets such that your total potential compensation will necessarily be materially reduced; and (b) within the sixty (60) day period immediately following any of the foregoing events employee elects to terminate his employment voluntarily. Critical Path, Inc. Page 5 EX-10.51 39 f97295exv10w51.txt EXHIBIT 10.51 EXHIBIT 10.51 FIRST AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT THIS FIRST AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (the "Amendment") is entered into as of November 26, 2003, by and between SILICON VALLEY BANK, a California-chartered bank (the "Bank"), and CRITICAL PATH, INC., a California corporation (the "Borrower"), in reliance on the following: RECITALS A. On or about July 18, 2003, the Borrower and the Bank entered into that certain Amended and Restated Loan and Security Agreement pursuant to which the Bank made available to the Borrower a revolving credit facility (the "Senior Debt Facility") in the principal amount of up to Fifteen Million Dollars ($15,000,000.00). The Amended and Restated Loan and Security Agreement, along with all other documents entered into by or on behalf of the Borrower in connection therewith, are hereinafter referred to as the "Senior Loan Documents", and each capitalized term used in this Amendment shall have the meaning accorded to it in the Senior Loan Documents unless it is otherwise defined herein. B. The Borrower has entered into that certain Convertible Note Purchase and Exchange Agreement, dated as of November 18, 2003, among the Borrower, General Atlantic Partners 74, L.P. ("GAP 74"), GAP Coinvestment Partners II, L.P. ("GAP Coinvestment"), GapStar, LLC ("GapStar") and GAPCO GmbH & Co. KG ("GAPCO" and, together with GAP 74, GAP Coinvestment and GapStar, the "Investors"), and the other entities listed on the signature pages thereto (collectively with the notes and other documents to be executed and delivered by the Borrower in connection therewith, as amended in accordance with the terms of the Subordination Agreement defined below, the "Junior Debt Documents"), pursuant to which the Borrower will issue to such Investors convertible notes in the aggregate principal amount of Ten Million Dollars ($10,000,000) (the "Junior Debt") and will grant to the Investors a security interest in certain of the Collateral on November 26, 2003. The Bank is willing to consent to the Borrower's entering into the Junior Debt Documents, issuing the convertible notes thereunder to the Investors and granting a security interest in certain of the Collateral to the Investors, but only upon the terms hereof. AGREEMENT NOW, THEREFORE, in reliance upon the foregoing and in consideration of the mutual covenants set forth herein and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1 Consent to Junior Debt Documents. The Bank hereby consents to each of the Borrower's and the Borrower's direct and indirect subsidiaries' (including but not limited to its subsidiary Compass Holding Corp.): (i) incurring indebtedness and guarantees of indebtedness under the Junior Debt Documents; (ii) granting to the Investors a security interest in -1- its assets and property, all as more fully set forth in the Junior Debt Documents (it being acknowledged by the Bank that such security interest shall constitute a "Permitted Lien" under the Senior Loan Documents to the extent that such security interest is subordinate to the Bank's lien upon the Collateral as provided in the Subordination Agreement); and (iii) entering into and performing their obligations under the Junior Debt Documents; provided, however, that the Bank's consent to the foregoing is expressly predicated upon the terms of the Junior Debt Documents as of the date of this Amendment and does not constitute, nor is it intended to constitute, a consent to any subsequent modifications to the Junior Debt Documents. The Bank also hereby consents to the changes in the Borrower's capital structure, the conversion of all or any portion of the Junior Debt into equity interests of the Borrower or another entity (as contemplated by the convertible notes referred to above) at any time and the consummation of all other transactions contemplated by the Junior Debt Documents pursuant to their respective terms as of the date hereof. 2 No Amendment of Junior Debt Documents. The Borrower agrees that it shall not enter into, nor consent to, any amendment of the Junior Debt Documents that is likely to result in a material adverse change to the Bank's rights and remedies under the Senior Debt Documents or the Subordination Agreement without first obtaining the Bank's consent thereto. 3 Reduction of the Credit Limit. On and after the effective date of this Amendment, the Bank shall reduce the Credit Limit from Fifteen Million Dollars ($15,000,000.00) to Five Million Dollars ($5,000,000.00) (the "New Credit Limit") and shall also reduce the Letter of Credit Sublimit from Six Million Dollars ($6,000,000.00) to Two Million Eight Hundred Thousand Dollars ($2,800,000.00). 4 Reaffirmation of Obligations. The Borrower reaffirms to the Bank that, as of the date hereof, the outstanding principal amount of all Loans under the Senior Loan Documents (including the face amount of all Letters of Credit outstanding under the Letter of Credit Sublimit) is Seven Million Four Hundred Thousand and No/100 Dollars ($7,400,000.00). The Borrower acknowledges that the Senior Loan Documents fully and accurately reflect and constitute the valid and enforceable Obligations of the Borrower to the Bank, and the Borrower remains fully obligated to perform all covenants thereunder and has no defenses to or offsets against such Obligations. 5 Conditions to Effectiveness. The following conditions must be satisfied in full, or waived in writing by the Bank, before this Amendment shall be effective and the Bank shall become obligated hereunder. 5.1 Execution and Delivery of Documents. The Borrower shall have executed and delivered to the Bank this Amendment, and the Bank shall have received any and all other instruments and documents, fully executed and in form and substance acceptable to the Bank, as are contemplated hereby or otherwise reasonably requested by the Bank, including the Subordination Agreement with the Investors. 5.2 Payment of Fees and Expenses. The Borrower shall have paid to the Bank all fees due and owing under the Senior Loan Documents as amended hereby, as well as a sum sufficient to reimburse the Bank for all costs and expenses incurred by the Bank in -2- entering into this Amendment, the Subordination Agreement and any and all other documents and instruments contemplated hereby or thereby (including but not limited to all attorneys' fees and expenses.) 5.3 Payment of Principal Accrued Interest. The Borrower shall have paid to the Bank all outstanding principal amounts under the Senior Loan Documents in excess of the New Credit Limit, plus all accrued interest thereon that is due and owing, on or before the date on which this Amendment becomes effective. 5.4 Representations and Warranties; No Default. The representations and warranties of the Borrower as set forth in the Senior Loan Documents shall be true and correct in all material respects as of the date on which this Amendment becomes effective, and no Event of Default shall have occurred and be continuing as of such date without having been cured. 6 Continued Full Force and Effect. Except to the extent expressly amended hereby, all of the terms and provisions of the Senior Loan Documents shall remain in full force and effect, and the lien in favor of the Bank in the Collateral shall be and remain a fully perfected senior lien upon all of the Collateral pursuant to the terms of the Senior Loan Documents, it being the intent of the parties that nothing herein shall affect or impair the Bank's rights or remedies under the Senior Loan Documents or its lien upon the Collateral. Henceforth, the term "Loan Documents" shall be deemed to mean the Senior Loan Documents as modified and supplemented by the terms of this Amendment, and any default of the Borrower hereunder shall constitute an Event of Default under the Senior Loan Documents. 7 General Provisions. 7.1 Choice of Law and Venue. This Amendment shall be governed by and construed in accordance with the internal laws of the State of California, without regard to principles of conflicts of law, and any action or proceeding arising out of this Agreement shall be commenced in the Superior Court of the State of California for the County of Santa Clara, or in the District Court of the United States in the Northern District of California. 7.2 WAIVER OF JURY TRIAL. EACH OF THE BORROWER, ON THE ONE HAND, AND THE BANK, ON THE OTHER HAND, WAIVES ITS RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AMENDMENT, THE LOAN AGREEMENT OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR EACH OF THE PARTIES TO ENTER INTO THIS AMENDMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL AND UNDERSTANDS THE RAMIFICATIONS THEREOF. 7.3 Entire Agreement. This Amendment and the Loan Agreement together constitute the entire agreement and understanding between the parties hereto with respect to the transactions contemplated hereunder and thereunder and supersede all prior -3- negotiations, understandings and agreements between the parties with respect to such transactions. 7.4 Counterparts. This Amendment may be executed and delivered in any number of counterparts, each of which shall be an original and all of which together shall constitute one and the same agreement. 7.5 Time of the Essence. Time is of the essence in the performance by each party of its obligations hereunder and the satisfaction of all conditions specified herein. IN WITNESS WHEREOF, each of the parties hereto has caused its duly authorized representative to execute this Amendment as of the date first set forth above. BORROWER: BANK: CRITICAL PATH, INC. SILICON VALLEY BANK, a California corporation a California-chartered bank CRITICAL PATH, INC. SILICON VALLEY BANK, a California corporation a California-chartered bank By: /s/ Michael J. Zukerman By: /s/ Brian Harrison -------------------------------- ----------------------------- Name: Michael J. Zukerman Name: Brian Harrison Title: SVP and General Counsel Title: Vice President -4- EX-10.52 40 f97295exv10w52.txt EXHIBIT 10.52 EXHIBIT 10.52 SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT THIS SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (the "Second Amendment") is entered into as of January 30, 2004, by and between SILICON VALLEY BANK, a California-chartered bank (the "Bank"), and CRITICAL PATH, INC., a California corporation (the "Borrower"), in reliance on the following: RECITALS A. On or about July 18, 2003, the Borrower and the Bank entered into that certain Amended and Restated Loan and Security Agreement (the "Loan Agreement") pursuant to which the Bank made available to the Borrower a revolving credit facility (the "Senior Debt Facility") in the principal amount of up to Fifteen Million Dollars ($15,000,000.00). B. On or about November 18, 2003, the Borrower entered into that certain Convertible Note Purchase and Exchange Agreement among the Borrower, General Atlantic Partners 74, L.P. ("GAP 74"), GAP Coinvestment Partners II, L.P. ("GAP Coinvestment"), GapStar, LLC ("GapStar") and GAPCO GmbH & Co. KG ("GAPCO" and, together with GAP 74, GAP Coinvestment and GapStar, the "Investors"), and the other entities listed on the signature pages thereto (collectively with the notes and other documents executed and delivered by the Borrower in connection therewith, as amended in accordance with the terms of the Subordination Agreement defined below, the "First Junior Debt Documents"), pursuant to which the Borrower issued to such Investors convertible notes in the aggregate principal amount of Ten Million Dollars ($10,000,000) (the "First Junior Debt") and granted a security interest to the Investors in certain of the Collateral on November 26, 2003. C. The Bank consented to the Borrower's entering into the First Junior Debt Documents and performing its obligations thereunder pursuant to the terms of that certain First Amendment to Amended and Restated Loan and Security Agreement dated as of November 26, 2003 (the "Amendment"). The Amendment provided, in part, that the Investors would enter into that certain Subordination Agreement with the Bank dated as of November 26, 2003 (the "First Subordination Agreement") to evidence the terms by which the First Junior Debt is subordinated to the Senior Debt Facility. The Loan Agreement as amended by the Amendment, along with all other documents entered into by the parties in connection with the Loan Agreement and the Amendment, are hereinafter referred to as the "Senior Loan Documents," and each capitalized term used in this Second Amendment shall have the meaning accorded to it in the Senior Loan Documents unless it is otherwise defined herein. D. On or about January 16, 2004, the Borrower entered into that certain Convertible Note Purchase Agreement dated as of January 16, 2004, by and among the Borrower as issuer, on the one hand, and Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Partners, L.P., Zaxis Offshore Limited, Zaxis Institutional Partners, L.P., and Passport Master 1 Fund, L.P. as creditors (collectively, the "Second Subordinated Creditors"), on the other hand, and the Notes, the Guaranty and Security Agreement and the other documents executed and delivered in connection therewith (collectively, the "Second Junior Debt Documents"). The Bank consented to the Borrower's entering into the Second Junior Debt Documents and the Borrower's granting to the Second Subordinated Creditors a security interest in certain of the Collateral, all as more fully set forth in the Second Junior Debt Documents, conditioned upon the execution and delivery by the Second Subordinated Creditors of a Subordination Agreement by and among the Bank, as senior creditor, and the Second Subordinated Creditors, as junior creditors, in form and substance acceptable to the Bank, and the consent of the Investors to the Borrower's entering into the Second Junior Debt Documents. E. The Borrower now desires to amend the Senior Loan Documents further in order to extend the Maturity Date, and the Bank is willing to do so upon the terms set forth herein. AGREEMENT NOW, THEREFORE, in reliance upon the foregoing and in consideration of the mutual covenants set forth herein and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Change in the Calculation of the Credit Limit. 1.1 The Credit Limit. On and after the date on which this Second Amendment becomes effective pursuant to Section 9 hereof (the "Effective Date"), the Credit Limit shall be an amount equal to the lesser of (i) $5,000,000.00 or (ii) the Borrowing Base. Section 1.1 of Schedule 1 to the Loan Agreement ("Schedule 1") is hereby amended accordingly. 1.2 Definition of the Borrowing Base. The Borrowing Base shall hereafter be the sum of (i) 80% of Eligible Accounts, plus (ii) 100% of unrestricted Investment Cash, plus (iii) 100 % of the face amount of all letters of credit issued to the Bank, as beneficiary thereof, by such bank(s) and in such form as is acceptable to the Bank in its sole discretion. The foregoing definition hereby replaces in full the definition of Borrowing Base set forth in Section 1.2 of Schedule 1, and said Section 1.2 is hereby amended accordingly. 1.3 Investment Cash. The term "Investment Cash" shall mean that amount of cash deposited in the Borrower's Account No. 88602595 at SVB Securities, an Affiliate of the Bank, and the second clause of the last sentence of Section 1.2 of the Schedule is hereby deleted. 2. Change in the Letter of Credit Sub-Limit. On and after the Effective Date, the Letter of Credit Sublimit shall be Three Million Dollars ($3,000,000.00). Section 1.5 of Schedule 1 is hereby amended accordingly, and the definition of "Sublimit Loans" in said Section 1.5 is hereby deleted. 3. Change in the Interest Rate. On and after the Effective Date, the Borrower shall pay interest on all Loans at a rate determined for each calendar month as follows: (i) so long as the Borrower maintains at least $10,000,000.00 on deposit with the Bank and its Affiliates at all 2 times during such calendar month, the Prime Rate plus one percent per annum (1.00% p.a.); (ii) if the Borrower maintains less than $10,000,000.00 but at least $5,000,000.00 on deposit with the Bank and its Affiliates at all times during such calendar month, the Prime Rate plus one and one-half percent per annum (1.50% p.a.); and (iii) if at any time during such month the Borrower maintains less than $5,000,000.00 on deposit with the Bank and its Affiliates, the Prime Rate plus two percent per annum (2.00% p.a.). In no event shall the Prime Rate be less than 4.00% per annum for purposes of the Senior Loan Documents. Section 2 of Schedule 1 is hereby amended accordingly. 4. Fees. 4.1 The Facility Fee. Borrower will pay the Bank a facility fee on the Effective Date in the amount of $20,000.00 (the "Facility Fee"), which Facility Fee shall be fully-earned and non-refundable upon payment. 4.2 Other Fees. The following provisions of Section 3 of Schedule 1 are hereby amended as follows: a. The last sentence of Section 3.3 is hereby amended to read in full as follows: "For purposes of calculating the Unused Facility Fee, the Credit Limit shall be deemed to be $5,000,000.00." b. Section 3.5 of Schedule 1 is hereby amended to read in full as follows: "3.5 Termination Fee. If the Agreement is terminated at any time during the six-month period following the Effective Date due to an Event of Default or as a result of the Borrower's termination under Section 6.2 of the Agreement, the Borrower shall pay to the Bank, within two Business Days after such termination, a termination fee (the "Termination Fee") in an amount equal to $50,000.00." 5. Extension of the Maturity Date. The Maturity Date shall be extended to October 31, 2004, and Section 4 of Schedule 1 is hereby amended accordingly. 6. Change to Financial Covenants. 6.1 Consolidated Revenues Covenant. The existing Section 5.1 of Schedule 1 is hereby deleted and a new Section 5.1 is hereby added to read in full as follows: "5.1 Minimum Consolidated Revenues. Borrower shall maintain minimum Consolidated Revenues on a rolling three-month basis (the first such three-month period being 10/1/03 - 12/31/03), measured by the Bank each month commencing on December 31, 2003, in the following amounts: (i) $18,500,000.00 for each month 3 through May 31, 2004; and (ii) $20,500,000.00 for each month thereafter. For purposes of this covenant, "Consolidated Revenues" shall mean the revenues of the Borrower and its subsidiaries as reported to the Bank on a consolidated basis in the Borrower's monthly financial statements." 6.2 Minimum Cash Balance. The existing Section 5.2 of Schedule 1 is hereby deleted and a new Section 5.2 is hereby added to read in full as follows: "5.2 Minimum Cash Balance. The Borrower shall maintain at least $3,000,000.00 in deposits with the Bank and its Affiliates at all times." 7. Reporting. 7.1 Transaction Reports. On and after the Effective Date, transaction reports shall be required daily at all times that any Loans are outstanding and the Borrower maintains less than $5,000,000.00 on deposit with the Bank and its Affiliates. Otherwise, transaction reports shall be required on a weekly basis. 7.2 Monthly Financial Reports. Clause (v) of Section 6 of Schedule 1 is hereby amended to read in full as follows: "(v) Monthly unaudited financial statements, as soon as available and in any event within 30 days after the end of each month, prepared on a consolidating basis for the Borrower and its subsidiaries;" 8. Reaffirmation of Obligations. The Borrower reaffirms to the Bank that, as of the date hereof, the outstanding principal amount of all Loans under the Senior Loan Documents (including the face amount of all Letters of Credit outstanding under the Letter of Credit Sublimit) is Two Million Seven Hundred One Thousand Five Hundred One and No/100 Dollars ($2,701,501.00). The Borrower acknowledges that the Senior Loan Documents fully and accurately reflect and constitute the valid and enforceable Obligations of the Borrower to the Bank, and the Borrower remains fully obligated to perform all covenants thereunder and has no defenses to or offsets against such Obligations. 9. Conditions to Effectiveness. The following conditions must be satisfied in full, or waived in writing by the Bank, before this Second Amendment shall be effective and the Bank shall become obligated hereunder. 9.1 Execution and Delivery of Documents. The Borrower shall have executed and delivered to the Bank this Second Amendment, and the Bank shall have received any and all other instruments and documents, fully executed and in form and substance acceptable to the Bank, as are contemplated hereby or otherwise reasonably requested by the Bank. 4 9.2 Payment of Fees and Expenses. The Borrower shall have paid to the Bank all fees due and owing under the Senior Loan Documents as amended hereby (including but not limited to the Facility Fee), as well as a sum sufficient to reimburse the Bank for all costs and expenses incurred by the Bank in entering into this Second Amendment and any and all other documents and instruments contemplated hereby or thereby (including but not limited to all attorneys' fees and expenses.) 9.3 Representations and Warranties; No Default. The representations and warranties of the Borrower as set forth in the Senior Loan Documents shall be true and correct in all material respects as of the date on which this Second Amendment becomes effective, and no Event of Default shall have occurred and be continuing as of such date without having been cured. 10. Condition Subsequent. In the event that the Borrower fails to obtain within 15 days after the Effective Date an acknowledgement from each of the Investors and the Second Subordinated Creditors, in form and substance acceptable to the Bank, that the First Subordination Agreement and the Second Subordination Agreement remain in full force and effect subsequent to the Effective Date, this Second Amendment shall be of no further force or effect whatsoever and the Senior Debt Facility shall be deemed to have matured on January 30, 2004. 11. Continued Full Force and Effect. Except to the extent expressly amended hereby, all of the terms and provisions of the Senior Loan Documents shall remain in full force and effect, and the lien in favor of the Bank in the Collateral shall be and remain a fully perfected senior lien upon all of the Collateral pursuant to the terms of the Senior Loan Documents, it being the intent of the parties that nothing herein shall affect or impair the Bank's rights or remedies under the Senior Loan Documents or its lien upon the Collateral. Henceforth, the term "Loan Documents" shall be deemed to mean the Senior Loan Documents as modified and supplemented by the terms of this Second Amendment, and any default of the Borrower hereunder shall constitute an Event of Default under the Senior Loan Documents. 12. General Provisions. 12.1 Choice of Law and Venue. This Second Amendment shall be governed by and construed in accordance with the internal laws of the State of California, without regard to principles of conflicts of law, and any action or proceeding arising out of this Second Amendment shall be commenced in the Superior Court of the State of California for the County of Santa Clara, or in the District Court of the United States in the Northern District of California. 12.2 WAIVER OF JURY TRIAL. EACH OF THE BORROWER, ON THE ONE HAND, AND THE BANK, ON THE OTHER HAND, WAIVES ITS RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS SECOND AMENDMENT, THE SENIOR LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR EACH OF THE PARTIES TO ENTER INTO THIS 5 AMENDMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL AND UNDERSTANDS THE RAMIFICATIONS THEREOF. 12.3 Entire Agreement. This Second Amendment, along with the Loan Agreement and the other Senior Loan Documents, together constitute the entire agreement and understanding between the parties hereto with respect to the transactions contemplated hereunder and thereunder and supersede all prior negotiations, understandings and agreements between the parties with respect to such transactions. 12.4 Counterparts. This Second Amendment may be executed and delivered in any number of counterparts, each of which shall be an original and all of which together shall constitute one and the same agreement. 12.5 Time of the Essence. Time is of the essence in the performance by each party of its obligations hereunder and the satisfaction of all conditions specified herein. IN WITNESS WHEREOF, each of the parties hereto has caused its duly authorized representative to execute this Second Amendment as of the date first set forth above. BORROWER: BANK: CRITICAL PATH, INC. SILICON VALLEY BANK, a California corporation a California-chartered bank By: /s/ Andrew P. Morrison By: /s/ Brian Harrison -------------------------------- ------------------------------- Name: Andrew P. Morrison Name: Brian Harrison Title: Vice President, Finance Title: Vice President [Acknowledgement of Investors and Second Subordinated Creditors Follow Immediately.] 6 ACKNOWLEDGEMENT THE UNDERSIGNED, as all of the Investors and the Second Subordinated Creditors, hereby consent to the foregoing Second Amendment and acknowledge that each of the First Subordination Agreement and the Second Subordination Agreement remains in full force and effect subsequent to the Effective Date. IN WITNESS WHEREOF, the undersigned have executed this Acknowledgment as of the date first set forth above. THE INVESTORS: GAP COINVESTMENT PARTNERS II, L.P., GENERAL ATLANTIC PARTNERS, 74, L.P., a Delaware limited partnership a Delaware limited partnership By: GENERAL ATLANTIC PARTNERS, LLC, its Managing Member By: /s/ Matthew Nimetz By: /s/ Matthew Nimetz --------------------------------- ---------------------------- Name: Matthew Nimetz Name: Matthew Nimetz Title: A General Partner Title: A Managing Member GAPSTAR, LLC, a Delaware limited GAPCO GMBH & CO. KG., a German limited liability company partnership By: GENERAL ATLANTIC PARTNERS, By: GAPCO MANAGEMENT GMBH, its LLC, its Sole Member General Partner By: /s/ Matthew Nimetz By: /s/ Matthew Nimetz --------------------------------- ---------------------------- Name: Matthew Nimetz Name: Matthew Nimetz Title: A Managing Member Title: A Managing Director THE SECOND SUBORDINATED CREDITORS: PERMAL U.S. OPPORTUNITIES LIMITED ZAXIS PARTNERS, L.P. By: Apex Capital, LLC By: Apex Capital, LLC Its: Authorized Investment Advisor Its: General Partner By: /s/ Sanford J. Colen By: /s/ Sanford J. Colen ----------------------- ---------------------------- Name: Sanford J. Colen Name: Sanford J. Colen Title: Manager and Principal Title: Manager and Principal 7 THE SECOND SUBORDINATED CREDITORS (CON'T.): ZAXIS EQUITY NEUTRAL, L.P. ZAXIS OFFSHORE LIMITED By: Apex Capital, LLC By: Apex Capital Its: General Partner Its: General Partner By: /s/ Sanford J. Colen By: /s/ Sanford J. Colen ----------------------- --------------------- Name: Sanford J. Colen Name: Sanford J. Colen Title: Manager and Principal Title: Manager and Principal ZAXIS INSTITUTIONAL PARTNERS, L.P. PASSPORT MASTER FUND, L.P. By: Apex Capital By: /s/ John Burbank Its: General Partner ----------------- Name: John Burbank Title: Managing Partner By: /s/ Sanford J. Colen --------------------- Name: Sanford J. Colen Title: Manager and Principal 8 EX-10.54 41 f97295exv10w54.htm EXHIBIT 10.54

EXHIBIT 10.54

AMENDMENT TO

CONVERTIBLE NOTE PURCHASE AND EXCHANGE AGREEMENT

               AMENDMENT, dated January 16, 2004 (this “Amendment”), among Critical Path, Inc., a California corporation (the “Company”), General Atlantic Partners 74, L.P., a Delaware limited partnership, GAP Coinvestment Partners II, L.P., a Delaware limited partnership, GapStar, LLC, a Delaware limited liability company, GAPCO GmbH & Co. KG, a German limited partnership, Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited (collectively with the Company, the “Parties”),

WITNESSETH:

     WHEREAS, the Parties are each a party to that certain Convertible Note Purchase and Exchange Agreement, dated November 18, 2003 (the “Note Exchange Agreement”); and

     WHEREAS, the Company desires to enter into a Convertible Note Purchase Agreement pursuant to which the Company proposes to issue and sell to Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P., and Passport Master Fund, L.P. convertible notes having an aggregate principal amount of $15 million which notes will be convertible, subject to Stockholder Approval, into shares of Series E Redeemable Convertible Preferred Stock of the Company, par value $0.001 per share (the “Note Purchase Agreement”); and

     WHEREAS, in connection with the execution of the Note Purchase Agreement, the Parties desire to amend the Note Exchange Agreement as set forth herein; and

     WHEREAS, capitalized terms used in this Amendment and not defined herein shall have the meanings ascribed to such terms in the Note Exchange Agreement.

     NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, for the covenants and agreements set forth in the Note Exchange Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Parties agree as follows:

     1.1 Amendments to the Note Exchange Agreement. The Note Exchange Agreement shall be amended as set forth below:

          (a) Section 1.1 of the Note Exchange Agreement shall be amended to add the following:

           ““Note Purchase Agreement” means that certain Convertible Note Purchase Agreement, dated January 16, 2004, among Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P., Passport Master Fund, L.P. and Critical

Path, Inc., a California corporation (the “Company”), pursuant to which the Company shall issue and sell convertible notes in an aggregate principal amount of up to $15 million, which notes shall be convertible, subject to Stockholder Approval, into Series E Preferred Stock or Common Stock, in accordance with such agreement, concurrently with the Conversion and Exchange.”

           ““Subsequent Lenders” means the Lenders as defined in the Note Purchase Agreement.”

           (b) Section 2.6(f) of the Note Exchange Agreement is hereby deleted and amended and restated in its entirety to read as follows:

           ““(f) Subsequent Closing. The consummation of the Exchange and Conversion (the “Subsequent Closing”) shall take place concurrently with the Subsequent Closing under the Note Purchase Agreement as soon as practicable following the satisfaction of the closing conditions set forth in Article VI of this Agreement and Article VI of the Note Purchase Agreement (the “Subsequent Closing Date”), at the offices of Pillsbury Winthrop LLP, 50 Fremont Street, San Francisco, California, or at such other time and place as the Company, the Lenders, the CK Purchasers and the Subsequent Lenders may mutually agree. At the Subsequent Closing, signature pages transmitted by facsimile will be acceptable, with originals to follow as soon as practicable thereafter.”

          (c) Section 2.7 of the Note Exchange Agreement is deleted in its entirety.

     1.2 Amendments to Exhibits to the Note Exchange Agreement.

          (a) The form of Amended and Restated Series D Certificate of Determination, attached as Exhibit C to the Note Exchange Agreement, is hereby deleted and amended and restated to read in its entirety in the form set forth as Annex 1 attached hereto.

          (b) The form of Series E Certificate of Determination, attached as Exhibit G to the Note Exchange Agreement, is hereby deleted and amended and restated to read in its entirety in the form set forth as Annex 2 attached hereto.

     1.3 Counterparts. This Amendment may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Signature pages transmitted by facsimile will be acceptable, with originals to immediately follow.

     1.4 Continuing Agreement. Except as specifically amended hereby, all of the terms of the Note Exchange Agreement shall remain and continue in full force and effect and are hereby confirmed in all respects.

     1.5 Headings. The headings in this Amendment are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

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     1.6 Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of California, without regard to the principles of conflicts of law thereof.

     1.7 Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof.

     1.8 Entire Agreement. This Amendment, together with the Note Exchange Agreement and the exhibits and schedules thereto, and the other Transaction Documents, are intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. There are no restrictions, promises, representations, warranties or undertakings, other than those set forth or referred to herein or therein. This Amendment and the Note Exchange Agreement, together with the exhibits and schedules thereto, and the other Transaction Documents, supersede all prior agreements and understandings between the parties with respect to such subject matter.

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     IN WITNESS WHEREOF, the undersigned have executed, or have caused to be executed, this Amendment on the date first written above.

CRITICAL PATH, INC., a California corporation
By:	/s/ William E. McGlashan, Jr.
	Name:	William E. McGlashan, Jr.
	Title:	Chairman, Chief Executive Officer

Signature Page to Amendment to Convertible Note Purchase and Exchange Agreement

GENERAL ATLANTIC PARTNERS 74, L.P.
By:	GENERAL ATLANTIC PARTNERS, LLC,
	its General Partner
By:	/s/ Matthew Nimetz
	Name:	Matthew Nimetz
	Title:	A Managing Member
GAP COINVESTMENT PARTNERS II, L.P.
By:	/s/ Matthew Nimetz
	Name:	Matthew Nimetz
	Title:	A General Partner
GAPSTAR, LLC
By:	GENERAL ATLANTIC PARTNERS, LLC,
	its Managing Member
By:	/s/ Matthew Nimetz
	Name:	Matthew Nimetz
	Title:	A Managing Member
GAPCO GMBH & CO. KG
By:	GAPCO MANAGEMENT GMBH,
	its General Partner
By:	/s/ Matthew Nimetz
	Name:	Matthew Nimetz
	Title:	A Managing Director

Signature Page to Amendment to Convertible Note Purchase and Exchange Agreement

CENWELL LIMITED
By:	/s/ Ma Lai Chee, Gerlad
	Name:	Ma Lai Chee, Gerald
	Title:	Authorised Person

CAMPINA ENTERPRISES LIMITED
By:	/s/ Ma Lai Chee, Gerlad
	Name:	Ma Lai Chee, Gerald
	Title:	Authorised Person

GREAT AFFLUENT LIMITED
By:	/s/ Ma Lai Chee, Gerlad
	Name:	Ma Lai Chee, Gerald
	Title:	Authorised Person

DRAGONFIELD LIMITED
By:	/s/ Ma Lai Chee, Gerlad
	Name:	Ma Lai Chee, Gerald
	Title:	Authorised Person

LION COSMOS LIMITED
By:	/s/ Ma Lai Chee, Gerlad
	Name:	Ma Lai Chee, Gerald
	Title:	Authorised Person

Signature Page to Amendment to Convertible Note Purchase and Exchange Agreement

EX-3.(I).5

                                                                  EXHIBIT 3(i).5

                 CERTIFICATE OF INCREASE IN NUMBER OF SHARES OF

                   SERIES D CUMULATIVE REDEEMABLE CONVERTIBLE

                         PARTICIPATING PREFERRED STOCK,

                         PAR VALUE $0.001 PER SHARE, OF

                              CRITICAL PATH, INC.,
                            a California corporation

          Pursuant to Section 401 of the California Corporations Code,

         The undersigned, William E. McGlashan, Jr. and Michael J. Zukerman, do
hereby certify that:

         1.       They are the duly elected and acting Chief Executive Officer
and Chairman of the Board of Directors and Senior Vice President, General
Counsel and Secretary, respectively, of Critical Path, Inc., a California
corporation (the "Corporation").

         2.       Pursuant to authority given in the Corporation's Amended and
Restated Articles of Incorporation, the Corporation has duly adopted the
following recitals and resolutions:

                                   WITNESSETH

         WHEREAS, the Amended and Restated Articles of Incorporation of the
Corporation provide for a class of shares of Preferred Stock, issuable from time
to time in one or more series;

         WHEREAS, the Board of Directors of the Corporation (the "Board") is
authorized to determine or alter the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued series of Preferred
Stock and increase or decrease (but not below the number of shares of that
series then outstanding) the number of shares of any series of Preferred Stock
subsequent to the issue of that series;

         WHEREAS, the rights, preferences, privileges and restrictions relating
to a series of Preferred Stock designated "Series D Cumulative Redeemable
Convertible Participating Preferred Stock" were fixed by a resolution of the
Board on November 6, 2001, and a Certificate of Determination of Preferences of
Series D Cumulative Redeemable Convertible Participating Preferred Stock was
executed by an officer of the Corporation on November 9, 2001, and filed with
the Secretary of State of California on November 9, 2001; and

         WHEREAS, the number of shares of that series is four million
(4,000,000) and the Board now desires to increase that number to four million
one hundred eighty-eight thousand five hundred eighty-seven (4,188,587), within
any limits or restrictions stated in the resolution of the Board originally
fixing the number of shares constituting Series D Cumulative Redeemable
Convertible Participating Preferred Stock:



                  NOW, THEREFORE, BE IT:

                  RESOLVED, that the number of shares of Preferred Stock
         constituting shares of Series D Cumulative Redeemable Convertible
         Participating Preferred Stock be and it hereby is increased to four
         million one hundred eighty-eight thousand five hundred eighty-seven
         (4,188,587); and

                  RESOLVED FURTHER, that any one of the Chairman of the Board,
         the President or any Vice President, and acting together with any one
         of the Secretary, the Chief Financial Officer, the Treasurer or any
         Assistant Secretary or Assistant Treasurer of the Corporation are
         authorized to execute, verify and file a Certificate of Increase in the
         number of shares of Series D Cumulative Redeemable Convertible
         Participating Preferred Stock in accordance with California law.

                                   * * * * * *

         3.       This Certificate of Increase has been duly approved by the
Board of Directors of the Corporation. The authorized number of shares of
Preferred Stock of the Corporation is five million (5,000,000), and the number
of shares of Preferred Stock constituting shares of Series D Cumulative
Redeemable Convertible Participating Preferred Stock which are outstanding as of
the date hereof is four million (4,000,000). The increase in the number of
shares constituting shares of Series D Cumulative Redeemable Convertible
Participating Preferred Stock is one hundred eighty-eight thousand five hundred
eighty-seven (188,587). The number of shares voting in favor of this Certificate
of Increase equaled or exceeded the vote required. The percentage required under
the Amended and Restated Articles of Incorporation in effect at the time of this
Certificate of Increase was more than 50% of the outstanding shares of Series D
Cumulative Redeemable Convertible Participating Preferred Stock, voting
separately as a class.

              [the remainder of this page intentionally left blank]

                                       2


         The undersigned, William E. McGlashan, Jr. and Michael J. Zukerman, the
Chief Executive Officer and Chairman of the Board of Directors and Vice
President and Secretary, respectively, of Critical Path, Inc., declare under
penalty of perjury that the matters set out in the foregoing Certificate are
true of their own knowledge.

         Executed at San Francisco, California on this 20th day of November,
2003.

                                   /s/ William E. McGlashan, Jr.
                                  -------------------------------------------
                                  William E. McGlashan, Jr.,
                                  Chief Executive Officer and
                                  Chairman of the Board of Directors

                                   /s/ Michael J. Zukerman
                                  -------------------------------------------
                                  Michael J. Zukerman,
                                  Senior Vice President, General Counsel
                                  and Secretary

EX-4.19

                                                                    EXHIBIT 4.19

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

                              AMENDED AND RESTATED
                          REGISTRATION RIGHTS AGREEMENT

                                      among

                               CRITICAL PATH, INC.

                       GENERAL ATLANTIC PARTNERS 74, L.P.,

                       GAP COINVESTMENT PARTNERS II, L.P.,

                                  GAPSTAR, LLC,

                               GAPCO GMBH & CO. KG

                                       and

                         THE OTHER PARTIES LISTED HEREIN

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

                            Dated: November 26, 2003

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

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



                                TABLE OF CONTENTS



                                                                                                                 Page
                                                                                                                 ----
                                                                                                              
1.       Definitions....................................................................................           2

2.       General; Securities Subject to this Agreement..................................................           5
         (a)      Grant of Rights.......................................................................           5
         (b)      Registrable Securities................................................................           5
         (c)      Holders of Registrable Securities.....................................................           5

3.       Demand Registration............................................................................           5
         (a)      Request for Demand Registration.......................................................           5
         (b)      Incidental or "Piggy-Back" Rights with Respect to a Demand Registration...............           6
         (c)      Effective Demand Registration.........................................................           7
         (d)      Expenses..............................................................................           7
         (e)      Underwriting Procedures...............................................................           7
         (f)      Selection of Underwriters.............................................................           8

4.       Incidental or "Piggy-Back" Registration........................................................           8
         (a)      Request for Incidental Registration...................................................           8
         (b)      Expenses..............................................................................           9

5.       Holdback Agreements............................................................................           9
         (a)      Restrictions on Public Sale by Designated Holders.....................................           9
         (b)      Restrictions on Public Sale by the Company............................................           9

6.       Registration Procedures........................................................................           9
         (a)      Obligations of the Company............................................................           9
         (b)      Seller Information....................................................................          12
         (c)      Notice to Discontinue.................................................................          12
         (d)      Registration Expenses.................................................................          13

7.       Indemnification; Contribution..................................................................          13
         (a)      Indemnification by the Company........................................................          13
         (b)      Indemnification by Designated Holders.................................................          14
         (c)      Conduct of Indemnification Proceedings................................................          14
         (d)      Contribution..........................................................................          15

8.       Rule 144.......................................................................................          15

9.       Miscellaneous..................................................................................          16
         (a)      Recapitalizations, Exchanges, etc.....................................................          16
         (b)      No Inconsistent Agreements............................................................          16
         (c)      Remedies..............................................................................          16
         (d)      Amendments and Waivers................................................................          16
         (e)      Notices...............................................................................          16
         (f)      Successors and Assigns; Third Party Beneficiaries.....................................          18


                                       i





                                                                                                                Page
                                                                                                                ----
                                                                                                             
(g)      Counterparts...................................................................................          19
(h)      Headings.......................................................................................          19
(i)      Governing Law..................................................................................          19
(j)      Severability...................................................................................          19
(k)      Rules of Construction..........................................................................          19
(l)      Entire Agreement...............................................................................          19
(m)      Further Assurances.............................................................................          19
(n)      Other Agreements...............................................................................          19
(o)      Effective Date and Termination.................................................................          20


                                       ii



                              AMENDED AND RESTATED

                          REGISTRATION RIGHTS AGREEMENT

         AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated November __,
2003 (this "Agreement"), among Critical Path, Inc., a California corporation
(the "Company"), General Atlantic Partners 74, L.P., a Delaware limited
partnership ("GAP LP"), GAP Coinvestment Partners II, L.P., a Delaware limited
partnership ("GAP Coinvestment"), GapStar, LLC, a Delaware limited liability
company ("GapStar"), GAP-W, LLC, a Delaware limited liability company ("GAP-W"),
GAPCO GmbH & Co. KG, a German limited partnership ("GmbH Coinvestment"), Cenwell
Limited ("Cenwell"), Campina Enterprises Limited ("Campina"), Great Affluent
Limited ("Great Affluent"), Dragonfield Limited ("Dragonfield"), Lion Cosmos
Limited ("Lion Cosmos") and Vectis CP Holdings, LLC, a Delaware limited
liability company ("Vectis").

         WHEREAS, pursuant to the Stock and Warrant Purchase Agreement, dated
November 8, 2001, as amended from time to time (the "Stock Purchase Agreement"),
among the Company, GAP LP, GAP Coinvestment, GapStar, Cenwell, Campina and
Vectis, the Company has (i) issued and sold to GAP LP, GAP Coinvestment,
GapStar, Cenwell, Campina and Vectis, an aggregate of 2,162,582 shares of Series
D Cumulative Redeemable Convertible Participating Series D Preferred Stock, par
value $0.001 per share, of the Company, as amended from time to time (the
"Series D Preferred Stock"), (ii) issued and delivered to GAP LP, GAP
Coinvestment and GapStar an aggregate of 1,837,418 shares of Series D Preferred
Stock in exchange for a certain amount of convertible subordinated notes of the
Company and (iii) issued and sold to GAP LP, GAP Coinvestment and GapStar
warrants to purchase shares of Common Stock (as hereinafter defined) (the
"Warrants");

         WHEREAS, pursuant to the Convertible Note Purchase and Exchange
Agreement, dated November 18, 2003 (the "Convertible Note Purchase and Exchange
Agreement"), among the Company, GAP LP, GAP Coinvestment, GapStar, Campina,
Cenwell, Great Affluent, Dragonfield and Lion Cosmos, (i) the Company has issued
and sold to GAP LP, GAP Coinvestment, GapStar, GAP-W and GmbH Coinvestment
convertible promissory notes (the "Notes") which are convertible into shares,
par value $0.001 per share, of Series E Redeemable Convertible Preferred Stock
of the Company (the "Series E Preferred Stock") and (ii) Campina, Cenwell, Great
Affluent, Dragonfield and Lion Cosmos agreed upon the satisfaction of certain
conditions to exchange their CK Sub Notes (as hereinafter defined) for shares of
Series E Preferred Stock; and

         WHEREAS, in order to induce (i) each of GAP LP, GAP Coinvestment,
GapStar, GAP-W and GmbH Coinvestment to purchase the Notes and (ii) Campina,
Cenwell, Great Affluent, Dragonfield and Lion Cosmos to exchange the CK Sub
Notes for shares of Series E Preferred Stock, the Company has agreed to grant
registration rights with respect to the Registrable Securities (as hereinafter
defined) as set forth in this Agreement.

         NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:



         1.       Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:

                  "Affiliate" shall mean any Person who is an "affiliate" as
defined in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act.

                  "Agreement" mean this Agreement as the same may be amended,
supplemented or modified in accordance with the terms hereof.

                  "Amended and Restated Stockholders Agreement" shall mean the
Amended and Restated Stockholders Agreement, dated the date hereof, among the
Company, GAP LP, GAP Coinvestment, GapStar, GAP-W, GmbH Coinvestment and the
Persons listed therein as "Coinvestors."

                  "Approved Underwriter" has the meaning set forth in Section
3(f) of this Agreement.

                  "Board of Directors" means the Board of Directors of the
Company.

                  "Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in the State of New York are authorized or
required by law or executive order to close.

                  "Campina" has the meaning set forth in the preamble to this
Agreement.

                  "Cenwell" has the meaning set forth in the preamble to this
Agreement.

                  "Coinvestor Stockholders" means Cenwell, Campina, Great
Affluent, Dragonfield, Lion Cosmos and any Affiliate thereof that, after the
date hereof, acquires Registrable Securities.

                  "CK Sub Notes" means the 5 3/4 % Convertible Subordinated
Notes due April 1, 2005 issued by the Company in the principal face amount of
thirty-two million seven hundred ninety-five thousand dollars ($32,795,000),
pursuant to the Company's Indenture, dated March 31, 2000.

                  "Commission" means the Securities and Exchange Commission or
any similar agency then having jurisdiction to enforce the Securities Act.

                  "Common Stock" means the Common Stock, par value $0.001 per
share, of the Company or any other capital stock of the Company into which such
stock is reclassified or reconstituted and any other common stock of the
Company.

                  "Company" has the meaning set forth in the preamble to this
Agreement.

                  "Company Underwriter" has the meaning set forth in Section
4(a) of this Agreement.

                                       2



                  "Convertible Note Purchase and Exchange Agreement" has the
meaning set forth in the recitals to this Agreement.

                  "Demand Registration" has the meaning set forth in Section
3(a) of this Agreement.

                  "Designated Holder" means each of the General Atlantic
Stockholders, the Coinvestor Stockholders and the Vectis Stockholders and any
transferee of any of them to whom Registrable Securities have been transferred
in accordance with Section 9(f) of this Agreement, other than a transferee to
whom Registrable Securities have been transferred pursuant to a Registration
Statement under the Securities Act or Rule 144 (or any successor rule thereto).

                  "Dragonfield" has the meaning set forth in the recitals to
this Agreement.

                  "Exchange" has the meaning set forth in the Convertible Note
Purchase and Exchange Agreement.

                  "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.

                  "GAP Coinvestment" has the meaning set forth in the preamble
to this Agreement.

                  "GAP LLC" means General Atlantic Partners, LLC, a Delaware
limited liability company and the general partner of GAP LP and the managing
member of GapStar, and any successor to such entity.

                  "GAP LP" has the meaning set forth in the preamble to this
Agreement.

                  "GAP-W" has the meaning set forth in the preamble to this
Agreement.

                  "GapStar" has the meaning set forth in the preamble to this
Agreement.

                  "General Atlantic Stockholders" means GAP LP, GAP
Coinvestment, GapStar, GAP-W, GmbH Coinvestment and any Affiliate of GAP LLC
that, after the date hereof, acquires Registrable Securities.

                  "GmbH Coinvestment" means GAPCO GmbH & Co. KG, a German
limited partnership.

                  "Great Affluent" has the meaning set forth in the recitals to
this Agreement.

                  "Holders' Counsel" has the meaning set forth in Section
6(a)(i) of this Agreement.

                  "Incidental Registration" has the meaning set forth in Section
4(a) of this Agreement.

                                       3



                  "Indemnified Party" has the meaning set forth in Section 7(c)
of this Agreement.

                  "Indemnifying Party" has the meaning set forth in Section 7(c)
of this Agreement.

                  "Initiating Holders" has the meaning set forth in Section 3(a)
of this Agreement.

                  "Inspector" has the meaning set forth in Section 6(a)(vii) of
this Agreement.

                  "Liability" has the meaning set forth in Section 7(a) of this
Agreement.

                  "Lion Cosmos" has the meaning set forth in the recitals to
this Agreement.

                  "NASD" means the National Association of Securities Dealers,
Inc.

                  "Person" means any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, limited liability company, government (or an
agency or political subdivision thereof) or other entity of any kind, and shall
include any successor (by merger or otherwise) of such entity.

                  "Public Offering" means any public offering of the shares of
Common Stock of the Company pursuant to an effective Registration Statement
filed under the Securities Act.

                  "Records" has the meaning set forth in Section 6(a)(vii) of
this Agreement.

                  "Registrable Securities" means each of the following: (a) any
and all shares of Common Stock issued or issuable upon conversion of shares of
Series D Preferred Stock, Series E Preferred Stock or exercise of the Warrants,
(b) any other shares of Common Stock acquired or owned by any of the Designated
Holders after the date hereof if such Designated Holder is an Affiliate of the
Company and (c) any shares of Common Stock issued or issuable to any of the
Designated Holders with respect to the Registrable Securities by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise and
any shares of Common Stock or voting common stock issuable upon conversion,
exercise or exchange thereof.

                  "Registration Expenses" has the meaning set forth in Section
6(d) of this Agreement.

                  "Registration Statement" means a Registration Statement filed
pursuant to the Securities Act.

                  "Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder.

                  "Series D Preferred Stock" has the meaning set forth in the
recitals to this Agreement.

                  "Series E Preferred Stock" has the meaning set forth in the
recitals to this Agreement.

                                       4



                  "Stock Purchase Agreement" has the meaning set forth in the
recitals to this Agreement.

                  "Stockholder Approval" has the meaning set forth in the
Convertible Note Purchase and Exchange Agreement.

                  "Valid Business Reason" has the meaning set forth in Section
3(a) of this Agreement.

                  "Vectis" has the meaning set forth in the preamble of this
Agreement.

                  "Vectis Stockholders" means Vectis and any Affiliate thereof
that, after the date hereof, acquires Registrable Securities.

                  "Warrants" has the meaning set forth in the recitals to this
Agreement.

         2.       General; Securities Subject to this Agreement.

                  (a)      Grant of Rights. The Company hereby grants
registration rights to the Designated Holders upon the terms and conditions set
forth in this Agreement.

                  (b)      Registrable Securities. For the purposes of this
Agreement, Registrable Securities will cease to be Registrable Securities, when
(i) a Registration Statement covering such Registrable Securities has been
declared effective under the Securities Act by the Commission and such
Registrable Securities have been disposed of pursuant to such effective
Registration Statement, (ii) (x) the entire amount of the Registrable Securities
owned by a Designated Holder may be sold in a single sale, in the opinion of
counsel satisfactory to the Company and such Designated Holder, each in their
reasonable judgment, without any limitation as to volume pursuant to Rule 144
(or any successor provision then in effect) under the Securities Act and (y)
such Designated Holder owning such Registrable Securities owns less than one
percent (1%) of the outstanding shares of Common Stock on a fully diluted basis,
or (iii) the Registrable Securities are proposed to be sold or distributed by a
Person not entitled to the registration rights granted by this Agreement.

                  (c)      Holders of Registrable Securities. A Person is deemed
to be a holder of Registrable Securities whenever such Person owns of record
Registrable Securities, or holds an option to purchase, or a security
convertible into or exercisable or exchangeable for, Registrable Securities
whether or not such acquisition or conversion has actually been effected. If the
Company receives conflicting instructions, notices or elections from two or more
Persons with respect to the same Registrable Securities, the Company may act
upon the basis of the instructions, notice or election received from the
registered owner of such Registrable Securities. Registrable Securities issuable
upon exercise of an option or upon conversion of another security shall be
deemed outstanding for the purposes of this Agreement.

         3.       Demand Registration.

                  (a)      Request for Demand Registration. At any time
commencing one year after the date hereof, either the General Atlantic
Stockholders or the Coinvestor Stockholders

                                       5



(the "Initiating Holders"), may each make a written request to the Company to
register, and the Company shall register, under the Securities Act and on an
appropriate registration statement form as reasonably determined by the Company
and approved by the Initiating Holders (a "Demand Registration"), the number of
Registrable Securities stated in such request; provided, however, that the
Company shall not be obligated to effect more than one such Demand Registration
for the General Atlantic Stockholders (subject to Section 3(e)(ii) below) and
more than one such Demand Registration for the Coinvestor Stockholders (subject
to Section 3(e)(ii) below). If following receipt of a written request for a
Demand Registration the Board of Directors, in its good faith judgment,
determines that any registration of Registrable Securities should not be made or
continued because it would materially interfere with any material financing,
acquisition, corporate reorganization or merger or other material transaction
involving the Company (a "Valid Business Reason"), the Company may (x) postpone
filing a Registration Statement relating to a Demand Registration until such
Valid Business Reason no longer exists, but in no event for more than ninety
(90) days, and (y) in case a Registration Statement has been filed relating to a
Demand Registration, if the Valid Business Reason has not resulted from actions
taken by the Company, the Company, upon the approval of a majority of the Board
of Directors, such majority to include at least one Director appointed by the
General Atlantic Stockholders, may cause such Registration Statement to be
withdrawn and its effectiveness terminated or may postpone amending or
supplementing such Registration Statement. The Company shall give written notice
of its determination to postpone or withdraw a Registration Statement and of the
fact that the Valid Business Reason for such postponement or withdrawal no
longer exists, in each case, promptly after the occurrence thereof.
Notwithstanding anything to the contrary contained herein, the Company may not
postpone or withdraw a filing under this Section 3(a) more than once in any
twelve (12) month period. Each request for a Demand Registration by the
Initiating Holders shall state the amount of the Registrable Securities proposed
to be sold and the intended method of disposition thereof.

                  (b)      Incidental or "Piggy-Back" Rights with Respect to a
Demand Registration. Each of the Designated Holders (other than Initiating
Holders which have requested a registration under Section 3(a)) may offer its or
his Registrable Securities under any Demand Registration pursuant to this
Section 3(b). Within five (5) days after the receipt of a request for a Demand
Registration from an Initiating Holder, the Company shall (i) give written
notice thereof to all of the Designated Holders (other than Initiating Holders
which have requested a registration under Section 3(a)) and (ii) subject to
Section 3(e), include in such registration all of the Registrable Securities
held by such Designated Holders from whom the Company has received a written
request for inclusion therein within ten (10) days of the receipt by such
Designated Holders of such written notice referred to in clause (i) above. Each
such request by such Designated Holders shall specify the number of Registrable
Securities proposed to be registered. The failure of any Designated Holder to
respond within such 10 day period referred to in clause (ii) above shall be
deemed to be a waiver of such Designated Holder's rights under this Section 3
with respect to such Demand Registration. Any Designated Holder may waive its
rights under this Section 3 prior to the expiration of such 10-day period by
giving written notice to the Company, with a copy to the Initiating Holders. If
a Designated Holder sends the Company a written request for inclusion of part or
all of such Designated Holder's Registrable Securities in a registration, such
Designated Holder shall not be entitled to withdraw or revoke such request
without the prior written consent of the Company in its sole discretion unless,
as a result of facts or circumstances arising after the date on which such
request was

                                       6



made relating to the Company or to market conditions, such Designated Holder
reasonably determines that participation in such registration would have a
material adverse effect on such Designated Holder.

                  (c)      Effective Demand Registration. The Company shall use
all commercially reasonable efforts to cause any such Demand Registration to be
filed not later than thirty (30) days after it receives a request under Section
3(a) hereof and to become and remain effective as soon as practicable thereafter
but, in any event, not later than ninety (90) days after such filing. A
registration shall not constitute a Demand Registration until it has become
effective and remains continuously effective for the lesser of (i) the period
during which all Registrable Securities registered in the Demand Registration
are sold and (ii) one hundred twenty (120) days; provided, however, that a
registration shall not constitute a Demand Registration if (x) after such Demand
Registration has become effective, such registration or the related offer, sale
or distribution of Registrable Securities thereunder is interfered with by any
stop order, injunction or other order or requirement of the Commission or other
governmental agency or court for any reason not attributable to the Initiating
Holders and such interference is not thereafter eliminated or (y) the conditions
specified in the underwriting agreement, if any, entered into in connection with
such Demand Registration are not satisfied or waived, other than by reason of a
failure by the Initiating Holder.

                  (d)      Expenses. The Company shall pay all Registration
Expenses in connection with a Demand Registration, whether or not such Demand
Registration becomes effective.

                  (e)      Underwriting Procedures.

                           (i)      If the Company or the Initiating Holders
holding a majority of the Registrable Securities held by all of the Initiating
Holders so elect, the Company shall use all commercially reasonable efforts to
cause such Demand Registration to be in the form of a firm commitment
underwritten offering and the managing underwriter or underwriters selected for
such offering shall be the Approved Underwriter selected in accordance with
Section 3(f). In connection with any Demand Registration under this Section 3
involving an underwritten offering, none of the Registrable Securities held by
any Designated Holder making a request for inclusion of such Registrable
Securities pursuant to Section 3(b) hereof shall be included in such
underwritten offering unless such Designated Holder accepts the terms of the
offering as agreed upon by the Company, the Initiating Holders and the Approved
Underwriter, and then only in such quantity as will not, in the opinion of the
Approved Underwriter, jeopardize the success of such offering by the Initiating
Holders. If the Approved Underwriter advises the Company in its reasonable
opinion that the aggregate amount of such Registrable Securities requested to be
included in such offering is sufficiently large to have a material adverse
effect on the success of such offering, then the Company shall include in such
registration only the aggregate amount of Registrable Securities that the
Approved Underwriter believes may be sold without any such material adverse
effect and shall reduce the amount of Registrable Securities to be included in
such registration by removing from such registration securities owned, first by
the Company and second by the Designated Holders (including the Initiating
Holders) pro rata based on the number of Registrable Securities owned by each
such Designated Holder.

                                       7



                           (ii)     If an Initiating Holder makes a request for
a Demand Registration and, pursuant to Section 3(e)(i) above, the Approved
Underwriter advises the Company to reduce the aggregate amount of Registrable
Securities requested to be included in such offering such that less than
seventy-five percent (75%) of the Registrable Securities requested to be
included by any Initiating Holder are ultimately included in and sold pursuant
to such Demand Registration, the Initiating Holder shall have the right to
require the Company to effect an additional Demand Registration; provided,
however, that in no event shall the aggregate number of Demand Registrations to
be effected by the Company for any one Initiating Holder exceed two (2).

                  (f)      Selection of Underwriters. If any Demand Registration
of Registrable Securities is in the form of an underwritten offering, the
Company shall select and obtain an investment banking firm of national
reputation to act as the managing underwriter of the offering (the "Approved
Underwriter"); provided, however, that the Approved Underwriter shall, in any
case, also be approved by the Initiating Holders.

         4.       Incidental or "Piggy-Back" Registration.

                  (a)      Request for Incidental Registration. If at any time
the Company proposes to file a Registration Statement under the Securities Act
with respect to an offering by the Company for its own account (other than a
Registration Statement on Form S-4 or S-8 or any successor thereto) or for the
account of any stockholder of the Company other than the Designated Holders,
then the Company shall give written notice of such proposed filing to each of
the Designated Holders at least twenty (20) days before the anticipated filing
date, and such notice shall describe the proposed registration and distribution
and offer such Designated Holders the opportunity to register the number of
Registrable Securities as each such Designated Holder may request (an
"Incidental Registration"). The Company shall use all commercially reasonable
efforts (within twenty (20) days of the notice provided for in the preceding
sentence) to cause the managing underwriter or underwriters in the case of a
proposed underwritten offering (the "Company Underwriter") to permit each of the
Designated Holders who have requested in writing to participate in the
Incidental Registration to include its or his Registrable Securities in such
offering on the same terms and conditions as the securities of the Company or
the account of such other stockholder, as the case may be, included therein. In
connection with any Incidental Registration under this Section 4(a) involving an
underwritten offering, the Company shall not be required to include any
Registrable Securities in such underwritten offering unless the Designated
Holders thereof accept the terms of the underwritten offering as agreed upon
between the Company, such other stockholders, if any, and the Company
Underwriter, and then only in such quantity as the Company Underwriter believes
will not jeopardize the success of the offering by the Company. If the Company
Underwriter determines that the registration of all or part of the Registrable
Securities which the Designated Holders have requested to be included would
materially adversely affect the success of such offering, then the Company shall
be required to include in such Incidental Registration, to the extent of the
amount that the Company Underwriter believes may be sold without causing such
adverse effect, first, all of the securities to be offered for the account of
the Company or on the account of the selling stockholder that caused the
registration statement that has triggered the Incidental Registration to be
filed, as the case may be; second, the Registrable Securities to be offered for
the account of the Designated Holders pursuant to this Section 4, pro rata based
on the number of

                                       8



Registrable Securities owned by each such Designated Holder; and third, any
other securities requested to be included in such offering.

                  (b)      Expenses. The Company shall bear all Registration
Expenses in connection with any Incidental Registration pursuant to this Section
4, whether or not such Incidental Registration becomes effective.

         5.       Holdback Agreements.

                  (a)      Restrictions on Public Sale by Designated Holders. To
the extent (i) requested (A) by the Company or the Initiating Holders, as the
case may be, in the case of a non-underwritten public offering and (B) by the
Approved Underwriter or the Company Underwriter, as the case may be, in the case
of an underwritten public offering and (ii) all of the Company's officers,
directors and holders in excess of one percent (1%) of its outstanding capital
stock execute agreements identical to those referred to in this Section 5(a),
each Designated Holder agrees (x) not to effect any public sale or distribution
of any Registrable Securities or of any securities convertible into or
exchangeable or exercisable for such Registrable Securities, including a sale
pursuant to Rule 144 under the Securities Act, or offer to sell, contract to
sell (including without limitation any short sale), grant any option to purchase
or enter into any hedging or similar transaction with the same economic effect
as a public sale any Registrable Securities and (y) not to make any request for
a Demand Registration under this Agreement, during the ninety (90) day period or
such shorter period, if any, mutually agreed upon by such Designated Holder and
the requesting party beginning on the effective date of the Registration
Statement (except as part of such registration) for such public offering. No
Designated Holder of Registrable Securities subject to this Section 5(a) shall
be released from any obligation under any agreement, arrangement or
understanding entered into pursuant to this Section 5(a) unless all other
Designated Holders of Registrable Securities subject to the same obligation are
also released. All Designated Holders of Registrable Securities shall be
automatically released from any obligations under any agreement, arrangement or
understanding entered into pursuant to this Section 5(a) immediately upon the
expiration of the 90 day period.

                  (b)      Restrictions on Public Sale by the Company. The
Company agrees not to effect any public sale or distribution of any of its
securities, or any securities convertible into or exchangeable or exercisable
for such securities (except pursuant to registrations on Form S-4 or S-8 or any
successor thereto), during the period beginning on the effective date of any
Registration Statement in which the Designated Holders of Registrable Securities
are participating and ending on the earlier of (i) the date on which all
Registrable Securities registered on such Registration Statement are sold and
(ii) 120 days after the effective date of such Registration Statement (except as
part of such registration).

         6.       Registration Procedures.

                  (a)      Obligations of the Company. Whenever registration of
Registrable Securities has been requested pursuant to Section 3 or Section 4 of
this Agreement, the Company shall use all commercially reasonable efforts to
effect the registration and sale of such Registrable Securities in accordance
with the intended method of distribution thereof as quickly

                                       9



as practicable, and in connection with any such request, the Company shall, as
expeditiously as possible:

                           (i)      prepare and file with the Commission a
Registration Statement on any form for which the Company then qualifies or which
counsel for the Company shall deem appropriate and which form shall be available
for the sale of such Registrable Securities in accordance with the intended
method of distribution thereof, and cause such Registration Statement to become
effective; provided, however, that (x) before filing a Registration Statement or
prospectus or any amendments or supplements thereto, the Company shall provide
counsel selected by the Designated Holders holding a majority of the Registrable
Securities being registered in such registration ("Holders' Counsel") with an
adequate opportunity to review and comment on such Registration Statement and
each prospectus included therein (and each amendment or supplement thereto) to
be filed with the Commission, subject to such documents being under the
Company's control, and (y) the Company shall notify the Holders' Counsel and
each seller of Registrable Securities of any stop order issued or threatened by
the Commission and take all action required to prevent the entry of such stop
order or to remove it if entered;

                           (ii)     prepare and file with the Commission such
amendments and supplements to such Registration Statement and the prospectus
used in connection therewith as may be necessary to keep such Registration
Statement effective for the lesser of (x) 120 days and (y) such shorter period
which will terminate when all Registrable Securities covered by such
Registration Statement have been sold, and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
Registration Statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such Registration
Statement;

                           (iii)    furnish to each seller of Registrable
Securities, prior to filing a Registration Statement, at least one copy of such
Registration Statement as is proposed to be filed, and thereafter such number of
copies of such Registration Statement, each amendment and supplement thereto (in
each case including all exhibits thereto), and the prospectus included in such
Registration Statement (including each preliminary prospectus) and any
prospectus filed under Rule 424 under the Securities Act as each such seller may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such seller;

                           (iv)     register or qualify such Registrable
Securities under such other securities or "blue sky" laws of such jurisdictions
as any seller of Registrable Securities may request, and to continue such
qualification in effect in such jurisdiction for as long as permissible pursuant
to the laws of such jurisdiction, or for as long as any such seller requests or
until all of such Registrable Securities are sold, whichever is shortest, and do
any and all other acts and things which may be reasonably necessary or advisable
to enable any such seller to consummate the disposition in such jurisdictions of
the Registrable Securities owned by such seller; provided, however, that the
Company shall not be required to (x) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 6(a)(iv), (y) subject itself to taxation in any such jurisdiction or (z)
consent to general service of process in any such jurisdiction;

                                       10



                           (v)      notify each seller of Registrable Securities
at any time when a prospectus relating thereto is required to be delivered under
the Securities Act, upon discovery that, or upon the happening of any event as a
result of which, the prospectus included in such Registration Statement contains
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading and the
Company shall promptly prepare a supplement or amendment to such prospectus and
furnish to each seller of Registrable Securities a reasonable number of copies
of such supplement to or an amendment of such prospectus as may be necessary so
that, after delivery to the purchasers of such Registrable Securities, such
prospectus shall not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading;

                           (vi)     enter into and perform customary agreements
(including an underwriting agreement containing representations, warranties,
covenants and indemnities for securities law matters and otherwise in customary
form with the Approved Underwriter or Company Underwriter, if any, selected as
provided in Section 3 or Section 4, as the case may be) and take such other
actions as are prudent and reasonably required in order to expedite or
facilitate the disposition of such Registrable Securities, including causing its
officers to participate in "road shows" and other information meetings organized
by the Approved Underwriter or Company Underwriter;

                           (vii)    make available at reasonable times for
inspection by any seller of Registrable Securities, any managing underwriter
participating in any disposition of such Registrable Securities pursuant to a
Registration Statement, Holders' Counsel and any attorney, accountant or other
agent retained by any such seller or any managing underwriter (each, an
"Inspector" and collectively, the "Inspectors"), all financial and other
records, pertinent corporate documents and properties of the Company and its
subsidiaries (collectively, the "Records") as shall be reasonably necessary to
enable them to exercise their due diligence responsibility, and cause the
Company's and its subsidiaries' officers, directors and employees, and the
independent public accountants of the Company, to supply all information
reasonably requested by any such Inspector in connection with such Registration
Statement. Records that the Company determines, in good faith, to be
confidential and which it notifies the Inspectors are confidential shall not be
disclosed by the Inspectors (and the Inspectors shall confirm their agreement in
writing in advance to the Company if the Company shall so request) unless (x)
the disclosure of such Records is necessary, in the Company's judgment, to avoid
or correct a misstatement or omission in the Registration Statement, (y) the
release of such Records is ordered pursuant to a subpoena or other order from a
court of competent jurisdiction after exhaustion of all appeals therefrom or (z)
the information in such Records was known to the Inspectors on a
non-confidential basis prior to its disclosure by the Company or has been made
generally available to the public. Each seller of Registrable Securities agrees
that it shall, upon learning that disclosure of such Records is sought in a
court of competent jurisdiction, give notice to the Company and allow the
Company, at the Company's expense, to undertake appropriate action to prevent
disclosure of the Records deemed confidential;

                           (viii)   if such sale is pursuant to an underwritten
offering, obtain a "cold comfort" letters dated the effective date of the
Registration Statement and the date of the closing

                                       11



under the underwriting agreement from the Company's independent public
accountants in customary form and covering such matters of the type customarily
covered by "cold comfort" letters as the managing underwriter reasonably
requests;

                           (ix)     furnish, at the request of any seller of
Registrable Securities on the date such securities are delivered to the
underwriters for sale pursuant to such registration or, if such securities are
not being sold through underwriters, on the date the Registration Statement with
respect to such securities becomes effective, an opinion, if reasonably
available, dated such date, of counsel representing the Company for the purposes
of such registration, addressed to the underwriters, if any, and to the seller
making such request, covering such legal matters with respect to the
registration in respect of which such opinion is being given as the
underwriters, if any, and such seller may reasonably request and are customarily
included in such opinions;

                           (x)      comply with all applicable rules and
regulations of the Commission, and make available to its security holders, as
soon as reasonably practicable but no later than fifteen (15) months after the
effective date of the Registration Statement, an earnings statement covering a
period of twelve (12) months beginning after the effective date of the
Registration Statement, in a manner which satisfies the provisions of Section
11(a) of the Securities Act and Rule 158 thereunder;

                           (xi)     cause all such Registrable Securities to be
listed on each securities exchange on which similar securities issued by the
Company are then listed, provided that the applicable listing requirements are
satisfied;

                           (xii)    cooperate with each seller of Registrable
Securities and each underwriter participating in the disposition of such
Registrable Securities and their respective counsel in connection with any
filings required to be made with the NASD; and

                           (xiii)   take all other steps reasonably necessary to
effect the registration of the Registrable Securities contemplated hereby.

                  (b)      Seller Information. The Company may require each
seller of Registrable Securities as to which any registration is being effected
to furnish, and such seller shall furnish, to the Company such information
regarding the distribution of such securities as the Company may from time to
time reasonably request in writing.

                  (c)      Notice to Discontinue. Each Designated Holder agrees
that, upon receipt of any notice from the Company of the happening of any event
of the kind described in Section 6(a)(v), such Designated Holder shall forthwith
discontinue disposition of Registrable Securities pursuant to the Registration
Statement covering such Registrable Securities until such Designated Holder's
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 6(a)(v) and, if so directed by the Company, such Designated Holder shall
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Designated Holder's possession, of the
prospectus covering such Registrable Securities which is current at the time of
receipt of such notice. If the Company shall give any such notice, the Company
shall extend the period during which such Registration Statement shall be
maintained effective pursuant to this Agreement (including, without limitation,
the period

                                       12



referred to in Section 6(a)(ii)) by the number of days during the period from
and including the date of the giving of such notice pursuant to Section 6(a)(v)
to and including the date when sellers of such Registrable Securities under such
Registration Statement shall have received the copies of the supplemented or
amended prospectus contemplated by and meeting the requirements of Section
6(a)(v).

                  (d)      Registration Expenses. The Company shall pay all
expenses arising from or incident to its performance of, or compliance with,
this Agreement, including, without limitation, (i) Commission, stock exchange
and NASD registration and filing fees, (ii) all fees and expenses incurred in
complying with securities or "blue sky" laws (including reasonable fees, charges
and disbursements of counsel to any underwriter incurred in connection with
"blue sky" qualifications of the Registrable Securities as may be set forth in
any underwriting agreement), (iii) all printing, messenger and delivery expenses
and (iv) the fees, charges and expenses of counsel to the Company and of its
independent public accountants and any other accounting fees, charges and
expenses incurred by the Company (including, without limitation, any expenses
arising from any "cold comfort" letters or any special audits incident to or
required by any registration or qualification) and any reasonable legal fees,
charges and expenses incurred by one counsel for the General Atlantic
Stockholders. All of the expenses described in the preceding sentence of this
Section 6(d) are referred to herein as "Registration Expenses." The Designated
Holders of Registrable Securities sold pursuant to a Registration Statement
shall bear the expense of any underwriter's discount or commission relating to
registration and sale of such Designated Holders' Registrable Securities.

         7.       Indemnification; Contribution.

                  (a)      Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Designated Holder, its partners, directors,
officers, affiliates and each Person who controls (within the meaning of Section
15 of the Securities Act) such Designated Holder from and against any and all
losses, claims, damages, liabilities and expenses (including reasonable costs of
investigation) (each, a "Liability" and collectively, "Liabilities"), arising
out of or based upon any untrue, or allegedly untrue, statement of a material
fact contained in any Registration Statement, prospectus or preliminary
prospectus (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) or arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances under which such statements were made, except insofar as
such Liability arises out of or is based upon any untrue statement or alleged
untrue statement or omission or alleged omission contained in such Registration
Statement, preliminary prospectus or final prospectus in reliance and in
conformity with information concerning such Designated Holder furnished in
writing to the Company by such Designated Holder expressly for use therein,
including, without limitation, the information furnished to the Company pursuant
to Section 7(b). The Company shall also provide customary indemnities to any
underwriters of the Registrable Securities, their officers, directors and
employees and each Person who controls such underwriters (within the meaning of
Section 15 of the Securities Act) to the same extent as provided above with
respect to the indemnification of the Designated Holders of Registrable
Securities.

                                       13



                  (b)      Indemnification by Designated Holders. In connection
with any Registration Statement in which a Designated Holder is participating
pursuant to Section 3 or Section 4 hereof, each such Designated Holder shall
promptly furnish to the Company in writing such information with respect to such
Designated Holder as the Company may reasonably request or as may be required by
law for use in connection with any such Registration Statement or prospectus and
all information required to be disclosed in order to make the information
previously furnished to the Company by such Designated Holder not materially
misleading or necessary to cause such Registration Statement not to omit a
material fact with respect to such Designated Holder necessary in order to make
the statements therein not misleading. Each Designated Holder agrees to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, any underwriter retained by
the Company and each Person who controls the Company or such underwriter (within
the meaning of Section 15 of the Securities Act) to the same extent as the
foregoing indemnity from the Company to the Designated Holders, but only if such
statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with information with respect to such Designated
Holder furnished in writing to the Company by such Designated Holder expressly
for use in such Registration Statement or prospectus, including, without
limitation, the information furnished to the Company pursuant to this Section
7(b); provided, however, that the total amount to be indemnified by such
Designated Holder pursuant to this Section 7(b) shall be limited to the net
proceeds (after deducting the underwriters' discounts and commissions) received
by such Designated Holder in the offering to which the Registration Statement or
prospectus relates.

                  (c)      Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder (the "Indemnified Party") agrees to give
prompt written notice to the indemnifying party (the "Indemnifying Party") after
the receipt by the Indemnified Party of any written notice of the commencement
of any action, suit, proceeding or investigation or threat thereof made in
writing for which the Indemnified Party intends to claim indemnification or
contribution pursuant to this Agreement; provided, however, that the failure so
to notify the Indemnifying Party shall not relieve the Indemnifying Party of any
Liability that it may have to the Indemnified Party hereunder (except to the
extent that the Indemnifying Party is materially prejudiced or otherwise
forfeits substantive rights or defenses by reason of such failure). If notice of
commencement of any such action is given to the Indemnifying Party as above
provided, the Indemnifying Party shall be entitled to participate in and, to the
extent it may wish, jointly with any other Indemnifying Party similarly
notified, to assume the defense of such action at its own expense, with counsel
chosen by it and reasonably satisfactory to such Indemnified Party. The
Indemnified Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be paid by the Indemnified Party unless (i) the Indemnifying Party
agrees to pay the same, (ii) the Indemnifying Party fails to assume the defense
of such action with counsel reasonably satisfactory to the Indemnified Party or
(iii) the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party and such parties
have been advised by such counsel that either (x) representation of such
Indemnified Party and the Indemnifying Party by the same counsel would be
inappropriate under applicable standards of professional conduct or (y) there
may be one or more legal defenses available to the Indemnified Party which are
different from or additional to those available to the Indemnifying Party. In
any of such cases, the Indemnifying Party shall not have the right to assume
the

                                       14



defense of such action on behalf of such Indemnified Party, it being
understood, however, that the Indemnifying Party shall not be liable for the
fees and expenses of more than one separate firm of attorneys (in addition to
any local counsel) for all Indemnified Parties. No Indemnifying Party shall be
liable for any settlement entered into without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the consent of such Indemnified Party, effect any settlement of any pending or
threatened proceeding in respect of which such Indemnified Party is a party and
indemnity has been sought hereunder by such Indemnified Party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability for claims that are the subject matter of such proceeding.

                  (d)      Contribution. If the indemnification provided for in
this Section 7 from the Indemnifying Party is unavailable to an Indemnified
Party hereunder in respect of any Liabilities referred to herein, then the
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Liabilities in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions which resulted in such Liabilities, as well as any other relevant
equitable considerations. The relative faults of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such Indemnifying Party or
Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the Liabilities referred to above shall be
deemed to include, subject to the limitations set forth in Sections 7(a), 7(b)
and 7(c), any legal or other fees, charges or expenses reasonably incurred by
such party in connection with any investigation or proceeding; provided that the
total amount to be contributed by such Designated Holder shall be limited to the
net proceeds (after deducting the underwriters' discounts and commissions)
received by such Designated Holder in the offering.

                  The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.

         8.       Rule 144. The Company covenants that it shall (a) file any
reports required to be filed by it under the Exchange Act and (b) take such
further action as each Designated Holder may reasonably request (including
providing any information necessary to comply with Rule 144 under the Securities
Act), all to the extent required from time to time to enable such Designated
Holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by (i) Rule 144 under the
Securities Act, as such rule may be amended from time to time or (ii) any
similar rules or regulations hereafter adopted by the Commission. The Company
shall, upon the request of any Designated Holder, deliver to such Designated
Holder a written statement as to whether it has complied with such requirements.

                                       15



         9.       Miscellaneous.

                  (a)      Recapitalizations, Exchanges, etc. The provisions of
this Agreement shall apply to the full extent set forth herein with respect to
(i) the shares of Common Stock, (ii) any and all shares of voting common stock
of the Company into which the shares of Common Stock are converted, exchanged or
substituted in any recapitalization or other capital reorganization by the
Company and (iii) any and all equity securities of the Company or any successor
or assign of the Company (whether by merger, consolidation, sale of assets or
otherwise) which may be issued in respect of, in conversion of, in exchange for
or in substitution of, the shares of Common Stock and shall be appropriately
adjusted for any stock dividends, splits, reverse splits, combinations,
recapitalizations and the like occurring after the date hereof. The Company
shall use all commercially reasonable efforts to cause any successor or assign
(whether by merger, consolidation, sale of assets or otherwise) to enter into a
new registration rights agreement with the Designated Holders on terms
substantially the same as this Agreement as a condition of any such transaction.

                  (b)      No Inconsistent Agreements. The Company shall not
enter into any agreement with respect to its securities that is inconsistent
with the rights granted to the Designated Holders in this Agreement or grant any
additional registration rights to any Person or with respect to any securities
which are not Registrable Securities which are prior in right to or inconsistent
with the rights granted in this Agreement.

                  (c)      Remedies. The Designated Holders, in addition to
being entitled to exercise all rights granted by law, including recovery of
damages, shall be entitled to specific performance of their rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive in any action for specific
performance the defense that a remedy at law would be adequate.

                  (d)      Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless consented to in writing by (i) the Company and (ii) the
General Atlantic Stockholders, Coinvestor Stockholders and Vectis Stockholders
holding Registrable Securities representing (after giving effect to any
adjustments) at least a majority of the aggregate number of Registrable
Securities owned by all of the General Atlantic Stockholders, Coinvestor
Stockholders and Vectis Stockholders; provided, however, that to the extent any
amendment or waiver shall adversely affect any of the Stockholders, such
amendment or waiver shall require the prior written consent of each Stockholder
so adversely affected. Any such written consent shall be binding upon the
Company and all of the Designated Holders.

                  (e)      Notices. All notices, demands and other
communications provided for or permitted hereunder shall be made in writing and
shall be made by registered or certified first-class mail, return receipt
requested, telecopier, courier service or personal delivery:

                                       16



                                (i) if to the Company:

                                    Critical Path, Inc.
                                    532 Folsom Street
                                    San Francisco, CA 94105
                                    Telecopy: (415) 808-8898
                                    Attention: Chief Financial Officer

                                    with a copy to:

                                    Pillsbury Winthrop LLP
                                    50 Fremont Street
                                    San Francisco, CA  94105
                                    Telecopy:  (415) 983-1200
                                    Attention: Gregg F. Vignos, Esq.

                               (ii) if to the General Atlantic Stockholders:

                                    c/o General Atlantic Service Company
                                    3 Pickwick Plaza
                                    Greenwich, CT  06830
                                    Telecopy:  (203) 622-8818
                                    Attention:  Matthew Nimetz
                                                 Thomas J. Murphy

                                    with a copy to:

                                    Paul, Weiss, Rifkind, Wharton & Garrison LLP
                                    1285 Avenue of the Americas
                                    New York, NY 10019-6064
                                    Telecopy:  (212) 757-3990
                                    Attention: Douglas A. Cifu, Esq.

                              (iii) if to Campina, Great Affluent, Dragonfield
                              or Lion Cosmos:

                                    c/o 7th Floor
                                    Cheung Kong Center
                                    2 Queen's Road Central
                                    Hong Kong
                                    Telecopy:  (852) 2845-2057
                                    Attention:  Mr. Edmond Ip

                                       17



                               (iv) if to Cenwell:

                                    c/o 22nd Floor
                                    Hutchison House
                                    10 Harcourt Road
                                    Hong Kong
                                    Telecopy:  (852) 2128-1778
                                    Attention:  Company Secretary

                                (v) if to Vectis:

                                    c/o Vectis Group, LLC
                                    117 Greenwich Street
                                    San Francisco, CA 94111
                                    Telecopy: 415-352-5310
                                    Attention: Matthew Hobart

                                    with a copy to:

                                    Kirkland & Ellis
                                    153 East 53rd Street
                                    New York, NY 10022-4675
                                    Telecopy: 212-446-4900
                                    Attention: Michael Movsovich, Esq.

                               (vi) if to any other Designated Holder, at its
                                    address as it appears on the record books of
                                    the Company.

         All such notices, demands and other communications shall be deemed to
have been duly given when delivered by hand, if personally delivered; when
delivered by courier, if delivered by commercial courier service; five (5)
Business Days after being deposited in the mail, postage prepaid, if mailed; and
when receipt is mechanically acknowledged, if telecopied. Any party may by
notice given in accordance with this Section 9(e) designate another address or
Person for receipt of notices hereunder.

                  (f)      Successors and Assigns; Third Party Beneficiaries.
This Agreement shall inure to the benefit of and be binding upon the successors
and permitted assigns of the parties hereto as hereinafter provided. The Demand
Registration rights and related rights of the General Atlantic Stockholders or
the Coinvestor Stockholders contained in Section 3 hereof shall be (i) with
respect to any Registrable Security that is transferred to an Affiliate of a
General Atlantic Stockholder or a Coinvestor Stockholder, automatically
transferred to such Affiliate and (ii) with respect to any Registrable Security
that is transferred in all cases to a non-Affiliate, transferred only with the
consent of the Company which consent shall not be unreasonably withheld,
conditioned or delayed. The incidental or "piggy-back" registration rights of
the Designated Holders contained in Sections 3(b) and 4 hereof and the other
rights of each of the Designated Holders with respect thereto shall be, with
respect to any Registrable Security, automatically transferred to any Person who
is the transferee of such Registrable Security so long as such

                                       18



transferee agrees to be bound by this Agreement. All of the obligations of the
Company hereunder shall survive any such transfer. Except as provided in Section
7, no Person other than the parties hereto and their successors and permitted
assigns is intended to be a beneficiary of this Agreement.

                  (g)      Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.

                  (h)      Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

                  (i)      GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.

                  (j)      Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, unless the
provisions held invalid, illegal or unenforceable shall substantially impair the
benefits of the remaining provisions hereof.

                  (k)      Rules of Construction. Unless the context otherwise
requires, references to sections or subsections refer to sections or subsections
of this Agreement.

                  (l)      Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
with respect to the subject matter contained herein. There are no restrictions,
promises, representations, warranties or undertakings with respect to the
subject matter contained herein, other than those set forth or referred to
herein. Subject to Section 9(o), upon the Subsequent Closing (as defined in the
Convertible Note Purchase and Exchange Agreement), this Agreement shall
supersede all prior agreements and understandings among the parties with respect
to such subject matter.

                  (m)      Further Assurances. Each of the parties shall execute
such documents and perform such further acts as may be reasonably required or
desirable to carry out or to perform the provisions of this Agreement.

                  (n)      Other Agreements. Nothing contained in this Agreement
shall be deemed to be a waiver of, or release from, any obligations any party
hereto may have under, or any restrictions on the transfer of Registrable
Securities or other securities of the Company imposed by, any other agreement
including, but not limited to, the Stock Purchase Agreement, the Convertible
Note Purchase and Exchange Agreement or the Amended and Restated Stockholders
Agreement.

                                       19



                  (o)      Effective Date and Termination. Notwithstanding
anything in this Agreement to the contrary, this Agreement shall become
effective immediately following the Subsequent Closing. If the Subsequent
Closing does not occur and the obligation to consummate the Conversion and the
Exchange (each as defined in the Convertible Note Purchase Agreement) has been
terminated pursuant to Article IX of the Convertible Note Purchase and Exchange
Agreement, this Agreement shall immediately terminate and be of no further force
or effect.

              [the remainder of this page intentionally left blank]

                                       20



         IN WITNESS WHEREOF, the undersigned have executed, or have caused to be
executed, this Amended and Restated Registration Rights Agreement on the date
first written above.

                                    CRITICAL PATH, INC.

                                    By:  /s/ Michael J. Zukerman
                                        _____________________________________
                                        Name: Michael J. Zukerman
                                        Title: Senior Vice President and
                                               General Counsel


      SIGNATURE PAGE TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT


                                    GENERAL ATLANTIC PARTNERS 74, L.P.

                                    By: GENERAL ATLANTIC PARTNERS, LLC,
                                        its General Partner

                                    By:  /s/ Matthew Nimetz
                                        _____________________________________
                                        Name: Matthew Nimetz
                                        Title: A Managing Member

                                    GAP COINVESTMENT PARTNERS II, L.P.

                                    By:  /s/ Matthew Nimetz
                                        _____________________________________
                                        Name: Matthew Nimetz
                                        Title: A General Partner

                                    GAPSTAR, LLC

                                    By:  GENERAL ATLANTIC PARTNERS, LLC,
                                         its Managing Member

                                    By:   /s/ Matthew Nimetz
                                         _________________________________
                                         Name: Matthew Nimetz
                                         Title: A Managing Member

                                    GAPCO GMBH & CO. KG

                                    By: GAPCO MANAGEMENT GMBH,
                                        its General Partner

                                    By:  /s/ Matthew Nimetz
                                        _________________________________
                                        Name: Matthew Nimetz
                                        Title: A Managing Director


      SIGNATURE PAGE TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT


                                    By: VECTIS GROUP, LLC
                                        its Managing Member

                                    By:  /s/ Matthew T. Hobart
                                        _____________________________________
                                        Name: Matthew T. Hobart
                                        Title: Managing Director


      SIGNATURE PAGE TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT


                                    CENWELL LIMITED

                                    By:  /s/ Ip Tak Chuen, Edmond
                                        _____________________________________
                                        Name: Ip Tak Chuen, Edmond
                                        Title: Authorised Person

                                    CAMPINA ENTERPRISES LIMITED

                                    By:  /s/ Ip Tak Chuen, Edmond
                                        _____________________________________
                                        Name: Ip Tak Chuen, Edmond
                                        Title: Director

                                    GREAT AFFLUENT LIMITED

                                    By: /s/ Ip Tak Chuen, Edmond
                                        _____________________________________
                                        Name: Ip Tak Chuen, Edmond
                                        Title: Director

                                    DRAGONFIELD LIMITED

                                    By:  /s/ Pau Yee Wan, Ezra
                                        _____________________________________
                                        Name: Pau Yee Wan, Ezra
                                        Title: Authorised Person

                                    LION COSMOS LIMITED

                                    By:  /s/ Pau Yee Wan, Ezra
                                        _____________________________________
                                        Name: Pau Yee Wan, Ezra
                                        Title: Director

      SIGNATURE PAGE TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT

EX-4.20

                                                                    EXHIBIT 4.20

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

                              AMENDED AND RESTATED
                             STOCKHOLDERS AGREEMENT

                                      among

                              CRITICAL PATH, INC.,

                       GENERAL ATLANTIC PARTNERS 74, L.P.,

                       GAP COINVESTMENT PARTNERS II, L.P.,

                                  GAPSTAR, LLC,

                                   GAP-W, LLC,

                              GAPCO GMBH & CO. KG,

                          CAMPINA ENTERPRISES LIMITED,

                                CENWELL LIMITED,

                             GREAT AFFLUENT LIMITED,

                              DRAGONFIELD LIMITED,

                               LION COSMOS LIMITED

                                       and

                             VECTIS CP HOLDINGS, LLC

                            Dated: November 26, 2003

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



                                TABLE OF CONTENTS



                                                                                                           Page
                                                                                                           ----
                                                                                                        
1.       Definitions....................................................................................     2

2.       Future Issuance of Shares; Preemptive Rights...................................................     6
         2.1      Offering Notice.......................................................................     6
         2.2      Preemptive Rights; Exercise...........................................................     7
         2.3      Closing...............................................................................     8
         2.4      Sale to Subject Purchaser.............................................................     8

3.       Corporate Governance...........................................................................     8
         3.1      Board of Directors; Number and Composition............................................     8
         3.2      Reimbursement of Expenses; D&O Insurance..............................................     9
         3.3      Meetings of the Board of Directors....................................................     9
         3.4      Annual Budget.........................................................................     9

4.       Standstill; Nasdaq Matters.....................................................................     9
         4.1      Standstill............................................................................     9
         4.2      Nasdaq Matters........................................................................    11

5.       Miscellaneous..................................................................................    11
         5.1      Notices...............................................................................    11
         5.2      Successors and Assigns; Third Party Beneficiary.......................................    13
         5.3      Amendment and Waiver..................................................................    13
         5.4      Counterparts..........................................................................    13
         5.5      Specific Performance..................................................................    13
         5.6      Headings..............................................................................    13
         5.7      Governing Law.........................................................................    13
         5.8      Severability..........................................................................    13
         5.9      Rules of Construction.................................................................    14
         5.10     Entire Agreement......................................................................    14
         5.11     Term of Agreement.....................................................................    14
         5.12     Further Assurances....................................................................    14


Schedule          Coinvestors

EXHIBITS

A                 Articles of Incorporation
B                 By-laws

                                       i



                                    Schedule

                                   Coinvestors

Vectis CP Holdings, LLC

Campina Enterprises Limited

Cenwell Limited

Great Affluent Limited

Dragonfield Limited

Lion Cosmos Limited

                                       i



                              AMENDED AND RESTATED

                             STOCKHOLDERS AGREEMENT

         AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (this "Agreement"), dated
November __, 2003, among Critical Path, Inc., a California corporation (the
"Company"), General Atlantic Partners 74, L.P., a Delaware limited partnership
("GAP LP"), GAP Coinvestment Partners II, L.P., a Delaware limited partnership
("GAP Coinvestment"), GapStar, LLC, a Delaware limited liability company
("GapStar"), GAP-W, LLC, a Delaware limited liability company ("GAP-W"), GAPCO
GmbH & Co. KG, a German limited partnership ("GmbH Coinvestment"), and the
Persons listed on the Schedule hereto (the "Coinvestors").

         WHEREAS, pursuant to the Stock and Warrant Purchase and Exchange
Agreement, dated November 8, 2001, as amended from time to time (the "Stock
Purchase Agreement"), among the Company, GAP LP, GAP Coinvestment, GapStar and
the Coinvestors, the Company has (i) issued and sold to GAP LP, GAP
Coinvestment, GapStar and the Coinvestors an aggregate of 708,037 shares of
Series D Cumulative Redeemable Convertible Participating Preferred Stock, par
value $0.001 per share, of the Company, as amended from time to time (the
"Series D Preferred Stock"), (ii) issued and delivered to GAP LP, GAP
Coinvestment and GapStar an aggregate of 1,837,418 shares of Series D Preferred
Stock in exchange for a certain amount of convertible subordinated notes of the
Company and (iii) issued and sold to GAP LP, GAP Coinvestment and GapStar
warrants (the "Warrants") to purchase shares of Common Stock; and

         WHEREAS, pursuant to the Convertible Note Purchase and Exchange
Agreement, dated November 18, 2003 (the "Convertible Note Purchase and Exchange
Agreement"), among the Company, GAP LP, GAP Coinvestment, GapStar, GAP-W, GAPCO
GmbH Coinvestment, Campina Enterprises Limited ("Campina Enterprises Limited"),
Cenwell Limited ("Cenwell Limited"), Great Affluent Limited ("Great Affluent
Limited"), Dragonfield Limited ("Dragonfield Limited") and Lion Cosmos Limited
("Lion Cosmos Limited"), (i) the Company has issued and sold to GAP LP, GAP
Coinvestment, GapStar, GAP-W and GAPCO GmbH Coinvestment convertible promissory
notes in the principal amount of $10,000,000 (the "Notes"), which are
convertible into shares, par value $0.001 per share, of Series E Convertible
Preferred Stock of the Company (the "Series E Preferred Stock") and (ii) Campina
Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield
Limited and Lion Cosmos Limited agreed upon the satisfaction of certain
conditions to exchange their CK Sub Notes (as hereinafter defined) for shares of
Series E Preferred Stock; and

         WHEREAS, the parties hereto wish to provide for, among other things,
preemptive rights, corporate governance rights and standstill obligations and
certain other rights under certain conditions.

         NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:



         1.       Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:

                  "Affiliate" shall mean any Person who is an "affiliate" as
defined in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act.

                  "Agreement" means this Agreement as the same may be amended,
supplemented or modified in accordance with the terms hereof.

                  "Board of Directors" means the Board of Directors of the
Company.

                  "Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in the State of New York or the State of
California are authorized or required by law or executive order to close.

                  "Campina Enterprises Limited" has the meaning set forth in the
recitals of this Agreement.

                  "Cenwell Limited" has the meaning set forth in the recitals of
this Agreement.

                  "Charter Documents" means the Articles of Incorporation and
the By-laws of the Company as in effect on the date hereof after giving effect
to the filing of the Amended and Restated Certificate of Determination with
respect to the Series D Preferred Stock and the Certificate of Determination
with respect to the Series E Preferred Stock with the Secretary of State of the
State of California, copies of which are attached hereto as Exhibit A and
Exhibit B, respectively.

                  "CK Sub Notes" means the 5 3/4% Convertible Subordinated
Notes, due April 1, 2005, issued by the Company in the principal face amount of
$32,795,000 pursuant to the Company's Indenture, dated March 31, 2000, and
standing in the name of Campina Enterprises Limited, Cenwell Limited, Great
Affluent Limited, Dragonfield Limited or Lion Cosmos Limited on the books of the
Company.

                  "Coinvestor Stockholders" means the Coinvestors and any
Affiliate of a Coinvestor that, after the date hereof, acquires Shares, and the
term "Coinvestor Stockholder" shall mean any such person.

                  "Coinvestors" has the meaning set forth in the preamble to
this Agreement.

                  "Coinvestors Sub-group" has the meaning set forth in Section
4.1(c) of this Agreement.

                  "Commission" means the Securities and Exchange Commission or
any similar agency then having jurisdiction to enforce the Securities Act.

                  "Common Stock" means the Common Stock, par value $.001 per
share, of the Company and any other capital stock of the Company into which such
stock is reclassified or reconstituted and any other common stock of the
Company.

                                       2


                  "Common Stock Equivalents" means any security or obligation
which is by its terms convertible, exchangeable or exercisable into or for
shares of Common Stock, including, without limitation the Series D Preferred
Stock, Series E Preferred Stock and any option, warrant or other subscription or
purchase right with respect to Common Stock or any Common Stock Equivalent.

                  "Company" has the meaning set forth in the preamble to this
Agreement.

                  "Contingent Obligation" means, as applied to any Person, any
direct or indirect liability of that Person with respect to any Indebtedness,
lease, dividend, guaranty, letter of credit or other obligation, contractual or
otherwise (the "primary obligation") of another Person (the "primary obligor"),
whether or not contingent, (a) to purchase, repurchase or otherwise acquire such
primary obligations or any property constituting direct or indirect security
therefor, (b) to advance or provide funds (i) for the payment or discharge or
any such primary obligor or otherwise to maintain the net worth or solvency or
any balance sheet item, level of income or financial condition of the primary
obligor, (c) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation, or (d) otherwise
to assure or hold harmless the owner of any such primary obligation against loss
or failure or inability to perform in respect thereof. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof.

                  "Convertible Note Purchase and Exchange Agreement" has the
meaning set forth in the recitals to this Agreement.

                  "Dragonfield Limited" has the meaning set forth in the
recitals of this Agreement.

                  "Escrow Agreement" has the meaning set forth in the recitals
to this Agreement.

                  "Excess New Securities" has the meaning set forth in Section
2.2(a) of this Agreement.

                  "Exchange" has the meaning set forth in the Convertible Note
Purchase and Exchange Agreement.

                  "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.

                  "Exempt Issuances" has the meaning set forth in Section 2.1 of
this Agreement.

                  "GAP Coinvestment" has the meaning set forth in the preamble
to this Agreement.

                                       3


                  "GAP LLC" means General Atlantic Partners, LLC, a Delaware
limited liability company and the general partner of GAP LP and the managing
member of GapStar, and any successor to such entity.

                  "GAP LP" has the meaning set forth in the preamble to this
Agreement.

                  "GAP-W" has the meaning set forth in the preamble to this
Agreement.

                  "GapStar" has the meaning set forth in the preamble to this
Agreement.

                  "General Atlantic Director" has the meaning set forth in
Section 3.2(a) of this Agreement.

                  "General Atlantic Stockholders" means GAP LP, GAP
Coinvestment, GapStar, GAP-W, GmbH Coinvestment and any Affiliate of GAP LLC
that, after the date hereof, acquires Shares, and the term "General Atlantic
Stockholder" shall mean any such Person.

                  "GmbH Coinvestment" has the meaning set forth in the preamble
to this Agreement.

                  "Governmental Authority" means the government of any nation,
state, city, locality or other political subdivision thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.

                  "Great Affluent Limited" has the meaning set forth in the
recitals of this Agreement.

                  "Indebtedness" means, as to any Person, (a) all obligations of
such Person for borrowed money (including, without limitation, reimbursement and
all other obligations with respect to surety bonds, letters of credit and
bankers' acceptances, whether or not matured), (b) all obligations of such
Person to pay the deferred purchase price of property or services, except trade
accounts payable and accrued commercial or trade liabilities arising in the
ordinary course of business, (c) all interest rate and currency swaps, caps,
collars and similar agreements or hedging devices under which payments are
obligated to be made by such Person, whether periodically or upon the happening
of a contingency, (d) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
such Person (even though the rights and remedies of the seller or lender under
such agreement in the event of default are limited to repossession or sale of
such property), (e) all obligations of such Person under leases which have been
or should be, in accordance with United States generally accepted accounting
principles in effect from time to time, recorded as capital leases, (f) all
indebtedness secured by any Lien (other than Liens in favor of lessors under
leases other than leases included in clause (e)) on any property or asset owned
or held by that Person regardless of whether the indebtedness secured thereby
shall have been assumed by that Person or is non-recourse to the credit of that
Person and (g) any Contingent Obligation of such Person.

                                       4


                  "Lien" means any mortgage, deed of trust, pledge,
hypothecation, assignment, encumbrance, lien (statutory or other) or preference,
priority, right or other security interest or preferential arrangement of any
kind or nature whatsoever (excluding preferred stock and equity related
preferences).

                  "Lion Cosmos Limited" has the meaning set forth in the
recitals of this Agreement.

                  "Nasdaq" means The Nasdaq Stock Market, Inc.

                  "New Issuance Notice" has the meaning set forth in Section 2.1
of this Agreement.

                  "New Securities" has the meaning set forth in Section 2.1 of
this Agreement.

                  "Notes" has the meaning set forth in the recitals to this
Agreement.

                  "Person" means any individual, firm, corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, limited liability company, Governmental Authority or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.

                  "Preemptive Rightholder(s)" has the meaning set forth in
Section 2.1 of this Agreement.

                  "Proportionate Percentage" has the meaning set forth in
Section 2.2(a) of this Agreement.

                  "Proposed Price" has the meaning set forth in Section 2.1 of
this Agreement.

                  "Requirement of Law" means, as to any Person, any law,
statute, treaty, rule, regulation, right, privilege, qualification, license or
franchise or determination of an arbitrator or a court or other governmental
authority or stock exchange, in each case applicable or binding upon such Person
or any of its property or to which such Person or any of its property is subject
or pertaining to any or all of the transactions contemplated or referred to
herein.

                  "Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder.

                  "Series D Preferred Stock" has the meaning set forth in the
recitals to this Agreement.

                  "Series E Preferred Stock" has the meaning set forth in the
recitals to this Agreement.

                  "Shares" means, with respect to each Stockholder, all shares,
whether now owned or hereafter acquired, of Common Stock, Series D Preferred
Stock and Series E Preferred Stock, and any other Common Stock Equivalents owned
thereby; provided, however, for the purposes

                                       5


of any computation of the number of Shares pursuant to Sections 2.2 and 5.3, all
outstanding Common Stock Equivalents shall be deemed converted, exercised or
exchanged as applicable and the shares of Common Stock issuable upon such
conversion, exercise or exchange shall be deemed outstanding, whether or not
such conversion, exercise or exchange has actually been effected.

                  "Standstill Ceiling" has the meaning set forth in Section
4.1(a) of this Agreement.

                  "Standstill Expiration Date" means November 8, 2008.

                  "Stock Option Plans" means the Company's stock option plans
and employee purchase plans pursuant to which shares of restricted stock and
options to purchase shares of Common Stock are reserved and available for grant
to officers, directors, employees and consultants of the Company.

                  "Stock Purchase Agreement" has the meaning set forth in the
recitals to this Agreement.

                  "Stockholder Approval" has the meaning set forth in the
Convertible Note Purchase and Exchange Agreement.

                  "Stockholders" means the General Atlantic Stockholders and the
Coinvestor Stockholders.

                  "Stockholders Meeting" has the meaning set forth in Section
4.2 of this Agreement.

                  "Subject Purchaser" has the meaning set forth in Section 2.1
of this Agreement.

                  "Vectis Stockholders" has the meaning set forth in Section
4.1(c) of this Agreement.

                  "Warrants" has the meaning set forth in the recitals to this
Agreement.

                  "Written Consent" has the meaning set forth in Section 4.2 of
this Agreement.

         2.       Future Issuance of Shares; Preemptive Rights.

                  2.1      Offering Notice. Except for (a) options to purchase
Series E Preferred Stock or Common Stock or restricted stock which may be issued
pursuant to the Stock Option Plans, (b) a subdivision of the outstanding shares
of Common Stock into a larger number of shares of Common Stock, (c) capital
stock issued upon exercise, conversion or exchange of any Common Stock
Equivalent either (x) previously issued or (y) issued in accordance with the
terms of this Agreement or the Convertible Note Purchase and Exchange Agreement,
(d) capital stock of the Company issued in consideration of an acquisition,
approved by the Board of Directors, by the Company of another Person, (e) shares
of Common Stock issued as a dividend on the Series D Preferred Stock or Series E
Preferred Stock, (f) shares of Common Stock or Common Stock Equivalents issued
in strategic transactions (which may not be private equity or venture

                                       6


capital financing transactions) approved by the Board of Directors to Persons
that are not principally engaged in financial investing and (g) up to 10,000,000
shares of Series E Preferred Stock which may be issued pursuant to Section 2.7
of the Convertible Note Purchase and Exchange Agreement ((a)-(g) being referred
to collectively as "Exempt Issuances"), if the Company wishes to issue any
capital stock or any other securities convertible into or exchangeable for
capital stock of the Company pursuant to a private placement exempt from
registration under the Securities Act, other than any such private placement
that is made solely to Qualified Institutional Buyers (as defined in the
Securities Act) in reliance on Rule 144A promulgated under the Securities Act
(collectively, "New Securities") to any Person (the "Subject Purchaser"), then
the Company shall offer such New Securities first to each of the General
Atlantic Stockholders and the Coinvestor Stockholders (each, a "Preemptive
Rightholder" and collectively, the "Preemptive Rightholders") by sending written
notice (the "New Issuance Notice") to the Preemptive Rightholders, which New
Issuance Notice shall state (x) the number of New Securities proposed to be
issued and (y) the proposed purchase price per security of the New Securities
(the "Proposed Price"). Upon delivery of the New Issuance Notice, such offer
shall be irrevocable unless and until the rights provided for in Section 2.2
shall have been waived or shall have expired.

                  2.2      Preemptive Rights; Exercise.

                           (a)      For a period of twenty (20) days after the
giving of the New Issuance Notice pursuant to Section 2.1, each of the
Preemptive Rightholders shall have the right to purchase its Proportionate
Percentage (as hereinafter defined) of the New Securities at a purchase price
equal to the Proposed Price and upon the same terms and conditions set forth in
the New Issuance Notice. Each Preemptive Rightholder shall have the right to
purchase that percentage of the New Securities determined by dividing (x) the
total number of Shares then owned by such Preemptive Rightholder by (y) the
total number of Shares owned by all of the Preemptive Rightholders (the
"Proportionate Percentage"). If any Preemptive Rightholder does not fully
subscribe for the number or amount of New Securities that it or he is entitled
to purchase pursuant to the preceding sentence, then each Preemptive Rightholder
which elected to purchase New Securities shall have the right for a five (5) day
period to purchase that percentage of the remaining New Securities not so
subscribed for (for the purposes of this Section 2.2(a), the "Excess New
Securities") determined by dividing (x) the total number of Shares then owned by
such fully participating Preemptive Rightholder by (y) the total number of
Shares then owned by all fully participating Preemptive Rightholders who elected
to purchase Excess New Securities. Each of the Stockholders may transfer all or
any portion of its rights to purchase New Securities under this Section 2 to any
of its Affiliates.

                           (b)      The right of each Preemptive Rightholder to
purchase the New Securities or Excess New Securities, as the case may be, under
subsection (a) above shall be exercisable by delivering written notice of the
exercise thereof, prior to the expiration of the 20-day period referred to in
subsection (a) above with respect to New Securities or prior to the expiration
of the 5-day period referred to in subsection (a) above with respect to Excess
New Securities, to the Company, which notice shall state the amount of New
Securities that such Preemptive Rightholder elects to purchase pursuant to
Section 2.2(a). The failure of a Preemptive Rightholder to respond within such
20-day or 5-day period shall be deemed to be a

                                       7


waiver of such Preemptive Rightholder's rights under Section 2.2(a), provided
that each Preemptive Rightholder may waive its rights under Section 2.2(a) prior
to the expiration of such 20-day or 5-day period by giving written notice to the
Company.

                  2.3      Closing. The closing of the purchase of New
Securities or Excess New Securities subscribed for by the Preemptive
Rightholders under Section 2.2 shall be held at the executive office of the
Company at 11:00 a.m., local time, on (a) the 30th day after the giving of the
New Issuance Notice pursuant to Section 2.1, if the Preemptive Rightholders
elect to purchase all of the New Securities under Section 2.2, (b) the date of
the closing of the sale to the Subject Purchaser made pursuant to Section 2.4 if
the Preemptive Rightholders elect to purchase some, but not all, of the New
Securities under Section 2.2 or (c) at such other time and place as the parties
to the transaction may agree. At such closing, the Company shall deliver
certificates representing the New Securities, and such New Securities shall be
issued free and clear of all Liens (other than those attributable to actions by
the purchasers thereof) and the Company shall so represent and warrant, and
further represent and warrant (in addition to other customary representations
and warranties) that such New Securities shall be, upon issuance thereof to the
Preemptive Rightholders and after payment therefor, duly authorized, validly
issued, fully paid and non-assessable. Each Preemptive Rightholder purchasing
the New Securities shall deliver at the closing payment in full in immediately
available funds for the New Securities purchased by him or it. At such closing
all of the parties to the transaction shall execute such additional documents as
are customary for transactions of this type.

                  2.4      Sale to Subject Purchaser. The Company may sell to
the Subject Purchaser all of the New Securities not purchased by the Preemptive
Rightholders pursuant to Section 2.2 on terms and conditions that are no more
favorable to the Subject Purchaser than those set forth in the New Issuance
Notice; provided, however, that such sale is bona fide and made pursuant to a
contract entered into within ninety (90) days following the earlier to occur of
(i) the waiver by the Preemptive Rightholders of their option to purchase New
Securities or Excess New Securities pursuant to Section 2.2, or (ii) the
expiration of the 20-day or 5-day period referred to in Section 2.2. If such
sale is not consummated within such 90-day period for any reason, then the
restrictions provided for herein shall again become effective, and no issuance
and sale of New Securities may be made thereafter by the Company without again
offering the same in accordance with this Section 2. The closing of any issuance
and sale pursuant to this Section 2.4 shall be held at a time and place as the
parties to the transaction may agree within such 90-day period.

         3.       Corporate Governance.

                  3.1      Board of Directors; Number and Composition.

                           (a)      The Company shall take all actions
reasonably necessary to cause the nomination to the Board of Directors of one
(1) individual designated by the General Atlantic Stockholders but only if the
General Atlantic Stockholders are not entitled to elect one director of the
Company by virtue of their rights as the holders of a majority of the shares of
Series D Preferred Stock (the "General Atlantic Director").

                                       8


                           (b)      If so requested by the Coinvestor Sub-group,
the Company shall cause the nomination to the Board of Directors of one (1)
individual designated by the Coinvestor Sub-group but only if the Coinvestor
Sub-group is not entitled to elect one director of the Company by virtue of
their rights as the holders of a majority of the shares of Series E Preferred
Stock (the "Sub-group Director").

                  3.2      Reimbursement of Expenses; D&O Insurance. The Company
shall reimburse the General Atlantic Director for all reasonable travel and
accommodation expenses incurred by him in connection with the performance of his
duties as director of the Company upon presentation of appropriate documentation
therefor. The Company shall use reasonable commercial efforts to maintain a
directors' liability insurance policy that is reasonably acceptable to the Board
of Directors.

                  3.3      Meetings of the Board of Directors. The Company
agrees to take such actions as are necessary to cause the Board of Directors to
meet in person or telephonically not less frequently than once during each
calendar month.

                  3.4      Annual Budget. Not less than thirty (30) days prior
to the end of each fiscal year, the Company shall prepare and submit to the
Board of Directors for its approval an annual operating budget of the Company
for the next succeeding fiscal year in reasonable detail.

                  3.5      Coinvestor Sub-group Rights. Notwithstanding anything
to the contrary set forth in the Charter Documents, so long as the Coinvestor
Sub-group owns at least 7,000,000 shares of Series E Preferred Stock (subject to
anti-dilution adjustment for stock splits of, combinations of and capital
reorganizations with respect to the Series E Preferred Stock) the consent and
approval of the Coinvestor Sub-group, voting separately as a class, shall be a
prerequisite to:

                           (a)      any action that would result in a deemed
dividend to the shares of Series E Preferred Stock under Section 305 of the
Internal Revenue Code of 1986, as amended; or

                           (b)      the issuance, incurrence, assumption or
guarantee by the Corporation or any Subsidiary of the Corporation of any funded
Indebtedness (excluding capital leases incurred in the ordinary course of
business but including the incurrence of any debt in connection with any
borrowing arrangements with Silicon Valley Bank, provided that, with respect to
the incurrence of any debt in connection with any borrowing arrangements with
Silicon Valley Bank, if the members of the Coinvestor Sub-group do not respond
to a written request for consent by the Company within two Business Days of
receiving such request, such members shall be deemed to have consented).

         4.       Standstill; Nasdaq Matters.

                  4.1      Standstill. Without the approval or written consent
of the Board of Directors, none of the General Atlantic Stockholders or any of
their Affiliates, and none of the Coinvestor Stockholders or any of their
respective Affiliates shall, severally and not jointly, at any time prior to the
Standstill Expiration Date:

                                       9


                           (a)      purchase or otherwise acquire, or propose or
offer to purchase or acquire, any shares of the Company's capital stock, whether
by tender offer, market purchase, privately negotiated purchase, merger or
otherwise, any shares of the Company's capital stock or any Common Stock
Equivalents in excess of the number of shares of the Company's capital stock and
Common Stock Equivalents purchased pursuant to the Stock Purchase Agreement
(subject to adjustments and issuances of additional Common Stock Equivalents
pursuant to the Amended and Restated Certificate of Determination with respect
to the Series D Preferred Stock) and the Convertible Note Purchase and Exchange
Agreement (subject to adjustments and issuances of additional Common Stock
Equivalents pursuant to the Certificate of Determination with respect to the
Series E Stock) with respect to each such Stockholder and its Affiliates
considered severally and not jointly with any other Stockholder and its
Affiliates (the "Standstill Ceiling"); provided, however, that in no event shall
any such Stockholder acquire any Shares in a transaction in such an amount that
when aggregated with the shares of the Company's capital stock already owned by
such Stockholder, the acquisition of such shares of the Company's capital stock
would require stockholder approval under applicable Nasdaq rules and policies;
and provided, further, that the dividends that accrue on the shares of Series D
Preferred Stock and Series E Preferred Stock pursuant to the terms thereof shall
be excluded for purposes of calculating whether or not a Stockholder and its
Affiliates have exceeded the Standstill Ceiling;

                           (b)      except as specified in this Agreement, make,
or in any way participate, directly or indirectly, in any "solicitation" of
"proxy" (as such terms are defined or used in Regulation 14A of the Exchange
Act) to vote, or seek to advise or influence any Person with respect to the
voting of, any shares of the Company's capital stock, or become a "participant"
in any "election contest" (as such terms are used or defined in Regulation 14A
of the Exchange Act) relating to the election of directors of the Company;
provided, however, that none of the General Atlantic Stockholders, the
Coinvestor Stockholders or any of their respective Affiliates shall be deemed to
have engaged in a "solicitation" or to have become a "participant" by reason of
the membership of designees of the General Atlantic Stockholders, the Coinvestor
Stockholders or any of their respective Affiliates on the Board of Directors;

                           (c)      form, join or in any way participate in a
"group" (within the meaning of Section 13(d)(3) of the Exchange Act) or
otherwise act in concert with any Person for the purpose of acquiring, holding,
voting or disposing of any shares of the Company's capital stock; provided,
however, that (i) the General Atlantic Stockholders may act as a group for the
purpose of acquiring, holding, voting or disposing of any shares of the
Company's capital stock, (ii) Vectis CP Holdings, LLC and any Affiliate thereof
that acquires shares of the Company's capital stock (the "Vectis Stockholders")
may act as a group for the purpose of acquiring, holding, voting or disposing of
any shares of the Company's capital stock, (iii) Cenwell Limited, Campina
Enterprises Limited, Great Affluent Limited, Dragonfield Limited, or Lion Cosmos
Limited or any Affiliate thereof that acquires shares of the Company's capital
stock (the "Coinvestor Sub-group") may act as a group for the purpose of
acquiring, holding, voting or disposing of any shares of the Company's capital
stock; and provided further, that, for the avoidance of doubt, the General
Atlantic Stockholders, the Vectis Stockholders and the Coinvestor Sub-group may
not together act as a group for the purpose of acquiring, holding, voting or
disposing of any shares of the Company's capital stock; or

                                       10


                           (d)      request the Company (or its directors,
officers, employees or agents), to take any action which would reasonably be
expected to require pursuant to law the Company to make a public announcement or
proposal or offer with respect to (i) any form of business combination or
transaction involving the Company including, without limitation, a merger,
consolidation, tender or exchange offer, sale or purchase of assets, or
dissolution or liquidation of the Company or (ii) instigate, encourage or assist
any Person to do any of the foregoing.

                  4.2      Nasdaq Matters. The Company shall use all
commercially reasonable efforts to maintain the quotation and listing on Nasdaq
of all of the shares of Common Stock issuable upon conversion of the Series D
Preferred Stock and Series E Preferred Stock and all of the shares of Common
Stock issuable upon exercise of the Warrants.

         5.       Miscellaneous.

                  5.1      Notices. All notices, demands or other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first class mail, return receipt requested, telecopier,
courier service or personal delivery:

                           (a)      if to the Company:

                                    Critical Path, Inc.
                                    532 Folsom Street
                                    San Francisco, CA  94105
                                    Telecopy: (415) 808-8898
                                    Attention: Chief Financial Officer

                                    with a copy to, which shall not constitute
                                    notice:

                                    Pillsbury Winthrop LLP
                                    50 Fremont Street
                                    San Francisco, CA 94105
                                    Telecopy: (415) 983-1200
                                    Attention: Gregg F. Vignos, Esq.

                           (b)      if to any of the General Atlantic
                                    Stockholders:

                                    c/o General Atlantic Service Corporation
                                    3 Pickwick Plaza
                                    Greenwich, CT  06830
                                    Telecopy: (203) 622-8818
                                    Attention: Matthew Nimetz
                                               Thomas J. Murphy

                                    with a copy to, which shall not constitute
                                    notice:

                                    Paul, Weiss, Rifkind, Wharton & Garrison LLP
                                    1285 Avenue of the Americas

                                       11


                                    New York, NY  10019-6064
                                    Telecopy: (212) 757-3990
                                    Attention: Douglas A. Cifu, Esq.

                                    (c)     if to the Coinvestor Stockholders:

                                    (i)     if to Vectis CP Holdings, LLC:

                                    c/o Vectis Group, LLC
                                    117 Greenwich Street
                                    San Francisco, CA  94111
                                    Telecopy:  (415) 352-5310
                                    Attention:  Matthew Hobart

                                    with a copy to, which shall not constitute
                                    notice:

                                    Kirkland & Ellis
                                    153 East 53rd Street
                                    New York, NY  10022-4675
                                    Telecopy:  (212) 446-4900
                                    Attention:  Michael Movsovich, Esq.

                                    (ii)    if to Campina Enterprises Limited,
                                            Great Affluent Limited, Dragonfield
                                            Limited or Lion Cosmos Limited:

                                            c/o 7th Floor
                                            Cheung Kong Center
                                            2 Queen's Road Central
                                            Hong Kong
                                            Telecopy: (852) 2845-2057
                                            Attention: Mr. Edmond Ip

                                    (iii)   if to Cenwell Limited:

                                            c/o 22nd Floor
                                            Hutchison House
                                            10 Harcourt Road
                                            Hong Kong
                                            Telecopy: (852) 2128-1778
                                            Attention: Company Secretary

         All such notices, demands and other communications shall be deemed to
have been duly given when delivered by hand, if personally delivered; when
delivered by courier, if delivered by commercial courier service; five (5)
Business Days after being deposited in the mail, postage prepaid, if mailed; and
when receipt is mechanically acknowledged, if telecopied. Any party may by
notice given in accordance with this Section 5.1 designate another address or
Person for receipt of notices hereunder.

                                       12


                  5.2      Successors and Assigns; Third Party Beneficiary. This
Agreement shall inure to the benefit of and be binding upon successors and
permitted assigns of the parties hereto. No person other than the parties hereto
and their successors and permitted assigns is intended to be a beneficiary of
this Agreement.

                  5.3      Amendment and Waiver.

                           (a)      No failure or delay on the part of any party
hereto in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
parties hereto at law, in equity or otherwise.

                           (b)      Any amendment, supplement or modification of
or to any provision of this Agreement, any waiver of any provision of this
Agreement, and any consent to any departure by any party from the terms of any
provision of this Agreement, shall be effective only if it is made or given in
writing and signed by (i) the Company, (ii) the General Atlantic Stockholders
and (iii) the Coinvestor Stockholders holding a majority of the voting power of
the Shares held by the Coinvestor Stockholders; provided, however, that to the
extent that any such amendment or waiver adversely affects any of the
Stockholders, such amendment or waiver shall require the prior written consent
of each Stockholder so adversely affected; provided further, that any
Stockholder may waive in writing any right that inures to such Stockholder. Any
such amendment, supplement, modification, waiver or consent shall be binding
upon the Company and all of the Stockholders.

                  5.4      Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.

                  5.5      Specific Performance. The parties hereto intend that
each of the parties have the right to seek damages or specific performance in
the event that any other party hereto fails to perform such party's obligations
hereunder. Therefore, if any party shall institute any action or proceeding to
enforce the provisions hereof, any party against whom such action or proceeding
is brought hereby waives any claim or defense therein that the plaintiff party
has an adequate remedy at law.

                  5.6      Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

                  5.7      GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.

                  5.8      Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect

                                       13


for any reason, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions hereof shall not be in
any way impaired, unless the provisions held invalid, illegal or unenforceable
shall substantially impair the benefits of the remaining provisions hereof.

                  5.9      Rules of Construction. Unless the context otherwise
requires, references to sections or subsections refer to sections or subsections
of this Agreement.

                  5.10     Entire Agreement. This Agreement, together with the
exhibits hereto, is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement
and understanding of the parties hereto in respect of the subject matter
contained herein and therein. There are no restrictions, promises,
representations, warranties or undertakings, other than those set forth herein
or therein or set forth in the Stock Purchase Agreement or the Convertible Note
Purchase and Exchange Agreement. Subject to Section 5.11, upon the Subsequent
Closing (as defined in the Convertible Note Purchase and Exchange Agreement),
this Agreement, together with the exhibits hereto, shall supersede all prior
agreements and understandings among the parties with respect to such subject
matter.

                  5.11     Term of Agreement. Notwithstanding anything in this
Agreement to the contrary, this Agreement shall become effective immediately
following the Subsequent Closing. If the Subsequent Closing does not occur and
the obligation to consummate the Conversion and the Exchange (each as defined in
the Convertible Note Purchase and Exchange Agreement) is terminated pursuant to
Article IX of the Convertible Note Purchase and Exchange Agreement, this
Agreement shall immediately terminate and be of no further force or effect. If
the Subsequent Closing does occur, this Agreement shall terminate upon the
earlier of (a) with respect to a particular Stockholder, on the date that such
Stockholder and its Affiliates beneficially own less than 5% of the actual
outstanding shares of Common Stock (assuming conversion of the shares of Series
D Preferred Stock and Series E Preferred Stock) or (b) the twentieth anniversary
of the date hereof.

                  5.12     Further Assurances. Each of the parties shall, and
 shall cause their respective Affiliates to, execute such documents and perform
such further acts as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement.

              [the remainder of this page intentionally left blank]



         IN WITNESS WHEREOF, the undersigned have executed, or have caused to be
executed, this Amended and Restated Stockholders Agreement on the date first
written above.

                                    CRITICAL PATH, INC.

                                    By: /s/ Michael J. Zukerman
                                        ___________________________
                                        Name: Michael J. Zukerman
                                        Title: Senior Vice President
                                               and General Counsel

          SIGNATURE PAGE TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT




                                    GENERAL ATLANTIC PARTNERS 74, L.P.

                                    By: GENERAL ATLANTIC PARTNERS, LLC,
                                        its General Partner

                                    By: /s/ Matthew Nimetz
                                        ___________________________
                                        Name: Matthew Nimetz
                                        Title: A Managing Member

                                    GAP COINVESTMENT PARTNERS II, L.P.

                                    By: /s/ Matthew Nimetz
                                        ___________________________
                                        Name: Matthew Nimetz
                                        Title: A General Partner

                                    GAPSTAR, LLC

                                    By: GENERAL ATLANTIC PARTNERS, LLC,
                                        its Managing Member

                                    By: /s/ Matthew Nimetz
                                        ___________________________
                                        Name: Matthew Nimetz
                                        Title: A Managing Member

                                    GAP-W, LLC

                                    By: GENERAL ATLANTIC PARTNERS, LLC,
                                        its Manager

                                    By: /s/ Matthew Nimetz
                                        ___________________________
                                        Name: Matthew Nimetz
                                        Title: A Managing Member

                                    GAPCO GMBH & CO. KG

                                    By: GAPCO MANAGEMENT GMBH,
                                        its General Partner

                                    By: /s/ Matthew Nimetz
                                        ___________________________
                                        Name: Matthew Nimetz
                                        Title: A Managing Director

          SIGNATURE PAGE TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT




                                    VECTIS CP HOLDINGS, LLC,
                                    a Delaware limited liability company

                                    By: VECTIS GROUP, LLC,
                                        its Managing Member

                                    By: /s/ Matthew T. Hobart
                                        ___________________________
                                        Name: Matthew T. Hobart
                                        Title: Managing Director

          SIGNATURE PAGE TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT



                                    CENWELL LIMITED

                                    By: /s/ Ip Tak Chuen, Edmond
                                        ___________________________
                                        Name: Ip Tak Chuen, Edmond
                                        Title: Authorised Person

                                    CAMPINA ENTERPRISES LIMITED

                                    By: /s/ Ip Tak Chuen, Edmond
                                        ___________________________
                                        Name: Ip Tak Chuen, Edmond
                                        Title: Director

                                    GREAT AFFLUENT LIMITED

                                    By: /s/ Ip Tak Chuen, Edmond
                                        ___________________________
                                        Name: Ip Tak Chuen, Edmond
                                        Title: Director

                                    DRAGONFIELD LIMITED

                                    By: /s/ Pau Yee Wan, Ezra
                                        ___________________________
                                        Name: Pau Yee Wan, Ezra
                                        Title: Authorized Person

                                    LION COSMOS LIMITED

                                    By: /s/ Pau Yee Wan, Ezra
                                        ___________________________
                                        Name: Pau Yee Wan, Ezra
                                        Title: Director

          SIGNATURE PAGE TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT

EX-4.21

                                                                    EXHIBIT 4.21

                                      NOTE

     THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
     SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN
     REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
     SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
     TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER
     OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.

                               CRITICAL PATH, INC.

                    CONVERTIBLE SUBORDINATED PROMISSORY NOTE

$8,277,526.00                                          San Francisco, California
                                                       November 26, 2003

          Critical Path, Inc., a California corporation (the "Company"), the
principal office of which is located in San Francisco, California, for value
received hereby promises to pay to the order of General Atlantic Partners 74,
L.P., or its registered assigns ("Holder"), the sum of eight million two hundred
seventy-seven thousand five hundred twenty-six and 0/100 dollars
($8,277,526.00), or such lesser amount as shall then equal the outstanding
principal amount hereof on the terms and conditions set forth hereinafter. The
outstanding principal amount hereof and all accrued and unpaid interest hereon,
as set forth below, shall be due and payable on the earlier to occur of (i)
November 26, 2007, (ii) when declared due and payable by Holder upon the
occurrence of an Event of Default (as defined below), (iii) consummation of a
Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock
or Stock Equivalents by the Company, any cash capital contribution from any
third person or any other debt or equity financing consummated by the Company
after the date of issuance of this Note which, in the case of (v), individually
or in the aggregate raises proceeds of at least forty million dollars
($40,000,000) in cash or cash equivalents (the earliest of the events set forth
in items (i)-(v) immediately above, the "Maturity Date"); provided, however,
that in the event that the Maturity Date is on or before November 26, 2004, the
Company shall also make an additional payment to Holder equal to the amount of
interest which would have otherwise accrued on the outstanding principal amount
of the Note on the Maturity Date between the Maturity Date and November 26,
2004.

          The following is a statement of the rights of the Holder of this Note
and the conditions to which this Note is subject, and to which the Holder
hereof, by the acceptance of this Note, agrees:

                                                                               2


          1. Definitions. Except as otherwise defined herein, each capitalized
term used herein shall have the meaning assigned to it in the Purchase
Agreement, as in effect on the date hereof, and without regard to any subsequent
termination of the Purchase Agreement. All other references to the Purchase
Agreement in this Note refer to the Purchase Agreement as in effect on the date
hereof, and without regard to any subsequent termination of the Purchase
Agreement. As used in this Note, the following terms, unless the context
otherwise requires, have the following meanings:

               1.1 "Affiliate" means any Person who is an "affiliate" as defined
in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange
Act of 1934, as amended.

               1.2 "Capitalized Lease Obligations" means, with respect to any
Person, all rental obligations of such Person which, under GAAP, are or will be
required to be capitalized on the books of such Person, in each case taken at
the amount thereof accounted for as indebtedness in accordance with such
principles.

               1.3 "Change of Control" shall mean (i) any merger, consolidation
or other business combination transaction (or series of related transactions) in
which the stockholders owning a majority of the voting securities of the Company
prior to such transaction do not own a majority of the voting securities of the
surviving entity, (ii) any tender offer, exchange offer or other transaction
whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as amended) (other than
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell Limited, Great
Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and the Affiliates
of the foregoing, provided that Affiliates shall be deemed not to include any
portfolio companies of any of the foregoing) obtains a majority of the
outstanding shares of capital stock entitled to vote in the election of
directors, (iii) any proxy contest in which a majority of the Board of Directors
of the Company (or persons appointed by such Board of Directors) prior to such
contest do not constitute a majority of the Company's Board of Directors after
such contest or (iv) any other transaction described in any stockholder rights
agreement or "poison pill," if any, to which the Company is party, which may
permit the holders of any rights or similar certificates to exercise the rights
evidenced thereby.

               1.4 "Company" shall have the meaning set forth in the recitals
hereto, and includes any corporation that shall succeed to or assume the
obligations of the Company under this Note.

               1.5 "Conversion Date" shall mean the Subsequent Closing Date.

               1.6 "Designated Preferred Stock" shall mean the Series D
Preferred Stock, par value $0.001, of the Company and the Series E Preferred
Stock.

                                                                               3


               1.7 "Domestic Subsidiary" shall have the meaning set forth in
Section 5.10 hereof.

               1.8 "Event of Default" shall have the meaning set forth in
Section 6 hereof.

               1.9 "Guaranteed Interest" shall mean the total amount of interest
that would accrue on this Note, at the Interest Rate specified in Section 2,
from the date of this Note until the one year anniversary of the date of this
Note.

               1.10 "Guarantor" shall have the meaning set forth in the Security
Agreement.

               1.11 "Holder" shall mean the registered holder of this Note from
time to time, and in the plural, shall mean all registered holders of Notes from
time to time issued by the Company pursuant to the Purchase Agreement.

               1.12 "Interest Amount" shall have the meaning set forth in
Section 3.1 hereof.

               1.13 "Investment" means (i) the acquisition (whether for cash,
property, services, assumption of Indebtedness, securities or otherwise) of
assets (other than equipment, inventory, supplies or other assets acquired in
the ordinary course of business of the Company), capital stock, bonds, notes,
debentures, partnership, joint venture or other ownership interests or other
securities of any Person, (ii) any deposit with, or advance, loan or other
extension of credit to, or on behalf of, any Person (other than deposits made in
connection with the purchase of equipment, inventory, services, leases, supplies
or other assets in the ordinary course of business of the Company), (iii) any
other capital contribution to or investment in such Person, including, without
limitation, any guaranty obligation incurred for the benefit of such Person. For
the sake of clarity, Investments shall include any transfer of property or
assets by the Company to any of its Subsidiaries or by any Subsidiary of the
Company to any other Subsidiary.

               1.14 "Loan Documents" shall have the meaning set forth in the
Security Agreement.

               1.15 "Note" shall mean this note, and in the plural, shall mean
all notes issued to the Lenders pursuant to the terms of the Purchase Agreement,
including this Note, and all amendments, modifications and extensions thereto.

               1.16 "Permitted Investments" means (i) Investments in cash or
cash equivalents, (ii) accounts receivable created, acquired or made in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (iii) Investments existing on the closing date, and
listed on Schedule 3.27 to the Purchase Agreement, (iv) guaranty obligations
permitted by Section 5.3 of this Agreement, (v) loans to employees, directors or
officers of the Company in connection with the award of convertible bonds or
capital stock under a stock incentive plan, stock option plan or other
equity-based compensation plan or arrangement, (vi) other advances or loans to

                                                                               4


employees, directors, officers or agents of the Company in the ordinary course
of business not to exceed $500,000 in the aggregate at any time outstanding;
(vii) loans, advances and investments in foreign Subsidiaries (that are not
incorporated or otherwise organized under the laws of the United States of
America or any state thereof) in an amount not to exceed $1,000,000 in the
aggregate at any time outstanding; (viii) any acquisition for which the prior
written consent of the Holders of a majority of the outstanding principal amount
of all of the Notes issued by the Company pursuant to the Purchase Agreement has
been obtained, (ix) other loans, advances and investments of a nature not
contemplated by the foregoing sections in an amount not to exceed $500,000 in
the aggregate at any time outstanding or (x) Investments by the Company in the
Guarantor.

               1.17 "Permitted Liens" shall have the meaning set forth in
Section 5.4.

               1.18 "Person" means any individual, firm, corporation,
partnership, trust, joint venture, joint stock company, limited liability
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.

               1.19 "Price Per Share" shall have the meaning attributed to such
term in the Series E Certificate of Determination, as filed with the Secretary
of State of the State of California.

               1.20 "Purchase Agreement" means that certain Convertible Note
Purchase and Exchange Agreement, dated November 18, 2003, among the Company, the
Holder and the other parties thereto from time to time, and all amendments,
modifications and extensions thereto.

               1.21 "Qualified Asset Sale" means the sale, transfer or other
disposition of any of the assets of the Company or any of its Subsidiaries,
other than (a) sales of assets in the ordinary course of business, (b) sales of
assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the
sale, transfer or other disposition of assets of the Company where the proceeds
are applied to the purchase price or traded in for credit against the purchase
price of other assets, provided that any such purchase is made, or credit
issued, within 90 days of the sale, transfer or other disposition, and (d) one
or more sales of the Company's assets (other than sales otherwise included in
clauses (a), (b), and (c) immediately above) which collectively yield up to an
aggregate of one million dollars ($1,000,000) in gross proceeds to the Company
while this Note is outstanding.

               1.22 "Restricted Payment" means (a) any dividend or other
distribution (whether in cash, securities or other property) with respect to any
shares of any class of capital stock of the Company or any of its Subsidiaries
or (b) any payment (whether in cash, securities or other property), including
any sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any shares of any class
of capital stock of the Company or any Subsidiary

                                                                               5


or any option, warrant or other right to acquire any such shares of capital
stock of the Company or any Subsidiary.

               1.23 "Security Agreement" means that certain Guaranty and
Security Agreement, of even date herewith between the Company, Compass Holding
Corp., the Lenders and the other parties thereto from time to time, and all
amendments, modifications and extensions thereto.

               1.24 "Series E Conversion Price" shall have the meaning set forth
in the Series E Certificate of Determination.

               1.25 "Series E Preferred Stock" means the Series E Preferred
Stock, par value $0.001, of the Company.

               1.26 "Subordination Agreement" shall have the meaning set forth
in Section 5.3.

               1.27 "SVB" means Silicon Valley Bank, a California chartered
bank, or any Affiliates thereof.

               1.28 "UCC" shall have the meaning set forth in Section 5.4.

          2. Interest. Simple interest shall accrue at the rate of ten percent
(10%) per annum (or such lesser amount as shall equal the highest rate of
interest allowable under applicable law) (the "Interest Rate"), on the
outstanding principal of this Note from the date of this Note until the Maturity
Date or the date this Note is otherwise repaid. The Company shall not be
obligated to make any payments of interest which shall have accrued under this
Note prior to the Maturity Date. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. In the event that the
principal amount of this Note, any interest, or any amount payable hereunder is
not paid in full when such amount becomes due and payable, or upon the
occurrence of an Event of Default, interest shall accrue at the lesser of (a)
the initial Interest Rate plus five percent (5%) per annum or (b) the highest
rate of interest allowable under applicable law, on the balance of all amounts
outstanding until such overdue amounts are paid or the Event of Default is
cured, and such interest shall be payable on demand.

          3. Conversion.

               3.1 Conversion. On the Conversion Date, the principal amount of
this Note plus the greater of (i) the accrued and unpaid interest thereon and
(ii) the Guaranteed Interest (the greater of clause (i) and (ii), the "Interest
Amount"), shall be automatically converted into the number of fully paid and
nonassessable shares of Series E Preferred Stock equal to the quotient obtained
by dividing (a) the entire principal amount of this Note plus the Interest
Amount by (b) the Price Per Share.

               3.2 Notice of Conversion. Upon conversion of this Note as
provided in Section 3.1, Holder shall surrender this Note to the Company and
shall state the name or names in which the certificate or certificates for such
shares of Series E

                                                                               6


Preferred Stock are to be issued. The Person or Persons entitled to receive the
shares of Series E Preferred Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Series E Preferred Stock as of the Conversion Date.

               3.3 Delivery of Stock Certificates. On the Conversion Date, the
Company at its expense will issue and deliver to Holder of this Note a
certificate or certificates (bearing such legends as are required by applicable
state and federal securities laws in the opinion of counsel to the Company) for
the number of full shares of Series E Preferred Stock issuable upon such
conversion.

               3.4 Mechanics and Effect of Conversion. No fractional shares of
Series E Preferred Stock shall be issued upon conversion of this Note. In lieu
of the Company issuing any fractional shares to Holder upon the conversion of
this Note, the Company shall pay to Holder the amount of outstanding principal
and interest that is not so converted. Upon conversion of all amounts due under
this Note, the Company shall be released from all of its obligations under this
Note.

          4. Adjustments. The number of shares of Series E Preferred Stock
convertible hereunder are subject to adjustment from time to time as follows:

               4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at
any time while this Note remains outstanding and unexpired there shall be (a) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (b) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise or (c) a sale or
transfer of the Company's stock, properties or assets as, or substantially as,
an entirety to any other Person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that Holder
shall thereafter be entitled to receive by converting this Note the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon conversion of this Note would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Note had been converted immediately before such reorganization,
merger, consolidation, sale or transfer (notwithstanding that the Stockholder
Approval may not yet have been obtained), all subject to further adjustment as
provided in this Section 4. The foregoing provisions of this Section 4.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation. If the
per share consideration payable to Holder hereof for shares in connection with
any such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
Company's Board of Directors based on the amount the Holder would have otherwise
been entitled to receive had the transaction or transactions not occurred. In
all events, appropriate adjustment (as determined in good faith by the Company's

                                                                               7


Board of Directors) shall be made in the application of the provisions of this
Note with respect to the rights and interests of Holder after the transaction,
to the end that the provisions of this Note shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon conversion of this Note. The Company shall be
obligated to retain and set aside, or otherwise make fair provision for exercise
of the right of the Holder to receive, the shares of stock and/or other
securities, cash or other property provided for in this Section 4.1.

               4.2 Election of Holder upon Merger or Sale of Assets.
Notwithstanding anything to the contrary contained herein, if an event shall
occur as provided in Section 4.1 hereof that would otherwise result in the
occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first
paragraph of this Note, then the Holder may, in its sole discretion, by written
notice to the Company elect to convert the principal amount of this Note plus
the Interest Amount into the number of shares of stock or other securities or
property described in Section 4.1, in lieu of receiving payment in full of all
amounts outstanding under this Note. The number of shares of stock or other
securities or property to be issued upon such conversion shall be determined in
accordance with Section 4.1 hereof, taking into account the occurrence of such
event.

               4.3 Reclassification, Etc. If the Company shall, at any time
while this Note, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, change any of the securities as to
which conversion rights under this Note exist into the same or a different
number of securities of any other class or classes, this Note shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable with respect to the securities that were subject to the conversion
rights under this Note immediately prior to such reclassification or other
change, and the Price Per Share shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 4.

               4.4 Split, Subdivision or Combination of Shares. If the Company
at any time while this Note, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the shares of Series E Preferred
Stock into a different number of securities of the same class, the Price Per
Share shall be proportionately adjusted.

               4.5 Series E Adjustments. The initial Series E Conversion Price
of the shares of Series E Preferred Stock issued upon conversion of this Note
pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on
the Conversion Date, subject to the adjustment of such Series E Conversion Price
from time to time thereafter as provided in the Series E Certificate of
Determination.

               4.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 4, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.

                                                                               8


               4.7 No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of Holder against impairment.

          5. Covenants. The Company covenants and agrees that until the earlier
of (i) the date on which all Obligations (as defined in the Security Agreement)
have been paid in full or (ii) the Conversion Date:

               5.1 Financial Statements and Other Information. The Company shall
deliver to the Holder of this Note the financial statements and other
information required to be delivered under Section 8.1 of the Purchase
Agreement.

               5.2 Financial Covenants. The Company shall at all times comply
with the financial and other covenants set forth in Schedule 8.5 to the Purchase
Agreement as if such covenants were set forth herein.

               5.3 Indebtedness. The Company shall not, and shall not permit any
Subsidiary to, issue, incur, assume, create or have outstanding any
Indebtedness, provided, however, that the foregoing shall not restrict nor
operate to prevent:

                    (a) Indebtedness in favor of the Holders under the Loan
Documents;

                    (b) Indebtedness existing on the date hereof, and as set
forth on Schedule 3.22 to the Purchase Agreement;

                    (c) Indebtedness for accounts payable incurred in the
ordinary course of business by the Company;

                    (d) Indebtedness incurred solely for the purpose of
financing the acquisition of any equipment, machinery, software, improvements or
any other similar property, or extensions, renewals or replacements of any of
the foregoing for the same or a lesser amount; provided, that the aggregate
outstanding principal amount of all Indebtedness permitted pursuant to this
clause (d) outstanding for more than sixty (60) days after the incurrence of
such Indebtedness shall not at any time exceed $500,000;

                    (e) Indebtedness of the Company evidenced by Capitalized
Lease Obligations, provided, that in no event shall the aggregate principal
amount of Capitalized Lease Obligations permitted by this clause (e) exceed
$500,000 at any time outstanding; and

                    (f) Any extension renewal, refinancing, refunding, or
replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and
(e)

                                                                               9


above, on such terms and conditions as are, on the whole, not materially
more onerous to the Company than the terms and conditions of such original
Indebtedness on the date of such refinancing (including that the principal
amount of such refinancing Indebtedness does not exceed the principal amount of,
plus the amount of accrued and unpaid interest on, the Indebtedness so
refinanced (plus the amount of reasonable premium and fees and expenses incurred
in connection therewith)), provided that, in the case of a refinancing of
Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall
only apply to the extent consistent with the Subordination Agreement, dated as
of the date hereof, by and among SVB, the Holders and the Company (the
"Subordination Agreement").

               5.4 Liens. The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
the Company or any of its Subsidiaries, whether now owned or hereafter acquired,
or sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable), or assign any right to receive income or permit the
filing of any financing statement under the Uniform Commercial Code, as from
time to time in effect in the relevant jurisdiction (the "UCC"), or any other
similar notice of Lien under any similar recording or notice statute; provided,
that the provisions of this Section 5.4 shall not prevent the creation,
incurrence, assumption or existence of the following:

                    (a) Liens arising in the ordinary course of business by
statute in connection with worker's compensation, unemployment insurance, old
age benefits, social security obligations, statutory obligations or other
similar charges (other then Liens arising under ERISA), good faith cash deposits
in connection with tenders, contracts or leases to which the Company or any
Subsidiary is a party or other cash deposits required to be made in the ordinary
course of business, provided, that such Liens do not have a material adverse
effect on the ability of the Company to repay amounts due under the Notes;

                    (b) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due or Liens for taxes, assessments or governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP;

                    (c) Liens in respect of property or assets of the Company or
its Subsidiaries imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as carriers',
warehousemen's, materialmen's and mechanics' liens and other similar Liens
arising in the ordinary course of business, and (i) which do not in the
aggregate materially detract from the value of the Company's and its
Subsidiaries' property or assets taken as a whole or result in a material
adverse effect on the Condition of the Company or (ii) which are being contested
in good faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to any such
Lien;

                                                                              10


                    (d) the pledge of assets for the purpose of securing an
appeal, stay or discharge in the course of any legal proceeding, provided that
the aggregate amount of liabilities of the Company and its Subsidiaries secured
by a pledge of assets permitted under this subsection, including interest and
penalties thereon, if any, shall not be in excess of $500,000 at any one time
outstanding;

                    (e) any interest or title of a lesser under any operating
lease;

                    (f) easements, rights-of-way, restrictions and other similar
encumbrances against real property incurred in the ordinary course of business;

                    (g) the Liens existing on the date hereof identified on
Schedule 3.22 to the Purchase Agreement;

                    (h) Liens on cash deposited with account debtors to secure
performance by the Company or any Subsidiary in the ordinary course of business
subject to customary and reasonable terms;

                    (i) Liens upon assets of the Company or its Subsidiaries
subject to Capitalized Lease Obligations, provided, that (A) such Liens only
serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising
under such Capitalized Lease Obligation and (B) the Lien encumbering the asset
giving rise to the Capitalized Lease Obligation does not encumber any other
asset of the Company or its Subsidiaries;

                    (j) Liens placed upon equipment, machinery, software,
improvements or any other similar property, used in the ordinary course of
business of the Company or any of its Subsidiaries at the time of the
acquisition thereof by the Company or any of its Subsidiaries or within ninety
(90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above;
provided, that the Liens encumbering the equipment, machinery software,
improvements or any other similar property so acquired do not encumber any other
asset of the Company or its Subsidiaries;

                    (k) set-off rights of depository institutions; and

                    (l) Liens created by the Security Agreement (collectively
with clauses (a) through (k) hereof, the "Permitted Liens").

               5.5 Fundamental Changes. The Company will not, and will not
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (in one transaction or a series of transactions)
all or substantially all of its assets, or all or substantially all of the stock
of any of its Subsidiaries (in each case, whether now owned or hereafter
acquired), or liquidate or dissolve, except that, if at the time and immediately
after giving effect thereto no Event of Default shall have occurred and be
continuing (i) the Company or any of its Subsidiaries may, with the prior
written consent of the Holders, merge with or into any other Person; (ii) any
wholly-owned

                                                                              11


Subsidiary of the Company (other than the Guarantor) may merge with or into the
Company or any other wholly-owned Subsidiary of the Company; (iii) any
Subsidiary (other than the Guarantor, and except as otherwise prohibited by this
Note) may sell, transfer, lease or otherwise dispose of its assets to the
Company or to another wholly-owned Subsidiary of the Company; and (iv) any
Subsidiary may liquidate or dissolve if the board of directors of the Company
determine in good faith that such liquidation or dissolution is in its best
interests and is not disadvantageous to the Holders.

               5.6 Restricted Payments. The Company will not, and the Company
will not permit any Subsidiary to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except that (i) any Subsidiary
may make a Restricted Payment to the Company or any of its wholly-owned
Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any
Restricted Payment required by the terms of the Purchase Agreement and the other
documents executed in connection therewith.

               5.7 Transactions with Affiliates. The Company will not, and the
Company will not permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions that are at prices and on terms and
conditions not less favorable to the Company or such Subsidiary than could be
obtained on an arm's length basis from unrelated third parties, (b) transactions
exclusively between the Company and the Guarantor and (c) transactions under the
agreements listed on Schedule 3.17 to the Purchase Agreement.

               5.8 Investments. The Company will not, and the Company will not
permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment
in any Person, except for Permitted Investments.

               5.9 Nature of Business. The Company will not, and the Company
will not permit any Subsidiary to, engage in any business other than that
conducted on the date hereof and any businesses reasonably related thereto.

               5.10 Property of Existing Domestic Subsidiaries. The Company will
not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise
organized under the laws of the United States of America or any state thereof (a
"Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease,
license, purchase or otherwise acquire any personal or real property (excluding
any material intellectual property) in excess of $50,000 for all property held
by such Subsidiary, or $250,000 in the aggregate for all property held by all
Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own
or otherwise hold any rights to any material intellectual property or (iv)
otherwise conduct any business or maintain operations.

               5.11 Formation of Subsidiaries. The Company will not, and will
not cause or permit any of its Subsidiaries to, form, acquire or permit the
existence of any new domestic Subsidiary, without causing such domestic
Subsidiary to execute and

                                                                              12


deliver to the Holders a secured guaranty of the Notes and related security
document, in form and substance satisfactory to the Holders.

               5.12 Books and Records. The Company shall keep proper books of
record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company and its
Subsidiaries in accordance with GAAP consistently applied.

               5.13 Inspection. The Company shall, and shall cause each of its
Subsidiaries to, permit representatives of the Holders to visit and inspect any
of its properties, to examine its corporate, financial and operating records and
make copies thereof or abstracts therefrom, and to discuss its affairs, finances
and accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested upon notice to the Company.

               5.14 Maintenance of Business. The Company shall, and shall cause
each Subsidiary to, preserve and maintain its existence. The Company shall, and
shall cause each Subsidiary to, preserve and keep in force and effect all
licenses, permits, franchises, approvals, patents, trademarks, trade names,
trade styles, copyrights, and other property rights necessary to the proper
conduct of its business, except where the failure to do so could not reasonably
be expected to have a material adverse effect on the Condition of the Company or
on the prospects of repayment of the Notes.

               5.15 Maintenance of Properties. The Company shall, and shall
cause each Subsidiary to, maintain, preserve and keep its property and equipment
in good repair, working order and condition (ordinary wear and tear excepted)
and shall from time to time make all needful and proper repairs, renewals,
replacements, additions and betterments thereto so that at all times the
efficiency thereof shall by fully preserved and maintained, except in each case
to the extent that, in the reasonable business judgment of such Person, any such
property or equipment is no longer necessary for the proper conduct of the
business of such Person.

          6. The occurrence of any one or more of the following events shall
constitute an "Event of Default":

               6.1 Failure To Pay. (i) The failure of the Company to pay any
principal due under any of the Notes when due and payable (whether by
acceleration, declaration, extension or otherwise), or (ii) the failure of the
Company to pay any other amounts due under any of the Notes when due and payable
if such failure is not cured within five (5) days of Company's receipt of notice
thereof from any of the Holders.

               6.2 Financial Covenants. The failure of Company or any of its
Subsidiaries to perform, observe or comply with any of the Financial Covenants
set forth on Schedule 8.5 to the Purchase Agreement, and incorporated by
reference in this Note in Section 5.2.

                                                                              13


               6.3 Other Covenants and Agreements. The failure of Company or any
of its Subsidiaries to perform, observe or comply with any of the covenants of
this Note, the Security Agreement or any of the other Loan Documents (other than
the Financial Covenants set forth on Schedule 8.5 to the Purchase Agreement, and
incorporated by reference in this Note in Section 5.2), if such failure is not
cured within sixty (60) days.

               6.4 Representations and Warranties. If any representation or
warranty made by the Company or any of its Subsidiaries in the Loan Documents is
not true and correct in all material respects on the Initial Closing Date.

               6.5 Default on Other Obligations. The occurrence of any condition
or default under any other indebtedness for borrowed money of the Company or any
of its Subsidiaries with a principal amount of at least five hundred thousand
dollars ($500,000) that results in the acceleration of such indebtedness which
is not cured within sixty (60) days.

               6.6 Involuntary Bankruptcy. There shall be filed against the
Company or any of its Subsidiaries an involuntary petition or other pleading
seeking the entry of a decree or order for relief under the United States
Bankruptcy Code or any similar federal or state insolvency or similar laws
ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a
reorganization of the Company or any of its Subsidiaries or the business and
affairs of the Company or any of its Subsidiaries or (c) the appointment of a
receiver, liquidator, assignee, custodian, trustee or similar official for the
Company or any of its Subsidiaries of the property of the Company or any of its
Subsidiaries.

               6.7 Voluntary Bankruptcy. The commencement by the Company or any
of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any
federal or state insolvency or similar laws or the consent by the Company or any
of its Subsidiaries to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or similar official for the Company or
any of its Subsidiaries of any of the property of the Company or any of its
Subsidiaries or the making by the Company or any of its Subsidiaries of an
assignment for the benefit of creditors, or the failure by Company or any of its
Subsidiaries generally to pay its debts as the debts become due.

               6.8 Judgments, Awards. Any judgment or order for the payment of
money is rendered against the Company or any of its Subsidiaries in an amount in
excess of five hundred thousand dollars ($500,000) individually or in the
aggregate and either (i) enforcement proceedings are commenced by any creditor
upon such judgment or order and not stayed, or (ii) there is any period of sixty
(60) consecutive days during which such judgment has not been paid in full or a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, is not in effect.

               6.9 Attachment by Lenders. Any assets of the Company or any of
its Subsidiaries shall be attached, levied upon, seized or repossessed, or come
into the

                                                                              14


possession of a trustee, receiver or other custodian and a determination by any
Holder, in good faith but in its sole discretion, that the same could have a
material adverse effect on the prospect for the Holders to fully and punctually
realize the full benefits conferred on the Holders by the Loan Documents.

               6.10 Adverse Change in Financial Condition. Any event having a
material adverse effect on the business, operations, assets, properties or
condition of the Company and its Subsidiaries taken as a whole shall have
occurred and be continuing or a material adverse effect on the validity or
enforceability of this or any of the other Loan Documents or the rights or
remedies of the Holders hereunder or thereunder.

          7. Remedies. Upon and after the occurrence of an Event of Default, the
Holder shall be entitled to the exercise the rights and remedies set forth in
the Security Agreement, the other Loan Documents and under applicable law, all
such rights and remedies being cumulative and enforceable alternatively,
successively or concurrently.

          8. Prepayment. The Company may not prepay this Note prior to the
Maturity Date without the prior written consent of the Holders.

          9. Seniority. Except as set forth in the Subordination Agreement, the
Notes will rank senior in right of payment to all other indebtedness of the
Company.

          10. Assignment. Subject to the restrictions on transfer described in
Section 12 below, the rights and obligations of the Company and Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties. The Company shall not be permitted to assign this
Note without the prior written consent of the Holders.

          11. Waiver of Notice. The Company hereby waives notice, presentment,
demand, protest and notice of dishonor.

          12. Transfer of This Note. With respect to any offer, sale or other
disposition of this Note, Holder will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such Holder's counsel, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any
federal or state law then in effect); provided, that no opinion shall be
required for any transfer to an Affiliate or if the transfer is made in
compliance with the Securities Act, so long as the transferee can make the same
representations and warranties at the time of transfer as set forth in Sections
4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Purchase Agreement. Promptly upon
delivering such written notice and opinion, if so required, Holder may sell or
otherwise dispose of this Note, all in accordance with the terms of the notice
delivered to the Company. Each Note thus transferred shall bear a legend as to
the applicable restrictions on transferability in order to ensure compliance
with the Securities Act, unless in the opinion of counsel for the Company such
legend is not required in order to ensure compliance with the Securities Act.
The Company may issue stop transfer instructions to its transfer agent in

                                                                              15


connection with such restrictions. Notwithstanding the foregoing, the Holder
shall not be permitted to transfer this Note to any Person who is not an
Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii)
the receipt of written notice from the Company that Stockholder Approval cannot
be obtained, or the occurrence of an actual vote of the Company's shareholders
entitled to vote (whether by written consent or at a meeting specially called
for such purpose), the result of which is a decision by a majority of the
Company's shareholders entitled to vote to decline to grant Stockholder
Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of
an Event of Default.

          13. Treatment of Note. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.

          14. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by nationally recognized courier
service or mailed by registered or certified mail, postage prepaid, to the
respective addresses of the parties as set forth on the signature pages hereto
or if sent by facsimile to the respective facsimile numbers of the parties set
forth on the signature pages hereto. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively be
deemed to have been given and received when personally delivered or three (3)
business days after deposited in the mail or one business day after sent by
courier or upon confirmation of facsimile delivery in the manner set forth
above.

          15. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon Holder or any other Person the right to vote or to
consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company.

          16. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, excluding that body of law
relating to conflict of laws.

          17. Amendments and Waivers. No amendments or waivers of any provision
of this Note, and no consent by the Holder to any departure by the Company,
shall in any event be effective unless the same shall be in writing, and signed
by the Holders of a majority of the outstanding principal amount of all of the
Notes issued by the Company pursuant to the Purchase Agreement, and then such
waiver or consent shall be effective only in the specific instance and for the
purpose for which given.

          18. Severability. Any provision of this Note that is prohibited or
unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

                                                                              16


          19. WAIVER OF JURY TRIAL. THE COMPANY AND THE HOLDER HEREBY (A)
COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT
BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE
COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN
ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY
TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY
OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN
THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER
OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE.
THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND
VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER
HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY
INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT
THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE
COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF
RIGHT TO TRIAL BY JURY. EACH OF THE COMPANY AND THE HOLDER REPRESENTS AND
WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE
MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE
WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH
COUNSEL.

          20. Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except as otherwise indicated, all references herein to Sections refer to
Sections hereof.

              [the remainder of this page intentionally left blank]

                                                                              17


          IN WITNESS WHEREOF, the Company has caused this Note to be issued this
26th day of November, 2003.

                                         COMPANY:

                                         CRITICAL PATH, INC.,
                                         a California corporation

                                         By: /s/ Michael J. Zukerman
                                             -----------------------------------
                                             Name: Michael J. Zukerman.
                                             Title: Senior Vice President and
                                             General Counsel

                                             Critical Path, Inc.
                                             350 The Embarcadero
                                             San Francisco, CA 94105-1204
                                             Telecopy: (415) 541-2300
                                             Attention: Chief Financial Officer

                                             With a copy to:

                                             Pillsbury Winthrop LLP
                                             50 Fremont Street
                                             San Francisco, CA 94105
                                             Telecopy: (415) 983-1200
                                             Attention: Gregg Vignos, Esq.

Name of Holder: General Atlantic Partners 74, L.P.

Address:        c/o General Atlantic Service Corporation
                3 Pickwick Plaza
                Greenwich, CT 06830
                Telecopy: (203) 618-9207
                Attention: Matthew Nimetz
                           Thomas J. Murphy

With a copy to:

                Paul, Weiss, Rifkind, Wharton & Garrison LLP
                1285 Avenue of the Americas
                New York, NY 10019-6064
                Attention: Douglas A. Cifu, Esq.
                Telecopy: (212) 757-3990

EX-4.22

                                                                    EXHIBIT 4.22

                                      NOTE

     THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
     SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN
     REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
     SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
     TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER
     OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.

                               CRITICAL PATH, INC.

                    CONVERTIBLE SUBORDINATED PROMISSORY NOTE

$1,067,777.00                                          San Francisco, California
                                                       November 26, 2003

          Critical Path, Inc., a California corporation (the "Company"), the
principal office of which is located in San Francisco, California, for value
received hereby promises to pay to the order of GAP Coinvestment Partners II,
L.P., or its registered assigns ("Holder"), the sum of one million sixty-seven
thousand seven hundred seventy-seven and 0/100 dollars ($1,067,777.00), or such
lesser amount as shall then equal the outstanding principal amount hereof on the
terms and conditions set forth hereinafter. The outstanding principal amount
hereof and all accrued and unpaid interest hereon, as set forth below, shall be
due and payable on the earlier to occur of (i) November 26, 2007, (ii) when
declared due and payable by Holder upon the occurrence of an Event of Default
(as defined below), (iii) consummation of a Qualified Asset Sale, (iv) a Change
of Control, or (v) any sale of capital stock or Stock Equivalents by the
Company, any cash capital contribution from any third person or any other debt
or equity financing consummated by the Company after the date of issuance of
this Note which, in the case of (v), individually or in the aggregate raises
proceeds of at least forty million dollars ($40,000,000) in cash or cash
equivalents (the earliest of the events set forth in items (i)-(v) immediately
above, the "Maturity Date"); provided, however, that in the event that the
Maturity Date is on or before November 26, 2004, the Company shall also make an
additional payment to Holder equal to the amount of interest which would have
otherwise accrued on the outstanding principal amount of the Note on the
Maturity Date between the Maturity Date and November 26, 2004.

          The following is a statement of the rights of the Holder of this Note
and the conditions to which this Note is subject, and to which the Holder
hereof, by the acceptance of this Note, agrees:

                                                                               2


          1. Definitions. Except as otherwise defined herein, each capitalized
term used herein shall have the meaning assigned to it in the Purchase
Agreement, as in effect on the date hereof, and without regard to any subsequent
termination of the Purchase Agreement. All other references to the Purchase
Agreement in this Note refer to the Purchase Agreement as in effect on the date
hereof, and without regard to any subsequent termination of the Purchase
Agreement. As used in this Note, the following terms, unless the context
otherwise requires, have the following meanings:

               1.1 "Affiliate" means any Person who is an "affiliate" as defined
in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange
Act of 1934, as amended.

               1.2 "Capitalized Lease Obligations" means, with respect to any
Person, all rental obligations of such Person which, under GAAP, are or will be
required to be capitalized on the books of such Person, in each case taken at
the amount thereof accounted for as indebtedness in accordance with such
principles.

               1.3 "Change of Control" shall mean (i) any merger, consolidation
or other business combination transaction (or series of related transactions) in
which the stockholders owning a majority of the voting securities of the Company
prior to such transaction do not own a majority of the voting securities of the
surviving entity, (ii) any tender offer, exchange offer or other transaction
whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as amended) (other than
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell Limited, Great
Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and the Affiliates
of the foregoing, provided that Affiliates shall be deemed not to include any
portfolio companies of any of the foregoing) obtains a majority of the
outstanding shares of capital stock entitled to vote in the election of
directors, (iii) any proxy contest in which a majority of the Board of Directors
of the Company (or persons appointed by such Board of Directors) prior to such
contest do not constitute a majority of the Company's Board of Directors after
such contest or (iv) any other transaction described in any stockholder rights
agreement or "poison pill," if any, to which the Company is party, which may
permit the holders of any rights or similar certificates to exercise the rights
evidenced thereby.

               1.4 "Company" shall have the meaning set forth in the recitals
hereto, and includes any corporation that shall succeed to or assume the
obligations of the Company under this Note.

               1.5 "Conversion Date" shall mean the Subsequent Closing Date.

               1.6 "Designated Preferred Stock" shall mean the Series D
Preferred Stock, par value $0.001, of the Company and the Series E Preferred
Stock.

                                                                               3


               1.7 "Domestic Subsidiary" shall have the meaning set forth in
Section 5.10 hereof.

               1.8 "Event of Default" shall have the meaning set forth in
Section 6 hereof.

               1.9 "Guaranteed Interest" shall mean the total amount of interest
that would accrue on this Note, at the Interest Rate specified in Section 2,
from the date of this Note until the one year anniversary of the date of this
Note.

               1.10 "Guarantor" shall have the meaning set forth in the Security
Agreement.

               1.11 "Holder" shall mean the registered holder of this Note from
time to time, and in the plural, shall mean all registered holders of Notes from
time to time issued by the Company pursuant to the Purchase Agreement.

               1.12 "Interest Amount" shall have the meaning set forth in
Section 3.1 hereof.

               1.13 "Investment" means (i) the acquisition (whether for cash,
property, services, assumption of Indebtedness, securities or otherwise) of
assets (other than equipment, inventory, supplies or other assets acquired in
the ordinary course of business of the Company), capital stock, bonds, notes,
debentures, partnership, joint venture or other ownership interests or other
securities of any Person, (ii) any deposit with, or advance, loan or other
extension of credit to, or on behalf of, any Person (other than deposits made in
connection with the purchase of equipment, inventory, services, leases, supplies
or other assets in the ordinary course of business of the Company), (iii) any
other capital contribution to or investment in such Person, including, without
limitation, any guaranty obligation incurred for the benefit of such Person. For
the sake of clarity, Investments shall include any transfer of property or
assets by the Company to any of its Subsidiaries or by any Subsidiary of the
Company to any other Subsidiary.

               1.14 "Loan Documents" shall have the meaning set forth in the
Security Agreement.

               1.15 "Note" shall mean this note, and in the plural, shall mean
all notes issued to the Lenders pursuant to the terms of the Purchase Agreement,
including this Note, and all amendments, modifications and extensions thereto.

               1.16 "Permitted Investments" means (i) Investments in cash or
cash equivalents, (ii) accounts receivable created, acquired or made in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (iii) Investments existing on the closing date, and
listed on Schedule 3.27 to the Purchase Agreement, (iv) guaranty obligations
permitted by Section 5.3 of this Agreement, (v) loans to employees, directors or
officers of the Company in connection with the award of convertible bonds or
capital stock under a stock incentive plan, stock option plan or other
equity-based compensation plan or arrangement, (vi) other advances or loans to

                                                                               4


employees, directors, officers or agents of the Company in the ordinary course
of business not to exceed $500,000 in the aggregate at any time outstanding;
(vii) loans, advances and investments in foreign Subsidiaries (that are not
incorporated or otherwise organized under the laws of the United States of
America or any state thereof) in an amount not to exceed $1,000,000 in the
aggregate at any time outstanding; (viii) any acquisition for which the prior
written consent of the Holders of a majority of the outstanding principal amount
of all of the Notes issued by the Company pursuant to the Purchase Agreement has
been obtained, (ix) other loans, advances and investments of a nature not
contemplated by the foregoing sections in an amount not to exceed $500,000 in
the aggregate at any time outstanding or (x) Investments by the Company in the
Guarantor.

               1.17 "Permitted Liens" shall have the meaning set forth in
Section 5.4.

               1.18 "Person" means any individual, firm, corporation,
partnership, trust, joint venture, joint stock company, limited liability
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.

               1.19 "Price Per Share" shall have the meaning attributed to such
term in the Series E Certificate of Determination, as filed with the Secretary
of State of the State of California.

               1.20 "Purchase Agreement" means that certain Convertible Note
Purchase and Exchange Agreement, dated November 18, 2003, among the Company, the
Holder and the other parties thereto from time to time, and all amendments,
modifications and extensions thereto.

               1.21 "Qualified Asset Sale" means the sale, transfer or other
disposition of any of the assets of the Company or any of its Subsidiaries,
other than (a) sales of assets in the ordinary course of business, (b) sales of
assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the
sale, transfer or other disposition of assets of the Company where the proceeds
are applied to the purchase price or traded in for credit against the purchase
price of other assets, provided that any such purchase is made, or credit
issued, within 90 days of the sale, transfer or other disposition, and (d) one
or more sales of the Company's assets (other than sales otherwise included in
clauses (a), (b), and (c) immediately above) which collectively yield up to an
aggregate of one million dollars ($1,000,000) in gross proceeds to the Company
while this Note is outstanding.

               1.22 "Restricted Payment" means (a) any dividend or other
distribution (whether in cash, securities or other property) with respect to any
shares of any class of capital stock of the Company or any of its Subsidiaries
or (b) any payment (whether in cash, securities or other property), including
any sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any shares of any class
of capital stock of the Company or any Subsidiary

                                                                               5


or any option, warrant or other right to acquire any such shares of capital
stock of the Company or any Subsidiary.

               1.23 "Security Agreement" means that certain Guaranty and
Security Agreement, of even date herewith between the Company, Compass Holding
Corp., the Lenders and the other parties thereto from time to time, and all
amendments, modifications and extensions thereto.

               1.24 "Series E Conversion Price" shall have the meaning set forth
in the Series E Certificate of Determination.

               1.25 "Series E Preferred Stock" means the Series E Preferred
Stock, par value $0.001, of the Company.

               1.26 "Subordination Agreement" shall have the meaning set forth
in Section 5.3.

               1.27 "SVB" means Silicon Valley Bank, a California chartered
bank, or any Affiliates thereof.

               1.28 "UCC" shall have the meaning set forth in Section 5.4.

          2. Interest. Simple interest shall accrue at the rate of ten percent
(10%) per annum (or such lesser amount as shall equal the highest rate of
interest allowable under applicable law) (the "Interest Rate"), on the
outstanding principal of this Note from the date of this Note until the Maturity
Date or the date this Note is otherwise repaid. The Company shall not be
obligated to make any payments of interest which shall have accrued under this
Note prior to the Maturity Date. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. In the event that the
principal amount of this Note, any interest, or any amount payable hereunder is
not paid in full when such amount becomes due and payable, or upon the
occurrence of an Event of Default, interest shall accrue at the lesser of (a)
the initial Interest Rate plus five percent (5%) per annum or (b) the highest
rate of interest allowable under applicable law, on the balance of all amounts
outstanding until such overdue amounts are paid or the Event of Default is
cured, and such interest shall be payable on demand.

          3. Conversion.

               3.1 Conversion. On the Conversion Date, the principal amount of
this Note plus the greater of (i) the accrued and unpaid interest thereon and
(ii) the Guaranteed Interest (the greater of clause (i) and (ii), the "Interest
Amount"), shall be automatically converted into the number of fully paid and
nonassessable shares of Series E Preferred Stock equal to the quotient obtained
by dividing (a) the entire principal amount of this Note plus the Interest
Amount by (b) the Price Per Share.

               3.2 Notice of Conversion. Upon conversion of this Note as
provided in Section 3.1, Holder shall surrender this Note to the Company and
shall state the name or names in which the certificate or certificates for such
shares of Series E

                                                                               6


Preferred Stock are to be issued. The Person or Persons entitled to receive the
shares of Series E Preferred Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Series E Preferred Stock as of the Conversion Date.

               3.3 Delivery of Stock Certificates. On the Conversion Date, the
Company at its expense will issue and deliver to Holder of this Note a
certificate or certificates (bearing such legends as are required by applicable
state and federal securities laws in the opinion of counsel to the Company) for
the number of full shares of Series E Preferred Stock issuable upon such
conversion.

               3.4 Mechanics and Effect of Conversion. No fractional shares of
Series E Preferred Stock shall be issued upon conversion of this Note. In lieu
of the Company issuing any fractional shares to Holder upon the conversion of
this Note, the Company shall pay to Holder the amount of outstanding principal
and interest that is not so converted. Upon conversion of all amounts due under
this Note, the Company shall be released from all of its obligations under this
Note.

          4. Adjustments. The number of shares of Series E Preferred Stock
convertible hereunder are subject to adjustment from time to time as follows:

               4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at
any time while this Note remains outstanding and unexpired there shall be (a) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (b) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise or (c) a sale or
transfer of the Company's stock, properties or assets as, or substantially as,
an entirety to any other Person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that Holder
shall thereafter be entitled to receive by converting this Note the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon conversion of this Note would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Note had been converted immediately before such reorganization,
merger, consolidation, sale or transfer (notwithstanding that the Stockholder
Approval may not yet have been obtained), all subject to further adjustment as
provided in this Section 4. The foregoing provisions of this Section 4.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation. If the
per share consideration payable to Holder hereof for shares in connection with
any such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
Company's Board of Directors based on the amount the Holder would have otherwise
been entitled to receive had the transaction or transactions not occurred. In
all events, appropriate adjustment (as determined in good faith by the Company's

                                                                               7


Board of Directors) shall be made in the application of the provisions of this
Note with respect to the rights and interests of Holder after the transaction,
to the end that the provisions of this Note shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon conversion of this Note. The Company shall be
obligated to retain and set aside, or otherwise make fair provision for exercise
of the right of the Holder to receive, the shares of stock and/or other
securities, cash or other property provided for in this Section 4.1.

               4.2 Election of Holder upon Merger or Sale of Assets.
Notwithstanding anything to the contrary contained herein, if an event shall
occur as provided in Section 4.1 hereof that would otherwise result in the
occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first
paragraph of this Note, then the Holder may, in its sole discretion, by written
notice to the Company elect to convert the principal amount of this Note plus
the Interest Amount into the number of shares of stock or other securities or
property described in Section 4.1, in lieu of receiving payment in full of all
amounts outstanding under this Note. The number of shares of stock or other
securities or property to be issued upon such conversion shall be determined in
accordance with Section 4.1 hereof, taking into account the occurrence of such
event.

               4.3 Reclassification, Etc. If the Company shall, at any time
while this Note, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, change any of the securities as to
which conversion rights under this Note exist into the same or a different
number of securities of any other class or classes, this Note shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable with respect to the securities that were subject to the conversion
rights under this Note immediately prior to such reclassification or other
change, and the Price Per Share shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 4.

               4.4 Split, Subdivision or Combination of Shares. If the Company
at any time while this Note, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the shares of Series E Preferred
Stock into a different number of securities of the same class, the Price Per
Share shall be proportionately adjusted.

               4.5 Series E Adjustments. The initial Series E Conversion Price
of the shares of Series E Preferred Stock issued upon conversion of this Note
pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on
the Conversion Date, subject to the adjustment of such Series E Conversion Price
from time to time thereafter as provided in the Series E Certificate of
Determination.

               4.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 4, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.

                                                                               8


               4.7 No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of Holder against impairment.

          5. Covenants. The Company covenants and agrees that until the earlier
of (i) the date on which all Obligations (as defined in the Security Agreement)
have been paid in full or (ii) the Conversion Date:

               5.1 Financial Statements and Other Information. The Company shall
deliver to the Holder of this Note the financial statements and other
information required to be delivered under Section 8.1 of the Purchase
Agreement.

               5.2 Financial Covenants. The Company shall at all times comply
with the financial and other covenants set forth in Schedule 8.5 to the Purchase
Agreement as if such covenants were set forth herein.

               5.3 Indebtedness. The Company shall not, and shall not permit any
Subsidiary to, issue, incur, assume, create or have outstanding any
Indebtedness, provided, however, that the foregoing shall not restrict nor
operate to prevent:

                    (a) Indebtedness in favor of the Holders under the Loan
Documents;

                    (b) Indebtedness existing on the date hereof, and as set
forth on Schedule 3.22 to the Purchase Agreement;

                    (c) Indebtedness for accounts payable incurred in the
ordinary course of business by the Company;

                    (d) Indebtedness incurred solely for the purpose of
financing the acquisition of any equipment, machinery, software, improvements or
any other similar property, or extensions, renewals or replacements of any of
the foregoing for the same or a lesser amount; provided, that the aggregate
outstanding principal amount of all Indebtedness permitted pursuant to this
clause (d) outstanding for more than sixty (60) days after the incurrence of
such Indebtedness shall not at any time exceed $500,000;

                    (e) Indebtedness of the Company evidenced by Capitalized
Lease Obligations, provided, that in no event shall the aggregate principal
amount of Capitalized Lease Obligations permitted by this clause (e) exceed
$500,000 at any time outstanding; and

                    (f) Any extension renewal, refinancing, refunding, or
replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and
(e)

                                                                               9


above, on such terms and conditions as are, on the whole, not materially more
onerous to the Company than the terms and conditions of such original
Indebtedness on the date of such refinancing (including that the principal
amount of such refinancing Indebtedness does not exceed the principal amount of,
plus the amount of accrued and unpaid interest on, the Indebtedness so
refinanced (plus the amount of reasonable premium and fees and expenses incurred
in connection therewith)), provided that, in the case of a refinancing of
Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall
only apply to the extent consistent with the Subordination Agreement, dated as
of the date hereof, by and among SVB, the Holders and the Company (the
"Subordination Agreement").

               5.4 Liens. The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
the Company or any of its Subsidiaries, whether now owned or hereafter acquired,
or sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable), or assign any right to receive income or permit the
filing of any financing statement under the Uniform Commercial Code, as from
time to time in effect in the relevant jurisdiction (the "UCC"), or any other
similar notice of Lien under any similar recording or notice statute; provided,
that the provisions of this Section 5.4 shall not prevent the creation,
incurrence, assumption or existence of the following:

                    (a) Liens arising in the ordinary course of business by
statute in connection with worker's compensation, unemployment insurance, old
age benefits, social security obligations, statutory obligations or other
similar charges (other then Liens arising under ERISA), good faith cash deposits
in connection with tenders, contracts or leases to which the Company or any
Subsidiary is a party or other cash deposits required to be made in the ordinary
course of business, provided, that such Liens do not have a material adverse
effect on the ability of the Company to repay amounts due under the Notes;

                    (b) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due or Liens for taxes, assessments or governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP;

                    (c) Liens in respect of property or assets of the Company or
its Subsidiaries imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as carriers',
warehousemen's, materialmen's and mechanics' liens and other similar Liens
arising in the ordinary course of business, and (i) which do not in the
aggregate materially detract from the value of the Company's and its
Subsidiaries' property or assets taken as a whole or result in a material
adverse effect on the Condition of the Company or (ii) which are being contested
in good faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to any such
Lien;

                                                                              10


                    (d) the pledge of assets for the purpose of securing an
appeal, stay or discharge in the course of any legal proceeding, provided that
the aggregate amount of liabilities of the Company and its Subsidiaries secured
by a pledge of assets permitted under this subsection, including interest and
penalties thereon, if any, shall not be in excess of $500,000 at any one time
outstanding;

                    (e) any interest or title of a lesser under any operating
lease;

                    (f) easements, rights-of-way, restrictions and other similar
encumbrances against real property incurred in the ordinary course of business;

                    (g) the Liens existing on the date hereof identified on
Schedule 3.22 to the Purchase Agreement;

                    (h) Liens on cash deposited with account debtors to secure
performance by the Company or any Subsidiary in the ordinary course of business
subject to customary and reasonable terms;

                    (i) Liens upon assets of the Company or its Subsidiaries
subject to Capitalized Lease Obligations, provided, that (A) such Liens only
serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising
under such Capitalized Lease Obligation and (B) the Lien encumbering the asset
giving rise to the Capitalized Lease Obligation does not encumber any other
asset of the Company or its Subsidiaries;

                    (j) Liens placed upon equipment, machinery, software,
improvements or any other similar property, used in the ordinary course of
business of the Company or any of its Subsidiaries at the time of the
acquisition thereof by the Company or any of its Subsidiaries or within ninety
(90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above;
provided, that the Liens encumbering the equipment, machinery software,
improvements or any other similar property so acquired do not encumber any other
asset of the Company or its Subsidiaries;

                    (k) set-off rights of depository institutions; and

                    (l) Liens created by the Security Agreement (collectively
with clauses (a) through (k) hereof, the "Permitted Liens").

               5.5 Fundamental Changes. The Company will not, and will not
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (in one transaction or a series of transactions)
all or substantially all of its assets, or all or substantially all of the stock
of any of its Subsidiaries (in each case, whether now owned or hereafter
acquired), or liquidate or dissolve, except that, if at the time and immediately
after giving effect thereto no Event of Default shall have occurred and be
continuing (i) the Company or any of its Subsidiaries may, with the prior
written consent of the Holders, merge with or into any other Person; (ii) any
wholly-owned

                                                                              11


Subsidiary of the Company (other than the Guarantor) may merge with or into the
Company or any other wholly-owned Subsidiary of the Company; (iii) any
Subsidiary (other than the Guarantor, and except as otherwise prohibited by this
Note) may sell, transfer, lease or otherwise dispose of its assets to the
Company or to another wholly-owned Subsidiary of the Company; and (iv) any
Subsidiary may liquidate or dissolve if the board of directors of the Company
determine in good faith that such liquidation or dissolution is in its best
interests and is not disadvantageous to the Holders.

               5.6 Restricted Payments. The Company will not, and the Company
will not permit any Subsidiary to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except that (i) any Subsidiary
may make a Restricted Payment to the Company or any of its wholly-owned
Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any
Restricted Payment required by the terms of the Purchase Agreement and the other
documents executed in connection therewith.

               5.7 Transactions with Affiliates. The Company will not, and the
Company will not permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions that are at prices and on terms and
conditions not less favorable to the Company or such Subsidiary than could be
obtained on an arm's length basis from unrelated third parties, (b) transactions
exclusively between the Company and the Guarantor and (c) transactions under the
agreements listed on Schedule 3.17 to the Purchase Agreement.

               5.8 Investments. The Company will not, and the Company will not
permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment
in any Person, except for Permitted Investments.

               5.9 Nature of Business. The Company will not, and the Company
will not permit any Subsidiary to, engage in any business other than that
conducted on the date hereof and any businesses reasonably related thereto.

               5.10 Property of Existing Domestic Subsidiaries. The Company will
not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise
organized under the laws of the United States of America or any state thereof (a
"Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease,
license, purchase or otherwise acquire any personal or real property (excluding
any material intellectual property) in excess of $50,000 for all property held
by such Subsidiary, or $250,000 in the aggregate for all property held by all
Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own
or otherwise hold any rights to any material intellectual property or (iv)
otherwise conduct any business or maintain operations.

               5.11 Formation of Subsidiaries. The Company will not, and will
not cause or permit any of its Subsidiaries to, form, acquire or permit the
existence of any new domestic Subsidiary, without causing such domestic
Subsidiary to execute and

                                                                              12


deliver to the Holders a secured guaranty of the Notes and related security
document, in form and substance satisfactory to the Holders.

               5.12 Books and Records. The Company shall keep proper books of
record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company and its
Subsidiaries in accordance with GAAP consistently applied.

               5.13 Inspection. The Company shall, and shall cause each of its
Subsidiaries to, permit representatives of the Holders to visit and inspect any
of its properties, to examine its corporate, financial and operating records and
make copies thereof or abstracts therefrom, and to discuss its affairs, finances
and accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested upon notice to the Company.

               5.14 Maintenance of Business. The Company shall, and shall cause
each Subsidiary to, preserve and maintain its existence. The Company shall, and
shall cause each Subsidiary to, preserve and keep in force and effect all
licenses, permits, franchises, approvals, patents, trademarks, trade names,
trade styles, copyrights, and other property rights necessary to the proper
conduct of its business, except where the failure to do so could not reasonably
be expected to have a material adverse effect on the Condition of the Company or
on the prospects of repayment of the Notes.

               5.15 Maintenance of Properties. The Company shall, and shall
cause each Subsidiary to, maintain, preserve and keep its property and equipment
in good repair, working order and condition (ordinary wear and tear excepted)
and shall from time to time make all needful and proper repairs, renewals,
replacements, additions and betterments thereto so that at all times the
efficiency thereof shall by fully preserved and maintained, except in each case
to the extent that, in the reasonable business judgment of such Person, any such
property or equipment is no longer necessary for the proper conduct of the
business of such Person.

          6. The occurrence of any one or more of the following events shall
constitute an "Event of Default":

               6.1 Failure To Pay. (i) The failure of the Company to pay any
principal due under any of the Notes when due and payable (whether by
acceleration, declaration, extension or otherwise), or (ii) the failure of the
Company to pay any other amounts due under any of the Notes when due and payable
if such failure is not cured within five (5) days of Company's receipt of notice
thereof from any of the Holders.

               6.2 Financial Covenants. The failure of Company or any of its
Subsidiaries to perform, observe or comply with any of the Financial Covenants
set forth on Schedule 8.5 to the Purchase Agreement, and incorporated by
reference in this Note in Section 5.2.

                                                                              13


               6.3 Other Covenants and Agreements. The failure of Company or any
of its Subsidiaries to perform, observe or comply with any of the covenants of
this Note, the Security Agreement or any of the other Loan Documents (other than
the Financial Covenants set forth on Schedule 8.5 to the Purchase Agreement, and
incorporated by reference in this Note in Section 5.2), if such failure is not
cured within sixty (60) days.

               6.4 Representations and Warranties. If any representation or
warranty made by the Company or any of its Subsidiaries in the Loan Documents is
not true and correct in all material respects on the Initial Closing Date.

               6.5 Default on Other Obligations. The occurrence of any condition
or default under any other indebtedness for borrowed money of the Company or any
of its Subsidiaries with a principal amount of at least five hundred thousand
dollars ($500,000) that results in the acceleration of such indebtedness which
is not cured within sixty (60) days.

               6.6 Involuntary Bankruptcy. There shall be filed against the
Company or any of its Subsidiaries an involuntary petition or other pleading
seeking the entry of a decree or order for relief under the United States
Bankruptcy Code or any similar federal or state insolvency or similar laws
ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a
reorganization of the Company or any of its Subsidiaries or the business and
affairs of the Company or any of its Subsidiaries or (c) the appointment of a
receiver, liquidator, assignee, custodian, trustee or similar official for the
Company or any of its Subsidiaries of the property of the Company or any of its
Subsidiaries.

               6.7 Voluntary Bankruptcy. The commencement by the Company or any
of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any
federal or state insolvency or similar laws or the consent by the Company or any
of its Subsidiaries to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or similar official for the Company or
any of its Subsidiaries of any of the property of the Company or any of its
Subsidiaries or the making by the Company or any of its Subsidiaries of an
assignment for the benefit of creditors, or the failure by Company or any of its
Subsidiaries generally to pay its debts as the debts become due.

               6.8 Judgments, Awards. Any judgment or order for the payment of
money is rendered against the Company or any of its Subsidiaries in an amount in
excess of five hundred thousand dollars ($500,000) individually or in the
aggregate and either (i) enforcement proceedings are commenced by any creditor
upon such judgment or order and not stayed, or (ii) there is any period of sixty
(60) consecutive days during which such judgment has not been paid in full or a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, is not in effect.

               6.9 Attachment by Lenders. Any assets of the Company or any of
its Subsidiaries shall be attached, levied upon, seized or repossessed, or come
into the

                                                                              14


possession of a trustee, receiver or other custodian and a determination by any
Holder, in good faith but in its sole discretion, that the same could have a
material adverse effect on the prospect for the Holders to fully and punctually
realize the full benefits conferred on the Holders by the Loan Documents.

               6.10 Adverse Change in Financial Condition. Any event having a
material adverse effect on the business, operations, assets, properties or
condition of the Company and its Subsidiaries taken as a whole shall have
occurred and be continuing or a material adverse effect on the validity or
enforceability of this or any of the other Loan Documents or the rights or
remedies of the Holders hereunder or thereunder.

          7. Remedies. Upon and after the occurrence of an Event of Default, the
Holder shall be entitled to the exercise the rights and remedies set forth in
the Security Agreement, the other Loan Documents and under applicable law, all
such rights and remedies being cumulative and enforceable alternatively,
successively or concurrently.

          8. Prepayment. The Company may not prepay this Note prior to the
Maturity Date without the prior written consent of the Holders.

          9. Seniority. Except as set forth in the Subordination Agreement, the
Notes will rank senior in right of payment to all other indebtedness of the
Company.

          10. Assignment. Subject to the restrictions on transfer described in
Section 12 below, the rights and obligations of the Company and Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties. The Company shall not be permitted to assign this
Note without the prior written consent of the Holders.

          11. Waiver of Notice. The Company hereby waives notice, presentment,
demand, protest and notice of dishonor.

          12. Transfer of This Note. With respect to any offer, sale or other
disposition of this Note, Holder will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such Holder's counsel, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any
federal or state law then in effect); provided, that no opinion shall be
required for any transfer to an Affiliate or if the transfer is made in
compliance with the Securities Act, so long as the transferee can make the same
representations and warranties at the time of transfer as set forth in Sections
4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Purchase Agreement. Promptly upon
delivering such written notice and opinion, if so required, Holder may sell or
otherwise dispose of this Note, all in accordance with the terms of the notice
delivered to the Company. Each Note thus transferred shall bear a legend as to
the applicable restrictions on transferability in order to ensure compliance
with the Securities Act, unless in the opinion of counsel for the Company such
legend is not required in order to ensure compliance with the Securities Act.
The Company may issue stop transfer instructions to its transfer agent in

                                                                              15


connection with such restrictions. Notwithstanding the foregoing, the Holder
shall not be permitted to transfer this Note to any Person who is not an
Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii)
the receipt of written notice from the Company that Stockholder Approval cannot
be obtained, or the occurrence of an actual vote of the Company's shareholders
entitled to vote (whether by written consent or at a meeting specially called
for such purpose), the result of which is a decision by a majority of the
Company's shareholders entitled to vote to decline to grant Stockholder
Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of
an Event of Default.

          13. Treatment of Note. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.

          14. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by nationally recognized courier
service or mailed by registered or certified mail, postage prepaid, to the
respective addresses of the parties as set forth on the signature pages hereto
or if sent by facsimile to the respective facsimile numbers of the parties set
forth on the signature pages hereto. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively be
deemed to have been given and received when personally delivered or three (3)
business days after deposited in the mail or one business day after sent by
courier or upon confirmation of facsimile delivery in the manner set forth
above.

          15. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon Holder or any other Person the right to vote or to
consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company.

          16. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, excluding that body of law
relating to conflict of laws.

          17. Amendments and Waivers. No amendments or waivers of any provision
of this Note, and no consent by the Holder to any departure by the Company,
shall in any event be effective unless the same shall be in writing, and signed
by the Holders of a majority of the outstanding principal amount of all of the
Notes issued by the Company pursuant to the Purchase Agreement, and then such
waiver or consent shall be effective only in the specific instance and for the
purpose for which given.

          18. Severability. Any provision of this Note that is prohibited or
unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

                                                                              16


          19. WAIVER OF JURY TRIAL. THE COMPANY AND THE HOLDER HEREBY (A)
COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT
BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE
COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN
ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY
TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY
OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN
THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER
OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE.
THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND
VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER
HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY
INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT
THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE
COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF
RIGHT TO TRIAL BY JURY. EACH OF THE COMPANY AND THE HOLDER REPRESENTS AND
WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE
MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE
WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH
COUNSEL.

          20. Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except as otherwise indicated, all references herein to Sections refer to
Sections hereof.

              [the remainder of this page intentionally left blank]

                                                                              17


          IN WITNESS WHEREOF, the Company has caused this Note to be issued this
26th day of November, 2003.

                                         COMPANY:

                                         CRITICAL PATH, INC.,
                                         a California corporation

                                         By: /s/ Michael J. Zukerman
                                             -----------------------------------
                                             Name: Michael J. Zukerman.
                                             Title: Senior Vice President and
                                             General Counsel

                                             Critical Path, Inc.
                                             350 The Embarcadero
                                             San Francisco, CA 94105-1204
                                             Telecopy: (415) 541-2300
                                             Attention: Chief Financial Officer

                                             With a copy to:

                                             Pillsbury Winthrop LLP
                                             50 Fremont Street
                                             San Francisco, CA 94105
                                             Telecopy: (415) 983-1200
                                             Attention: Gregg Vignos, Esq.

Name of Holder: GAP Coinvestment Partners II, L.P.

Address:        c/o General Atlantic Service Corporation
                3 Pickwick Plaza
                Greenwich, CT 06830
                Telecopy: (203) 618-9207
                Attention: Matthew Nimetz
                           Thomas J. Murphy

With a copy to:

                Paul, Weiss, Rifkind, Wharton & Garrison LLP
                1285 Avenue of the Americas
                New York, NY 10019-6064
                Attention: Douglas A. Cifu, Esq.
                Telecopy: (212) 757-3990

EX-4.23

                                                                    EXHIBIT 4.23

                                      NOTE

     THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
     SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN
     REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
     SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
     TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER
     OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.

                               CRITICAL PATH, INC.

                    CONVERTIBLE SUBORDINATED PROMISSORY NOTE

$636,720.00                                            San Francisco, California
                                                       November 26, 2003

          Critical Path, Inc., a California corporation (the "Company"), the
principal office of which is located in San Francisco, California, for value
received hereby promises to pay to the order of GapStar, LLC, or its registered
assigns ("Holder"), the sum of six hundred thirty-six thousand seven hundred
twenty and 0/100 dollars ($636,720.00), or such lesser amount as shall then
equal the outstanding principal amount hereof on the terms and conditions set
forth hereinafter. The outstanding principal amount hereof and all accrued and
unpaid interest hereon, as set forth below, shall be due and payable on the
earlier to occur of (i) November 26, 2007, (ii) when declared due and payable by
Holder upon the occurrence of an Event of Default (as defined below), (iii)
consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v) any
sale of capital stock or Stock Equivalents by the Company, any cash capital
contribution from any third person or any other debt or equity financing
consummated by the Company after the date of issuance of this Note which, in the
case of (v), individually or in the aggregate raises proceeds of at least forty
million dollars ($40,000,000) in cash or cash equivalents (the earliest of the
events set forth in items (i)-(v) immediately above, the "Maturity Date");
provided, however, that in the event that the Maturity Date is on or before
November 26, 2004, the Company shall also make an additional payment to Holder
equal to the amount of interest which would have otherwise accrued on the
outstanding principal amount of the Note on the Maturity Date between the
Maturity Date and November 26, 2004.

          The following is a statement of the rights of the Holder of this Note
and the conditions to which this Note is subject, and to which the Holder
hereof, by the acceptance of this Note, agrees:

                                                                               2


          1. Definitions. Except as otherwise defined herein, each capitalized
term used herein shall have the meaning assigned to it in the Purchase
Agreement, as in effect on the date hereof, and without regard to any subsequent
termination of the Purchase Agreement. All other references to the Purchase
Agreement in this Note refer to the Purchase Agreement as in effect on the date
hereof, and without regard to any subsequent termination of the Purchase
Agreement. As used in this Note, the following terms, unless the context
otherwise requires, have the following meanings:

               1.1 "Affiliate" means any Person who is an "affiliate" as defined
in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange
Act of 1934, as amended.

               1.2 "Capitalized Lease Obligations" means, with respect to any
Person, all rental obligations of such Person which, under GAAP, are or will be
required to be capitalized on the books of such Person, in each case taken at
the amount thereof accounted for as indebtedness in accordance with such
principles.

               1.3 "Change of Control" shall mean (i) any merger, consolidation
or other business combination transaction (or series of related transactions) in
which the stockholders owning a majority of the voting securities of the Company
prior to such transaction do not own a majority of the voting securities of the
surviving entity, (ii) any tender offer, exchange offer or other transaction
whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as amended) (other than
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell Limited, Great
Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and the Affiliates
of the foregoing, provided that Affiliates shall be deemed not to include any
portfolio companies of any of the foregoing) obtains a majority of the
outstanding shares of capital stock entitled to vote in the election of
directors, (iii) any proxy contest in which a majority of the Board of Directors
of the Company (or persons appointed by such Board of Directors) prior to such
contest do not constitute a majority of the Company's Board of Directors after
such contest or (iv) any other transaction described in any stockholder rights
agreement or "poison pill," if any, to which the Company is party, which may
permit the holders of any rights or similar certificates to exercise the rights
evidenced thereby.

               1.4 "Company" shall have the meaning set forth in the recitals
hereto, and includes any corporation that shall succeed to or assume the
obligations of the Company under this Note.

               1.5 "Conversion Date" shall mean the Subsequent Closing Date.

               1.6 "Designated Preferred Stock" shall mean the Series D
Preferred Stock, par value $0.001, of the Company and the Series E Preferred
Stock.

                                                                               3


               1.7 "Domestic Subsidiary" shall have the meaning set forth in
Section 5.10 hereof.

               1.8 "Event of Default" shall have the meaning set forth in
Section 6 hereof.

               1.9 "Guaranteed Interest" shall mean the total amount of interest
that would accrue on this Note, at the Interest Rate specified in Section 2,
from the date of this Note until the one year anniversary of the date of this
Note.

               1.10 "Guarantor" shall have the meaning set forth in the Security
Agreement.

               1.11 "Holder" shall mean the registered holder of this Note from
time to time, and in the plural, shall mean all registered holders of Notes from
time to time issued by the Company pursuant to the Purchase Agreement.

               1.12 "Interest Amount" shall have the meaning set forth in
Section 3.1 hereof.

               1.13 "Investment" means (i) the acquisition (whether for cash,
property, services, assumption of Indebtedness, securities or otherwise) of
assets (other than equipment, inventory, supplies or other assets acquired in
the ordinary course of business of the Company), capital stock, bonds, notes,
debentures, partnership, joint venture or other ownership interests or other
securities of any Person, (ii) any deposit with, or advance, loan or other
extension of credit to, or on behalf of, any Person (other than deposits made in
connection with the purchase of equipment, inventory, services, leases, supplies
or other assets in the ordinary course of business of the Company), (iii) any
other capital contribution to or investment in such Person, including, without
limitation, any guaranty obligation incurred for the benefit of such Person. For
the sake of clarity, Investments shall include any transfer of property or
assets by the Company to any of its Subsidiaries or by any Subsidiary of the
Company to any other Subsidiary.

               1.14 "Loan Documents" shall have the meaning set forth in the
Security Agreement.

               1.15 "Note" shall mean this note, and in the plural, shall mean
all notes issued to the Lenders pursuant to the terms of the Purchase Agreement,
including this Note, and all amendments, modifications and extensions thereto.

               1.16 "Permitted Investments" means (i) Investments in cash or
cash equivalents, (ii) accounts receivable created, acquired or made in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (iii) Investments existing on the closing date, and
listed on Schedule 3.27 to the Purchase Agreement, (iv) guaranty obligations
permitted by Section 5.3 of this Agreement, (v) loans to employees, directors or
officers of the Company in connection with the award of convertible bonds or
capital stock under a stock incentive plan, stock option plan or other
equity-based compensation plan or arrangement, (vi) other advances or loans to

                                                                               4


employees, directors, officers or agents of the Company in the ordinary course
of business not to exceed $500,000 in the aggregate at any time outstanding;
(vii) loans, advances and investments in foreign Subsidiaries (that are not
incorporated or otherwise organized under the laws of the United States of
America or any state thereof) in an amount not to exceed $1,000,000 in the
aggregate at any time outstanding; (viii) any acquisition for which the prior
written consent of the Holders of a majority of the outstanding principal amount
of all of the Notes issued by the Company pursuant to the Purchase Agreement has
been obtained, (ix) other loans, advances and investments of a nature not
contemplated by the foregoing sections in an amount not to exceed $500,000 in
the aggregate at any time outstanding or (x) Investments by the Company in the
Guarantor.

               1.17 "Permitted Liens" shall have the meaning set forth in
Section 5.4.

               1.18 "Person" means any individual, firm, corporation,
partnership, trust, joint venture, joint stock company, limited liability
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.

               1.19 "Price Per Share" shall have the meaning attributed to such
term in the Series E Certificate of Determination, as filed with the Secretary
of State of the State of California.

               1.20 "Purchase Agreement" means that certain Convertible Note
Purchase and Exchange Agreement, dated November 18, 2003, among the Company, the
Holder and the other parties thereto from time to time, and all amendments,
modifications and extensions thereto.

               1.21 "Qualified Asset Sale" means the sale, transfer or other
disposition of any of the assets of the Company or any of its Subsidiaries,
other than (a) sales of assets in the ordinary course of business, (b) sales of
assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the
sale, transfer or other disposition of assets of the Company where the proceeds
are applied to the purchase price or traded in for credit against the purchase
price of other assets, provided that any such purchase is made, or credit
issued, within 90 days of the sale, transfer or other disposition, and (d) one
or more sales of the Company's assets (other than sales otherwise included in
clauses (a), (b), and (c) immediately above) which collectively yield up to an
aggregate of one million dollars ($1,000,000) in gross proceeds to the Company
while this Note is outstanding.

               1.22 "Restricted Payment" means (a) any dividend or other
distribution (whether in cash, securities or other property) with respect to any
shares of any class of capital stock of the Company or any of its Subsidiaries
or (b) any payment (whether in cash, securities or other property), including
any sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any shares of any class
of capital stock of the Company or any Subsidiary

                                                                               5


or any option, warrant or other right to acquire any such shares of capital
stock of the Company or any Subsidiary.

               1.23 "Security Agreement" means that certain Guaranty and
Security Agreement, of even date herewith between the Company, Compass Holding
Corp., the Lenders and the other parties thereto from time to time, and all
amendments, modifications and extensions thereto.

               1.24 "Series E Conversion Price" shall have the meaning set forth
in the Series E Certificate of Determination.

               1.25 "Series E Preferred Stock" means the Series E Preferred
Stock, par value $0.001, of the Company.

               1.26 "Subordination Agreement" shall have the meaning set forth
in Section 5.3.

               1.27 "SVB" means Silicon Valley Bank, a California chartered
bank, or any Affiliates thereof.

               1.28 "UCC" shall have the meaning set forth in Section 5.4.

          2. Interest. Simple interest shall accrue at the rate of ten percent
(10%) per annum (or such lesser amount as shall equal the highest rate of
interest allowable under applicable law) (the "Interest Rate"), on the
outstanding principal of this Note from the date of this Note until the Maturity
Date or the date this Note is otherwise repaid. The Company shall not be
obligated to make any payments of interest which shall have accrued under this
Note prior to the Maturity Date. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. In the event that the
principal amount of this Note, any interest, or any amount payable hereunder is
not paid in full when such amount becomes due and payable, or upon the
occurrence of an Event of Default, interest shall accrue at the lesser of (a)
the initial Interest Rate plus five percent (5%) per annum or (b) the highest
rate of interest allowable under applicable law, on the balance of all amounts
outstanding until such overdue amounts are paid or the Event of Default is
cured, and such interest shall be payable on demand.

          3. Conversion.

               3.1 Conversion. On the Conversion Date, the principal amount of
this Note plus the greater of (i) the accrued and unpaid interest thereon and
(ii) the Guaranteed Interest (the greater of clause (i) and (ii), the "Interest
Amount"), shall be automatically converted into the number of fully paid and
nonassessable shares of Series E Preferred Stock equal to the quotient obtained
by dividing (a) the entire principal amount of this Note plus the Interest
Amount by (b) the Price Per Share.

               3.2 Notice of Conversion. Upon conversion of this Note as
provided in Section 3.1, Holder shall surrender this Note to the Company and
shall state the name or names in which the certificate or certificates for such
shares of Series E

                                                                               6

Preferred Stock are to be issued. The Person or Persons entitled to receive the
shares of Series E Preferred Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Series E Preferred Stock as of the Conversion Date.

               3.3 Delivery of Stock Certificates. On the Conversion Date, the
Company at its expense will issue and deliver to Holder of this Note a
certificate or certificates (bearing such legends as are required by applicable
state and federal securities laws in the opinion of counsel to the Company) for
the number of full shares of Series E Preferred Stock issuable upon such
conversion.

               3.4 Mechanics and Effect of Conversion. No fractional shares of
Series E Preferred Stock shall be issued upon conversion of this Note. In lieu
of the Company issuing any fractional shares to Holder upon the conversion of
this Note, the Company shall pay to Holder the amount of outstanding principal
and interest that is not so converted. Upon conversion of all amounts due under
this Note, the Company shall be released from all of its obligations under this
Note.

          4. Adjustments. The number of shares of Series E Preferred Stock
convertible hereunder are subject to adjustment from time to time as follows:

               4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at
any time while this Note remains outstanding and unexpired there shall be (a) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (b) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise or (c) a sale or
transfer of the Company's stock, properties or assets as, or substantially as,
an entirety to any other Person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that Holder
shall thereafter be entitled to receive by converting this Note the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon conversion of this Note would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Note had been converted immediately before such reorganization,
merger, consolidation, sale or transfer (notwithstanding that the Stockholder
Approval may not yet have been obtained), all subject to further adjustment as
provided in this Section 4. The foregoing provisions of this Section 4.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation. If the
per share consideration payable to Holder hereof for shares in connection with
any such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
Company's Board of Directors based on the amount the Holder would have otherwise
been entitled to receive had the transaction or transactions not occurred. In
all events, appropriate adjustment (as determined in good faith by the Company's

                                                                               7


Board of Directors) shall be made in the application of the provisions of this
Note with respect to the rights and interests of Holder after the transaction,
to the end that the provisions of this Note shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon conversion of this Note. The Company shall be
obligated to retain and set aside, or otherwise make fair provision for exercise
of the right of the Holder to receive, the shares of stock and/or other
securities, cash or other property provided for in this Section 4.1.

               4.2 Election of Holder upon Merger or Sale of Assets.
Notwithstanding anything to the contrary contained herein, if an event shall
occur as provided in Section 4.1 hereof that would otherwise result in the
occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first
paragraph of this Note, then the Holder may, in its sole discretion, by written
notice to the Company elect to convert the principal amount of this Note plus
the Interest Amount into the number of shares of stock or other securities or
property described in Section 4.1, in lieu of receiving payment in full of all
amounts outstanding under this Note. The number of shares of stock or other
securities or property to be issued upon such conversion shall be determined in
accordance with Section 4.1 hereof, taking into account the occurrence of such
event.

               4.3 Reclassification, Etc. If the Company shall, at any time
while this Note, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, change any of the securities as to
which conversion rights under this Note exist into the same or a different
number of securities of any other class or classes, this Note shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable with respect to the securities that were subject to the conversion
rights under this Note immediately prior to such reclassification or other
change, and the Price Per Share shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 4.

               4.4 Split, Subdivision or Combination of Shares. If the Company
at any time while this Note, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the shares of Series E Preferred
Stock into a different number of securities of the same class, the Price Per
Share shall be proportionately adjusted.

               4.5 Series E Adjustments. The initial Series E Conversion Price
of the shares of Series E Preferred Stock issued upon conversion of this Note
pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on
the Conversion Date, subject to the adjustment of such Series E Conversion Price
from time to time thereafter as provided in the Series E Certificate of
Determination.

               4.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 4, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.

                                                                               8


               4.7 No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of Holder against impairment.

          5. Covenants. The Company covenants and agrees that until the earlier
of (i) the date on which all Obligations (as defined in the Security Agreement)
have been paid in full or (ii) the Conversion Date:

               5.1 Financial Statements and Other Information. The Company shall
deliver to the Holder of this Note the financial statements and other
information required to be delivered under Section 8.1 of the Purchase
Agreement.

               5.2 Financial Covenants. The Company shall at all times comply
with the financial and other covenants set forth in Schedule 8.5 to the Purchase
Agreement as if such covenants were set forth herein.

               5.3 Indebtedness. The Company shall not, and shall not permit any
Subsidiary to, issue, incur, assume, create or have outstanding any
Indebtedness, provided, however, that the foregoing shall not restrict nor
operate to prevent:

                    (a) Indebtedness in favor of the Holders under the Loan
Documents;

                    (b) Indebtedness existing on the date hereof, and as set
forth on Schedule 3.22 to the Purchase Agreement;

                    (c) Indebtedness for accounts payable incurred in the
ordinary course of business by the Company;

                    (d) Indebtedness incurred solely for the purpose of
financing the acquisition of any equipment, machinery, software, improvements or
any other similar property, or extensions, renewals or replacements of any of
the foregoing for the same or a lesser amount; provided, that the aggregate
outstanding principal amount of all Indebtedness permitted pursuant to this
clause (d) outstanding for more than sixty (60) days after the incurrence of
such Indebtedness shall not at any time exceed $500,000;

                    (e) Indebtedness of the Company evidenced by Capitalized
Lease Obligations, provided, that in no event shall the aggregate principal
amount of Capitalized Lease Obligations permitted by this clause (e) exceed
$500,000 at any time outstanding; and

                    (f) Any extension renewal, refinancing, refunding, or
replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and
(e)

                                                                               9


above, on such terms and conditions as are, on the whole, not materially more
onerous to the Company than the terms and conditions of such original
Indebtedness on the date of such refinancing (including that the principal
amount of such refinancing Indebtedness does not exceed the principal amount of,
plus the amount of accrued and unpaid interest on, the Indebtedness so
refinanced (plus the amount of reasonable premium and fees and expenses incurred
in connection therewith)), provided that, in the case of a refinancing of
Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall
only apply to the extent consistent with the Subordination Agreement, dated as
of the date hereof, by and among SVB, the Holders and the Company (the
"Subordination Agreement").

               5.4 Liens. The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
the Company or any of its Subsidiaries, whether now owned or hereafter acquired,
or sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable), or assign any right to receive income or permit the
filing of any financing statement under the Uniform Commercial Code, as from
time to time in effect in the relevant jurisdiction (the "UCC"), or any other
similar notice of Lien under any similar recording or notice statute; provided,
that the provisions of this Section 5.4 shall not prevent the creation,
incurrence, assumption or existence of the following:

                    (a) Liens arising in the ordinary course of business by
statute in connection with worker's compensation, unemployment insurance, old
age benefits, social security obligations, statutory obligations or other
similar charges (other then Liens arising under ERISA), good faith cash deposits
in connection with tenders, contracts or leases to which the Company or any
Subsidiary is a party or other cash deposits required to be made in the ordinary
course of business, provided, that such Liens do not have a material adverse
effect on the ability of the Company to repay amounts due under the Notes;

                    (b) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due or Liens for taxes, assessments or governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP;

                    (c) Liens in respect of property or assets of the Company or
its Subsidiaries imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as carriers',
warehousemen's, materialmen's and mechanics' liens and other similar Liens
arising in the ordinary course of business, and (i) which do not in the
aggregate materially detract from the value of the Company's and its
Subsidiaries' property or assets taken as a whole or result in a material
adverse effect on the Condition of the Company or (ii) which are being contested
in good faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to any such
Lien;

                                                                              10


                    (d) the pledge of assets for the purpose of securing an
appeal, stay or discharge in the course of any legal proceeding, provided that
the aggregate amount of liabilities of the Company and its Subsidiaries secured
by a pledge of assets permitted under this subsection, including interest and
penalties thereon, if any, shall not be in excess of $500,000 at any one time
outstanding;

                    (e) any interest or title of a lesser under any operating
lease;

                    (f) easements, rights-of-way, restrictions and other similar
encumbrances against real property incurred in the ordinary course of business;

                    (g) the Liens existing on the date hereof identified on
Schedule 3.22 to the Purchase Agreement;

                    (h) Liens on cash deposited with account debtors to secure
performance by the Company or any Subsidiary in the ordinary course of business
subject to customary and reasonable terms;

                    (i) Liens upon assets of the Company or its Subsidiaries
subject to Capitalized Lease Obligations, provided, that (A) such Liens only
serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising
under such Capitalized Lease Obligation and (B) the Lien encumbering the asset
giving rise to the Capitalized Lease Obligation does not encumber any other
asset of the Company or its Subsidiaries;

                    (j) Liens placed upon equipment, machinery, software,
improvements or any other similar property, used in the ordinary course of
business of the Company or any of its Subsidiaries at the time of the
acquisition thereof by the Company or any of its Subsidiaries or within ninety
(90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above;
provided, that the Liens encumbering the equipment, machinery software,
improvements or any other similar property so acquired do not encumber any other
asset of the Company or its Subsidiaries;

                    (k) set-off rights of depository institutions; and

                    (l) Liens created by the Security Agreement (collectively
with clauses (a) through (k) hereof, the "Permitted Liens").

               5.5 Fundamental Changes. The Company will not, and will not
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (in one transaction or a series of transactions)
all or substantially all of its assets, or all or substantially all of the stock
of any of its Subsidiaries (in each case, whether now owned or hereafter
acquired), or liquidate or dissolve, except that, if at the time and immediately
after giving effect thereto no Event of Default shall have occurred and be
continuing (i) the Company or any of its Subsidiaries may, with the prior
written consent of the Holders, merge with or into any other Person; (ii) any
wholly-owned

                                                                              11


Subsidiary of the Company (other than the Guarantor) may merge with or into the
Company or any other wholly-owned Subsidiary of the Company; (iii) any
Subsidiary (other than the Guarantor, and except as otherwise prohibited by this
Note) may sell, transfer, lease or otherwise dispose of its assets to the
Company or to another wholly-owned Subsidiary of the Company; and (iv) any
Subsidiary may liquidate or dissolve if the board of directors of the Company
determine in good faith that such liquidation or dissolution is in its best
interests and is not disadvantageous to the Holders.

               5.6 Restricted Payments. The Company will not, and the Company
will not permit any Subsidiary to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except that (i) any Subsidiary
may make a Restricted Payment to the Company or any of its wholly-owned
Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any
Restricted Payment required by the terms of the Purchase Agreement and the other
documents executed in connection therewith.

               5.7 Transactions with Affiliates. The Company will not, and the
Company will not permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions that are at prices and on terms and
conditions not less favorable to the Company or such Subsidiary than could be
obtained on an arm's length basis from unrelated third parties, (b) transactions
exclusively between the Company and the Guarantor and (c) transactions under the
agreements listed on Schedule 3.17 to the Purchase Agreement.

               5.8 Investments. The Company will not, and the Company will not
permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment
in any Person, except for Permitted Investments.

               5.9 Nature of Business. The Company will not, and the Company
will not permit any Subsidiary to, engage in any business other than that
conducted on the date hereof and any businesses reasonably related thereto.

               5.10 Property of Existing Domestic Subsidiaries. The Company will
not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise
organized under the laws of the United States of America or any state thereof (a
"Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease,
license, purchase or otherwise acquire any personal or real property (excluding
any material intellectual property) in excess of $50,000 for all property held
by such Subsidiary, or $250,000 in the aggregate for all property held by all
Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own
or otherwise hold any rights to any material intellectual property or (iv)
otherwise conduct any business or maintain operations.

               5.11 Formation of Subsidiaries. The Company will not, and will
not cause or permit any of its Subsidiaries to, form, acquire or permit the
existence of any new domestic Subsidiary, without causing such domestic
Subsidiary to execute and

                                                                              12


deliver to the Holders a secured guaranty of the Notes and related security
document, in form and substance satisfactory to the Holders.

               5.12 Books and Records. The Company shall keep proper books of
record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company and its
Subsidiaries in accordance with GAAP consistently applied.

               5.13 Inspection. The Company shall, and shall cause each of its
Subsidiaries to, permit representatives of the Holders to visit and inspect any
of its properties, to examine its corporate, financial and operating records and
make copies thereof or abstracts therefrom, and to discuss its affairs, finances
and accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested upon notice to the Company.

               5.14 Maintenance of Business. The Company shall, and shall cause
each Subsidiary to, preserve and maintain its existence. The Company shall, and
shall cause each Subsidiary to, preserve and keep in force and effect all
licenses, permits, franchises, approvals, patents, trademarks, trade names,
trade styles, copyrights, and other property rights necessary to the proper
conduct of its business, except where the failure to do so could not reasonably
be expected to have a material adverse effect on the Condition of the Company or
on the prospects of repayment of the Notes.

               5.15 Maintenance of Properties. The Company shall, and shall
cause each Subsidiary to, maintain, preserve and keep its property and equipment
in good repair, working order and condition (ordinary wear and tear excepted)
and shall from time to time make all needful and proper repairs, renewals,
replacements, additions and betterments thereto so that at all times the
efficiency thereof shall by fully preserved and maintained, except in each case
to the extent that, in the reasonable business judgment of such Person, any such
property or equipment is no longer necessary for the proper conduct of the
business of such Person.

          6. The occurrence of any one or more of the following events shall
constitute an "Event of Default":

               6.1 Failure To Pay. (i) The failure of the Company to pay any
principal due under any of the Notes when due and payable (whether by
acceleration, declaration, extension or otherwise), or (ii) the failure of the
Company to pay any other amounts due under any of the Notes when due and payable
if such failure is not cured within five (5) days of Company's receipt of notice
thereof from any of the Holders.

               6.2 Financial Covenants. The failure of Company or any of its
Subsidiaries to perform, observe or comply with any of the Financial Covenants
set forth on Schedule 8.5 to the Purchase Agreement, and incorporated by
reference in this Note in Section 5.2.

                                                                              13


               6.3 Other Covenants and Agreements. The failure of Company or any
of its Subsidiaries to perform, observe or comply with any of the covenants of
this Note, the Security Agreement or any of the other Loan Documents (other than
the Financial Covenants set forth on Schedule 8.5 to the Purchase Agreement, and
incorporated by reference in this Note in Section 5.2), if such failure is not
cured within sixty (60) days.

               6.4 Representations and Warranties. If any representation or
warranty made by the Company or any of its Subsidiaries in the Loan Documents is
not true and correct in all material respects on the Initial Closing Date.

               6.5 Default on Other Obligations. The occurrence of any condition
or default under any other indebtedness for borrowed money of the Company or any
of its Subsidiaries with a principal amount of at least five hundred thousand
dollars ($500,000) that results in the acceleration of such indebtedness which
is not cured within sixty (60) days.

               6.6 Involuntary Bankruptcy. There shall be filed against the
Company or any of its Subsidiaries an involuntary petition or other pleading
seeking the entry of a decree or order for relief under the United States
Bankruptcy Code or any similar federal or state insolvency or similar laws
ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a
reorganization of the Company or any of its Subsidiaries or the business and
affairs of the Company or any of its Subsidiaries or (c) the appointment of a
receiver, liquidator, assignee, custodian, trustee or similar official for the
Company or any of its Subsidiaries of the property of the Company or any of its
Subsidiaries.

               6.7 Voluntary Bankruptcy. The commencement by the Company or any
of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any
federal or state insolvency or similar laws or the consent by the Company or any
of its Subsidiaries to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or similar official for the Company or
any of its Subsidiaries of any of the property of the Company or any of its
Subsidiaries or the making by the Company or any of its Subsidiaries of an
assignment for the benefit of creditors, or the failure by Company or any of its
Subsidiaries generally to pay its debts as the debts become due.

               6.8 Judgments, Awards. Any judgment or order for the payment of
money is rendered against the Company or any of its Subsidiaries in an amount in
excess of five hundred thousand dollars ($500,000) individually or in the
aggregate and either (i) enforcement proceedings are commenced by any creditor
upon such judgment or order and not stayed, or (ii) there is any period of sixty
(60) consecutive days during which such judgment has not been paid in full or a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, is not in effect.

               6.9 Attachment by Lenders. Any assets of the Company or any of
its Subsidiaries shall be attached, levied upon, seized or repossessed, or come
into the

                                                                              14


possession of a trustee, receiver or other custodian and a determination by any
Holder, in good faith but in its sole discretion, that the same could have a
material adverse effect on the prospect for the Holders to fully and punctually
realize the full benefits conferred on the Holders by the Loan Documents.

               6.10 Adverse Change in Financial Condition. Any event having a
material adverse effect on the business, operations, assets, properties or
condition of the Company and its Subsidiaries taken as a whole shall have
occurred and be continuing or a material adverse effect on the validity or
enforceability of this or any of the other Loan Documents or the rights or
remedies of the Holders hereunder or thereunder.

          7. Remedies. Upon and after the occurrence of an Event of Default, the
Holder shall be entitled to the exercise the rights and remedies set forth in
the Security Agreement, the other Loan Documents and under applicable law, all
such rights and remedies being cumulative and enforceable alternatively,
successively or concurrently.

          8. Prepayment. The Company may not prepay this Note prior to the
Maturity Date without the prior written consent of the Holders.

          9. Seniority. Except as set forth in the Subordination Agreement, the
Notes will rank senior in right of payment to all other indebtedness of the
Company.

          10. Assignment. Subject to the restrictions on transfer described in
Section 12 below, the rights and obligations of the Company and Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties. The Company shall not be permitted to assign this
Note without the prior written consent of the Holders.

          11. Waiver of Notice. The Company hereby waives notice, presentment,
demand, protest and notice of dishonor.

          12. Transfer of This Note. With respect to any offer, sale or other
disposition of this Note, Holder will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such Holder's counsel, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any
federal or state law then in effect); provided, that no opinion shall be
required for any transfer to an Affiliate or if the transfer is made in
compliance with the Securities Act, so long as the transferee can make the same
representations and warranties at the time of transfer as set forth in Sections
4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Purchase Agreement. Promptly upon
delivering such written notice and opinion, if so required, Holder may sell or
otherwise dispose of this Note, all in accordance with the terms of the notice
delivered to the Company. Each Note thus transferred shall bear a legend as to
the applicable restrictions on transferability in order to ensure compliance
with the Securities Act, unless in the opinion of counsel for the Company such
legend is not required in order to ensure compliance with the Securities Act.
The Company may issue stop transfer instructions to its transfer agent in

                                                                              15


connection with such restrictions. Notwithstanding the foregoing, the Holder
shall not be permitted to transfer this Note to any Person who is not an
Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii)
the receipt of written notice from the Company that Stockholder Approval cannot
be obtained, or the occurrence of an actual vote of the Company's shareholders
entitled to vote (whether by written consent or at a meeting specially called
for such purpose), the result of which is a decision by a majority of the
Company's shareholders entitled to vote to decline to grant Stockholder
Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of
an Event of Default.

          13. Treatment of Note. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.

          14. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by nationally recognized courier
service or mailed by registered or certified mail, postage prepaid, to the
respective addresses of the parties as set forth on the signature pages hereto
or if sent by facsimile to the respective facsimile numbers of the parties set
forth on the signature pages hereto. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively be
deemed to have been given and received when personally delivered or three (3)
business days after deposited in the mail or one business day after sent by
courier or upon confirmation of facsimile delivery in the manner set forth
above.

          15. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon Holder or any other Person the right to vote or to
consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company.

          16. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, excluding that body of law
relating to conflict of laws.

          17. Amendments and Waivers. No amendments or waivers of any provision
of this Note, and no consent by the Holder to any departure by the Company,
shall in any event be effective unless the same shall be in writing, and signed
by the Holders of a majority of the outstanding principal amount of all of the
Notes issued by the Company pursuant to the Purchase Agreement, and then such
waiver or consent shall be effective only in the specific instance and for the
purpose for which given.

          18. Severability. Any provision of this Note that is prohibited or
unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

                                                                              16


          19. WAIVER OF JURY TRIAL. THE COMPANY AND THE HOLDER HEREBY (A)
COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT
BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE
COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN
ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY
TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY
OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN
THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER
OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE.
THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND
VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER
HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY
INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT
THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE
COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF
RIGHT TO TRIAL BY JURY. EACH OF THE COMPANY AND THE HOLDER REPRESENTS AND
WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE
MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE
WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH
COUNSEL.

          20. Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except as otherwise indicated, all references herein to Sections refer to
Sections hereof.

              [the remainder of this page intentionally left blank]

                                                                              17


          IN WITNESS WHEREOF, the Company has caused this Note to be issued this
26th day of November, 2003.

                                          COMPANY:

                                          CRITICAL PATH, INC.,
                                          a California corporation

                                          By: /s/ Michael J. Zukerman
                                              ----------------------------------
                                              Name: Michael J. Zukerman.
                                              Title: Senior Vice President and
                                              General Counsel

                                              Critical Path, Inc.
                                              350 The Embarcadero
                                              San Francisco, CA 94105-1204
                                              Telecopy: (415) 541-2300
                                              Attention: Chief Financial Officer

                                              With a copy to:

                                              Pillsbury Winthrop LLP
                                              50 Fremont Street
                                              San Francisco, CA 94105
                                              Telecopy: (415) 983-1200
                                              Attention: Gregg Vignos, Esq.

Name of Holder: GapStar, LLC

Address:        c/o General Atlantic Service Corporation
                3 Pickwick Plaza
                Greenwich, CT 06830
                Telecopy: (203) 618-9207
                Attention: Matthew Nimetz
                           Thomas J. Murphy

With a copy to:

                Paul, Weiss, Rifkind, Wharton & Garrison LLP
                1285 Avenue of the Americas
                New York, NY  10019-6064
                Attention: Douglas A. Cifu, Esq.
                Telecopy: (212) 757-3990

EX-4.24

                                                                    EXHIBIT 4.24

                                      NOTE

     THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
     SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN
     REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
     SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
     TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER
     OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.

                               CRITICAL PATH, INC.

                    CONVERTIBLE SUBORDINATED PROMISSORY NOTE

$17,977.00                                             San Francisco, California
                                                       November 26, 2003

          Critical Path, Inc., a California corporation (the "Company"), the
principal office of which is located in San Francisco, California, for value
received hereby promises to pay to the order of GAPCO GmbH & Co. KG, or its
registered assigns ("Holder"), the sum of seventeen thousand nine hundred
seventy-seven and 0/100 dollars ($17,977.00), or such lesser amount as shall
then equal the outstanding principal amount hereof on the terms and conditions
set forth hereinafter. The outstanding principal amount hereof and all accrued
and unpaid interest hereon, as set forth below, shall be due and payable on the
earlier to occur of (i) November 26, 2007, (ii) when declared due and payable by
Holder upon the occurrence of an Event of Default (as defined below), (iii)
consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v) any
sale of capital stock or Stock Equivalents by the Company, any cash capital
contribution from any third person or any other debt or equity financing
consummated by the Company after the date of issuance of this Note which, in the
case of (v), individually or in the aggregate raises proceeds of at least forty
million dollars ($40,000,000) in cash or cash equivalents (the earliest of the
events set forth in items (i)-(v) immediately above, the "Maturity Date");
provided, however, that in the event that the Maturity Date is on or before
November 26, 2004, the Company shall also make an additional payment to Holder
equal to the amount of interest which would have otherwise accrued on the
outstanding principal amount of the Note on the Maturity Date between the
Maturity Date and November 26, 2004.

          The following is a statement of the rights of the Holder of this Note
and the conditions to which this Note is subject, and to which the Holder
hereof, by the acceptance of this Note, agrees:

                                                                               2


          1. Definitions. Except as otherwise defined herein, each capitalized
term used herein shall have the meaning assigned to it in the Purchase
Agreement, as in effect on the date hereof, and without regard to any subsequent
termination of the Purchase Agreement. All other references to the Purchase
Agreement in this Note refer to the Purchase Agreement as in effect on the date
hereof, and without regard to any subsequent termination of the Purchase
Agreement. As used in this Note, the following terms, unless the context
otherwise requires, have the following meanings:

               1.1 "Affiliate" means any Person who is an "affiliate" as defined
in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange
Act of 1934, as amended.

               1.2 "Capitalized Lease Obligations" means, with respect to any
Person, all rental obligations of such Person which, under GAAP, are or will be
required to be capitalized on the books of such Person, in each case taken at
the amount thereof accounted for as indebtedness in accordance with such
principles.

               1.3 "Change of Control" shall mean (i) any merger, consolidation
or other business combination transaction (or series of related transactions) in
which the stockholders owning a majority of the voting securities of the Company
prior to such transaction do not own a majority of the voting securities of the
surviving entity, (ii) any tender offer, exchange offer or other transaction
whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as amended) (other than
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell Limited, Great
Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and the Affiliates
of the foregoing, provided that Affiliates shall be deemed not to include any
portfolio companies of any of the foregoing) obtains a majority of the
outstanding shares of capital stock entitled to vote in the election of
directors, (iii) any proxy contest in which a majority of the Board of Directors
of the Company (or persons appointed by such Board of Directors) prior to such
contest do not constitute a majority of the Company's Board of Directors after
such contest or (iv) any other transaction described in any stockholder rights
agreement or "poison pill," if any, to which the Company is party, which may
permit the holders of any rights or similar certificates to exercise the rights
evidenced thereby.

               1.4 "Company" shall have the meaning set forth in the recitals
hereto, and includes any corporation that shall succeed to or assume the
obligations of the Company under this Note.

               1.5 "Conversion Date" shall mean the Subsequent Closing Date.

               1.6 "Designated Preferred Stock" shall mean the Series D
Preferred Stock, par value $0.001, of the Company and the Series E Preferred
Stock.

                                                                               3


               1.7 "Domestic Subsidiary" shall have the meaning set forth in
Section 5.10 hereof.

               1.8 "Event of Default" shall have the meaning set forth in
Section 6 hereof.

               1.9 "Guaranteed Interest" shall mean the total amount of interest
that would accrue on this Note, at the Interest Rate specified in Section 2,
from the date of this Note until the one year anniversary of the date of this
Note.

               1.10 "Guarantor" shall have the meaning set forth in the Security
Agreement.

               1.11 "Holder" shall mean the registered holder of this Note from
time to time, and in the plural, shall mean all registered holders of Notes from
time to time issued by the Company pursuant to the Purchase Agreement.

               1.12 "Interest Amount" shall have the meaning set forth in
Section 3.1 hereof.

               1.13 "Investment" means (i) the acquisition (whether for cash,
property, services, assumption of Indebtedness, securities or otherwise) of
assets (other than equipment, inventory, supplies or other assets acquired in
the ordinary course of business of the Company), capital stock, bonds, notes,
debentures, partnership, joint venture or other ownership interests or other
securities of any Person, (ii) any deposit with, or advance, loan or other
extension of credit to, or on behalf of, any Person (other than deposits made in
connection with the purchase of equipment, inventory, services, leases, supplies
or other assets in the ordinary course of business of the Company), (iii) any
other capital contribution to or investment in such Person, including, without
limitation, any guaranty obligation incurred for the benefit of such Person. For
the sake of clarity, Investments shall include any transfer of property or
assets by the Company to any of its Subsidiaries or by any Subsidiary of the
Company to any other Subsidiary.

               1.14 "Loan Documents" shall have the meaning set forth in the
Security Agreement.

               1.15 "Note" shall mean this note, and in the plural, shall mean
all notes issued to the Lenders pursuant to the terms of the Purchase Agreement,
including this Note, and all amendments, modifications and extensions thereto.

               1.16 "Permitted Investments" means (i) Investments in cash or
cash equivalents, (ii) accounts receivable created, acquired or made in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (iii) Investments existing on the closing date, and
listed on Schedule 3.27 to the Purchase Agreement, (iv) guaranty obligations
permitted by Section 5.3 of this Agreement, (v) loans to employees, directors or
officers of the Company in connection with the award of convertible bonds or
capital stock under a stock incentive plan, stock option plan or other
equity-based compensation plan or arrangement, (vi) other advances or loans to

                                                                               4


employees, directors, officers or agents of the Company in the ordinary course
of business not to exceed $500,000 in the aggregate at any time outstanding;
(vii) loans, advances and investments in foreign Subsidiaries (that are not
incorporated or otherwise organized under the laws of the United States of
America or any state thereof) in an amount not to exceed $1,000,000 in the
aggregate at any time outstanding; (viii) any acquisition for which the prior
written consent of the Holders of a majority of the outstanding principal amount
of all of the Notes issued by the Company pursuant to the Purchase Agreement has
been obtained, (ix) other loans, advances and investments of a nature not
contemplated by the foregoing sections in an amount not to exceed $500,000 in
the aggregate at any time outstanding or (x) Investments by the Company in the
Guarantor.

               1.17 "Permitted Liens" shall have the meaning set forth in
Section 5.4.

               1.18 "Person" means any individual, firm, corporation,
partnership, trust, joint venture, joint stock company, limited liability
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.

               1.19 "Price Per Share" shall have the meaning attributed to such
term in the Series E Certificate of Determination, as filed with the Secretary
of State of the State of California.

               1.20 "Purchase Agreement" means that certain Convertible Note
Purchase and Exchange Agreement, dated November 18, 2003, among the Company, the
Holder and the other parties thereto from time to time, and all amendments,
modifications and extensions thereto.

               1.21 "Qualified Asset Sale" means the sale, transfer or other
disposition of any of the assets of the Company or any of its Subsidiaries,
other than (a) sales of assets in the ordinary course of business, (b) sales of
assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the
sale, transfer or other disposition of assets of the Company where the proceeds
are applied to the purchase price or traded in for credit against the purchase
price of other assets, provided that any such purchase is made, or credit
issued, within 90 days of the sale, transfer or other disposition, and (d) one
or more sales of the Company's assets (other than sales otherwise included in
clauses (a), (b), and (c) immediately above) which collectively yield up to an
aggregate of one million dollars ($1,000,000) in gross proceeds to the Company
while this Note is outstanding.

               1.22 "Restricted Payment" means (a) any dividend or other
distribution (whether in cash, securities or other property) with respect to any
shares of any class of capital stock of the Company or any of its Subsidiaries
or (b) any payment (whether in cash, securities or other property), including
any sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any shares of any class
of capital stock of the Company or any Subsidiary

                                                                               5


or any option, warrant or other right to acquire any such shares of capital
stock of the Company or any Subsidiary.

               1.23 "Security Agreement" means that certain Guaranty and
Security Agreement, of even date herewith between the Company, Compass Holding
Corp., the Lenders and the other parties thereto from time to time, and all
amendments, modifications and extensions thereto.

               1.24 "Series E Conversion Price" shall have the meaning set forth
in the Series E Certificate of Determination.

               1.25 "Series E Preferred Stock" means the Series E Preferred
Stock, par value $0.001, of the Company.

               1.26 "Subordination Agreement" shall have the meaning set forth
in Section 5.3.

               1.27 "SVB" means Silicon Valley Bank, a California chartered
bank, or any Affiliates thereof.

               1.28 "UCC" shall have the meaning set forth in Section 5.4.

          2. Interest. Simple interest shall accrue at the rate of ten percent
(10%) per annum (or such lesser amount as shall equal the highest rate of
interest allowable under applicable law) (the "Interest Rate"), on the
outstanding principal of this Note from the date of this Note until the Maturity
Date or the date this Note is otherwise repaid. The Company shall not be
obligated to make any payments of interest which shall have accrued under this
Note prior to the Maturity Date. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. In the event that the
principal amount of this Note, any interest, or any amount payable hereunder is
not paid in full when such amount becomes due and payable, or upon the
occurrence of an Event of Default, interest shall accrue at the lesser of (a)
the initial Interest Rate plus five percent (5%) per annum or (b) the highest
rate of interest allowable under applicable law, on the balance of all amounts
outstanding until such overdue amounts are paid or the Event of Default is
cured, and such interest shall be payable on demand.

          3. Conversion.

               3.1 Conversion. On the Conversion Date, the principal amount of
this Note plus the greater of (i) the accrued and unpaid interest thereon and
(ii) the Guaranteed Interest (the greater of clause (i) and (ii), the "Interest
Amount"), shall be automatically converted into the number of fully paid and
nonassessable shares of Series E Preferred Stock equal to the quotient obtained
by dividing (a) the entire principal amount of this Note plus the Interest
Amount by (b) the Price Per Share.

               3.2 Notice of Conversion. Upon conversion of this Note as
provided in Section 3.1, Holder shall surrender this Note to the Company and
shall state the name or names in which the certificate or certificates for such
shares of Series E

                                                                               6


Preferred Stock are to be issued. The Person or Persons entitled to receive the
shares of Series E Preferred Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Series E Preferred Stock as of the Conversion Date.

               3.3 Delivery of Stock Certificates. On the Conversion Date, the
Company at its expense will issue and deliver to Holder of this Note a
certificate or certificates (bearing such legends as are required by applicable
state and federal securities laws in the opinion of counsel to the Company) for
the number of full shares of Series E Preferred Stock issuable upon such
conversion.

               3.4 Mechanics and Effect of Conversion. No fractional shares of
Series E Preferred Stock shall be issued upon conversion of this Note. In lieu
of the Company issuing any fractional shares to Holder upon the conversion of
this Note, the Company shall pay to Holder the amount of outstanding principal
and interest that is not so converted. Upon conversion of all amounts due under
this Note, the Company shall be released from all of its obligations under this
Note.

          4. Adjustments. The number of shares of Series E Preferred Stock
convertible hereunder are subject to adjustment from time to time as follows:

               4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at
any time while this Note remains outstanding and unexpired there shall be (a) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (b) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise or (c) a sale or
transfer of the Company's stock, properties or assets as, or substantially as,
an entirety to any other Person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that Holder
shall thereafter be entitled to receive by converting this Note the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon conversion of this Note would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Note had been converted immediately before such reorganization,
merger, consolidation, sale or transfer (notwithstanding that the Stockholder
Approval may not yet have been obtained), all subject to further adjustment as
provided in this Section 4. The foregoing provisions of this Section 4.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation. If the
per share consideration payable to Holder hereof for shares in connection with
any such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
Company's Board of Directors based on the amount the Holder would have otherwise
been entitled to receive had the transaction or transactions not occurred. In
all events, appropriate adjustment (as determined in good faith by the Company's

                                                                               7


Board of Directors) shall be made in the application of the provisions of this
Note with respect to the rights and interests of Holder after the transaction,
to the end that the provisions of this Note shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon conversion of this Note. The Company shall be
obligated to retain and set aside, or otherwise make fair provision for exercise
of the right of the Holder to receive, the shares of stock and/or other
securities, cash or other property provided for in this Section 4.1.

               4.2 Election of Holder upon Merger or Sale of Assets.
Notwithstanding anything to the contrary contained herein, if an event shall
occur as provided in Section 4.1 hereof that would otherwise result in the
occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first
paragraph of this Note, then the Holder may, in its sole discretion, by written
notice to the Company elect to convert the principal amount of this Note plus
the Interest Amount into the number of shares of stock or other securities or
property described in Section 4.1, in lieu of receiving payment in full of all
amounts outstanding under this Note. The number of shares of stock or other
securities or property to be issued upon such conversion shall be determined in
accordance with Section 4.1 hereof, taking into account the occurrence of such
event.

               4.3 Reclassification, Etc. If the Company shall, at any time
while this Note, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, change any of the securities as to
which conversion rights under this Note exist into the same or a different
number of securities of any other class or classes, this Note shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable with respect to the securities that were subject to the conversion
rights under this Note immediately prior to such reclassification or other
change, and the Price Per Share shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 4.

               4.4 Split, Subdivision or Combination of Shares. If the Company
at any time while this Note, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the shares of Series E Preferred
Stock into a different number of securities of the same class, the Price Per
Share shall be proportionately adjusted.

               4.5 Series E Adjustments. The initial Series E Conversion Price
of the shares of Series E Preferred Stock issued upon conversion of this Note
pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on
the Conversion Date, subject to the adjustment of such Series E Conversion Price
from time to time thereafter as provided in the Series E Certificate of
Determination.

               4.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 4, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.

                                                                               8


               4.7 No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of Holder against impairment.

          5. Covenants. The Company covenants and agrees that until the earlier
of (i) the date on which all Obligations (as defined in the Security Agreement)
have been paid in full or (ii) the Conversion Date:

               5.1 Financial Statements and Other Information. The Company shall
deliver to the Holder of this Note the financial statements and other
information required to be delivered under Section 8.1 of the Purchase
Agreement.

               5.2 Financial Covenants. The Company shall at all times comply
with the financial and other covenants set forth in Schedule 8.5 to the Purchase
Agreement as if such covenants were set forth herein.

               5.3 Indebtedness. The Company shall not, and shall not permit any
Subsidiary to, issue, incur, assume, create or have outstanding any
Indebtedness, provided, however, that the foregoing shall not restrict nor
operate to prevent:

                    (a) Indebtedness in favor of the Holders under the Loan
Documents;

                    (b) Indebtedness existing on the date hereof, and as set
forth on Schedule 3.22 to the Purchase Agreement;

                    (c) Indebtedness for accounts payable incurred in the
ordinary course of business by the Company;

                    (d) Indebtedness incurred solely for the purpose of
financing the acquisition of any equipment, machinery, software, improvements or
any other similar property, or extensions, renewals or replacements of any of
the foregoing for the same or a lesser amount; provided, that the aggregate
outstanding principal amount of all Indebtedness permitted pursuant to this
clause (d) outstanding for more than sixty (60) days after the incurrence of
such Indebtedness shall not at any time exceed $500,000;

                    (e) Indebtedness of the Company evidenced by Capitalized
Lease Obligations, provided, that in no event shall the aggregate principal
amount of Capitalized Lease Obligations permitted by this clause (e) exceed
$500,000 at any time outstanding; and

                    (f) Any extension renewal, refinancing, refunding, or
replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and
(e)

                                                                               9


above, on such terms and conditions as are, on the whole, not materially more
onerous to the Company than the terms and conditions of such original
Indebtedness on the date of such refinancing (including that the principal
amount of such refinancing Indebtedness does not exceed the principal amount of,
plus the amount of accrued and unpaid interest on, the Indebtedness so
refinanced (plus the amount of reasonable premium and fees and expenses incurred
in connection therewith)), provided that, in the case of a refinancing of
Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall
only apply to the extent consistent with the Subordination Agreement, dated as
of the date hereof, by and among SVB, the Holders and the Company (the
"Subordination Agreement").

               5.4 Liens. The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
the Company or any of its Subsidiaries, whether now owned or hereafter acquired,
or sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable), or assign any right to receive income or permit the
filing of any financing statement under the Uniform Commercial Code, as from
time to time in effect in the relevant jurisdiction (the "UCC"), or any other
similar notice of Lien under any similar recording or notice statute; provided,
that the provisions of this Section 5.4 shall not prevent the creation,
incurrence, assumption or existence of the following:

                    (a) Liens arising in the ordinary course of business by
statute in connection with worker's compensation, unemployment insurance, old
age benefits, social security obligations, statutory obligations or other
similar charges (other then Liens arising under ERISA), good faith cash deposits
in connection with tenders, contracts or leases to which the Company or any
Subsidiary is a party or other cash deposits required to be made in the ordinary
course of business, provided, that such Liens do not have a material adverse
effect on the ability of the Company to repay amounts due under the Notes;

                    (b) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due or Liens for taxes, assessments or governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP;

                    (c) Liens in respect of property or assets of the Company or
its Subsidiaries imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as carriers',
warehousemen's, materialmen's and mechanics' liens and other similar Liens
arising in the ordinary course of business, and (i) which do not in the
aggregate materially detract from the value of the Company's and its
Subsidiaries' property or assets taken as a whole or result in a material
adverse effect on the Condition of the Company or (ii) which are being contested
in good faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to any such
Lien;

                                                                              10


                    (d) the pledge of assets for the purpose of securing an
appeal, stay or discharge in the course of any legal proceeding, provided that
the aggregate amount of liabilities of the Company and its Subsidiaries secured
by a pledge of assets permitted under this subsection, including interest and
penalties thereon, if any, shall not be in excess of $500,000 at any one time
outstanding;

                    (e) any interest or title of a lesser under any operating
lease;

                    (f) easements, rights-of-way, restrictions and other similar
encumbrances against real property incurred in the ordinary course of business;

                    (g) the Liens existing on the date hereof identified on
Schedule 3.22 to the Purchase Agreement;

                    (h) Liens on cash deposited with account debtors to secure
performance by the Company or any Subsidiary in the ordinary course of business
subject to customary and reasonable terms;

                    (i) Liens upon assets of the Company or its Subsidiaries
subject to Capitalized Lease Obligations, provided, that (A) such Liens only
serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising
under such Capitalized Lease Obligation and (B) the Lien encumbering the asset
giving rise to the Capitalized Lease Obligation does not encumber any other
asset of the Company or its Subsidiaries;

                    (j) Liens placed upon equipment, machinery, software,
improvements or any other similar property, used in the ordinary course of
business of the Company or any of its Subsidiaries at the time of the
acquisition thereof by the Company or any of its Subsidiaries or within ninety
(90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above;
provided, that the Liens encumbering the equipment, machinery software,
improvements or any other similar property so acquired do not encumber any other
asset of the Company or its Subsidiaries;

                    (k) set-off rights of depository institutions; and

                    (l) Liens created by the Security Agreement (collectively
with clauses (a) through (k) hereof, the "Permitted Liens").

               5.5 Fundamental Changes. The Company will not, and will not
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (in one transaction or a series of transactions)
all or substantially all of its assets, or all or substantially all of the stock
of any of its Subsidiaries (in each case, whether now owned or hereafter
acquired), or liquidate or dissolve, except that, if at the time and immediately
after giving effect thereto no Event of Default shall have occurred and be
continuing (i) the Company or any of its Subsidiaries may, with the prior
written consent of the Holders, merge with or into any other Person; (ii) any
wholly-owned

                                                                              11


Subsidiary of the Company (other than the Guarantor) may merge with or into the
Company or any other wholly-owned Subsidiary of the Company; (iii) any
Subsidiary (other than the Guarantor, and except as otherwise prohibited by this
Note) may sell, transfer, lease or otherwise dispose of its assets to the
Company or to another wholly-owned Subsidiary of the Company; and (iv) any
Subsidiary may liquidate or dissolve if the board of directors of the Company
determine in good faith that such liquidation or dissolution is in its best
interests and is not disadvantageous to the Holders.

               5.6 Restricted Payments. The Company will not, and the Company
will not permit any Subsidiary to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except that (i) any Subsidiary
may make a Restricted Payment to the Company or any of its wholly-owned
Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any
Restricted Payment required by the terms of the Purchase Agreement and the other
documents executed in connection therewith.

               5.7 Transactions with Affiliates. The Company will not, and the
Company will not permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions that are at prices and on terms and
conditions not less favorable to the Company or such Subsidiary than could be
obtained on an arm's length basis from unrelated third parties, (b) transactions
exclusively between the Company and the Guarantor and (c) transactions under the
agreements listed on Schedule 3.17 to the Purchase Agreement.

               5.8 Investments. The Company will not, and the Company will not
permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment
in any Person, except for Permitted Investments.

               5.9 Nature of Business. The Company will not, and the Company
will not permit any Subsidiary to, engage in any business other than that
conducted on the date hereof and any businesses reasonably related thereto.

               5.10 Property of Existing Domestic Subsidiaries. The Company will
not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise
organized under the laws of the United States of America or any state thereof (a
"Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease,
license, purchase or otherwise acquire any personal or real property (excluding
any material intellectual property) in excess of $50,000 for all property held
by such Subsidiary, or $250,000 in the aggregate for all property held by all
Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own
or otherwise hold any rights to any material intellectual property or (iv)
otherwise conduct any business or maintain operations.

               5.11 Formation of Subsidiaries. The Company will not, and will
not cause or permit any of its Subsidiaries to, form, acquire or permit the
existence of any new domestic Subsidiary, without causing such domestic
Subsidiary to execute and

                                                                              12


deliver to the Holders a secured guaranty of the Notes and related security
document, in form and substance satisfactory to the Holders.

               5.12 Books and Records. The Company shall keep proper books of
record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company and its
Subsidiaries in accordance with GAAP consistently applied.

               5.13 Inspection. The Company shall, and shall cause each of its
Subsidiaries to, permit representatives of the Holders to visit and inspect any
of its properties, to examine its corporate, financial and operating records and
make copies thereof or abstracts therefrom, and to discuss its affairs, finances
and accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested upon notice to the Company.

               5.14 Maintenance of Business. The Company shall, and shall cause
each Subsidiary to, preserve and maintain its existence. The Company shall, and
shall cause each Subsidiary to, preserve and keep in force and effect all
licenses, permits, franchises, approvals, patents, trademarks, trade names,
trade styles, copyrights, and other property rights necessary to the proper
conduct of its business, except where the failure to do so could not reasonably
be expected to have a material adverse effect on the Condition of the Company or
on the prospects of repayment of the Notes.

               5.15 Maintenance of Properties. The Company shall, and shall
cause each Subsidiary to, maintain, preserve and keep its property and equipment
in good repair, working order and condition (ordinary wear and tear excepted)
and shall from time to time make all needful and proper repairs, renewals,
replacements, additions and betterments thereto so that at all times the
efficiency thereof shall by fully preserved and maintained, except in each case
to the extent that, in the reasonable business judgment of such Person, any such
property or equipment is no longer necessary for the proper conduct of the
business of such Person.

          6. The occurrence of any one or more of the following events shall
constitute an "Event of Default":

               6.1 Failure To Pay. (i) The failure of the Company to pay any
principal due under any of the Notes when due and payable (whether by
acceleration, declaration, extension or otherwise), or (ii) the failure of the
Company to pay any other amounts due under any of the Notes when due and payable
if such failure is not cured within five (5) days of Company's receipt of notice
thereof from any of the Holders.

               6.2 Financial Covenants. The failure of Company or any of its
Subsidiaries to perform, observe or comply with any of the Financial Covenants
set forth on Schedule 8.5 to the Purchase Agreement, and incorporated by
reference in this Note in Section 5.2.

                                                                              13


               6.3 Other Covenants and Agreements. The failure of Company or any
of its Subsidiaries to perform, observe or comply with any of the covenants of
this Note, the Security Agreement or any of the other Loan Documents (other than
the Financial Covenants set forth on Schedule 8.5 to the Purchase Agreement, and
incorporated by reference in this Note in Section 5.2), if such failure is not
cured within sixty (60) days.

               6.4 Representations and Warranties. If any representation or
warranty made by the Company or any of its Subsidiaries in the Loan Documents is
not true and correct in all material respects on the Initial Closing Date.

               6.5 Default on Other Obligations. The occurrence of any condition
or default under any other indebtedness for borrowed money of the Company or any
of its Subsidiaries with a principal amount of at least five hundred thousand
dollars ($500,000) that results in the acceleration of such indebtedness which
is not cured within sixty (60) days.

               6.6 Involuntary Bankruptcy. There shall be filed against the
Company or any of its Subsidiaries an involuntary petition or other pleading
seeking the entry of a decree or order for relief under the United States
Bankruptcy Code or any similar federal or state insolvency or similar laws
ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a
reorganization of the Company or any of its Subsidiaries or the business and
affairs of the Company or any of its Subsidiaries or (c) the appointment of a
receiver, liquidator, assignee, custodian, trustee or similar official for the
Company or any of its Subsidiaries of the property of the Company or any of its
Subsidiaries.

               6.7 Voluntary Bankruptcy. The commencement by the Company or any
of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any
federal or state insolvency or similar laws or the consent by the Company or any
of its Subsidiaries to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or similar official for the Company or
any of its Subsidiaries of any of the property of the Company or any of its
Subsidiaries or the making by the Company or any of its Subsidiaries of an
assignment for the benefit of creditors, or the failure by Company or any of its
Subsidiaries generally to pay its debts as the debts become due.

               6.8 Judgments, Awards. Any judgment or order for the payment of
money is rendered against the Company or any of its Subsidiaries in an amount in
excess of five hundred thousand dollars ($500,000) individually or in the
aggregate and either (i) enforcement proceedings are commenced by any creditor
upon such judgment or order and not stayed, or (ii) there is any period of sixty
(60) consecutive days during which such judgment has not been paid in full or a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, is not in effect.

               6.9 Attachment by Lenders. Any assets of the Company or any of
its Subsidiaries shall be attached, levied upon, seized or repossessed, or come
into the

                                                                              14


possession of a trustee, receiver or other custodian and a determination by any
Holder, in good faith but in its sole discretion, that the same could have a
material adverse effect on the prospect for the Holders to fully and punctually
realize the full benefits conferred on the Holders by the Loan Documents.

               6.10 Adverse Change in Financial Condition. Any event having a
material adverse effect on the business, operations, assets, properties or
condition of the Company and its Subsidiaries taken as a whole shall have
occurred and be continuing or a material adverse effect on the validity or
enforceability of this or any of the other Loan Documents or the rights or
remedies of the Holders hereunder or thereunder.

          7. Remedies. Upon and after the occurrence of an Event of Default, the
Holder shall be entitled to the exercise the rights and remedies set forth in
the Security Agreement, the other Loan Documents and under applicable law, all
such rights and remedies being cumulative and enforceable alternatively,
successively or concurrently.

          8. Prepayment. The Company may not prepay this Note prior to the
Maturity Date without the prior written consent of the Holders.

          9. Seniority. Except as set forth in the Subordination Agreement, the
Notes will rank senior in right of payment to all other indebtedness of the
Company.

          10. Assignment. Subject to the restrictions on transfer described in
Section 12 below, the rights and obligations of the Company and Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties. The Company shall not be permitted to assign this
Note without the prior written consent of the Holders.

          11. Waiver of Notice. The Company hereby waives notice, presentment,
demand, protest and notice of dishonor.

          12. Transfer of This Note. With respect to any offer, sale or other
disposition of this Note, Holder will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such Holder's counsel, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any
federal or state law then in effect); provided, that no opinion shall be
required for any transfer to an Affiliate or if the transfer is made in
compliance with the Securities Act, so long as the transferee can make the same
representations and warranties at the time of transfer as set forth in Sections
4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Purchase Agreement. Promptly upon
delivering such written notice and opinion, if so required, Holder may sell or
otherwise dispose of this Note, all in accordance with the terms of the notice
delivered to the Company. Each Note thus transferred shall bear a legend as to
the applicable restrictions on transferability in order to ensure compliance
with the Securities Act, unless in the opinion of counsel for the Company such
legend is not required in order to ensure compliance with the Securities Act.
The Company may issue stop transfer instructions to its transfer agent in

                                                                              15


connection with such restrictions. Notwithstanding the foregoing, the Holder
shall not be permitted to transfer this Note to any Person who is not an
Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii)
the receipt of written notice from the Company that Stockholder Approval cannot
be obtained, or the occurrence of an actual vote of the Company's shareholders
entitled to vote (whether by written consent or at a meeting specially called
for such purpose), the result of which is a decision by a majority of the
Company's shareholders entitled to vote to decline to grant Stockholder
Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of
an Event of Default.

          13. Treatment of Note. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.

          14. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by nationally recognized courier
service or mailed by registered or certified mail, postage prepaid, to the
respective addresses of the parties as set forth on the signature pages hereto
or if sent by facsimile to the respective facsimile numbers of the parties set
forth on the signature pages hereto. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively be
deemed to have been given and received when personally delivered or three (3)
business days after deposited in the mail or one business day after sent by
courier or upon confirmation of facsimile delivery in the manner set forth
above.

          15. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon Holder or any other Person the right to vote or to
consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company.

          16. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, excluding that body of law
relating to conflict of laws.

          17. Amendments and Waivers. No amendments or waivers of any provision
of this Note, and no consent by the Holder to any departure by the Company,
shall in any event be effective unless the same shall be in writing, and signed
by the Holders of a majority of the outstanding principal amount of all of the
Notes issued by the Company pursuant to the Purchase Agreement, and then such
waiver or consent shall be effective only in the specific instance and for the
purpose for which given.

          18. Severability. Any provision of this Note that is prohibited or
unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

                                                                              16


          19. WAIVER OF JURY TRIAL. THE COMPANY AND THE HOLDER HEREBY (A)
COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT
BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE
COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN
ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY
TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY
OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN
THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER
OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE.
THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND
VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER
HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY
INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT
THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE
COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF
RIGHT TO TRIAL BY JURY. EACH OF THE COMPANY AND THE HOLDER REPRESENTS AND
WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE
MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE
WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH
COUNSEL.

          20. Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except as otherwise indicated, all references herein to Sections refer to
Sections hereof.

              [the remainder of this page intentionally left blank]

                                                                              17


          IN WITNESS WHEREOF, the Company has caused this Note to be issued this
26th day of November, 2003.

                                          COMPANY:

                                          CRITICAL PATH, INC.,
                                          a California corporation

                                          By: /s/ Michael J. Zukerman
                                              ----------------------------------
                                              Name: Michael J. Zukerman.
                                              Title: Senior Vice President and
                                              General Counsel

                                              Critical Path, Inc.
                                              350 The Embarcadero
                                              San Francisco, CA 94105-1204
                                              Telecopy: (415) 541-2300
                                              Attention: Chief Financial Officer

                                              With a copy to:

                                              Pillsbury Winthrop LLP
                                              50 Fremont Street
                                              San Francisco, CA 94105
                                              Telecopy: (415) 983-1200
                                              Attention: Gregg Vignos, Esq.

Name of Holder: GAPCO GmbH & Co. KG

Address:        c/o General Atlantic Service Corporation
                3 Pickwick Plaza
                Greenwich, CT 06830
                Telecopy: (203) 618-9207
                Attention: Matthew Nimetz
                           Thomas J. Murphy

With a copy to:

                Paul, Weiss, Rifkind, Wharton & Garrison LLP
                1285 Avenue of the Americas
                New York, NY 10019-6064
                Attention: Douglas A. Cifu, Esq.
                Telecopy: (212) 757-3990

EX-4.25

                                                                    EXHIBIT 4.25


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




                           SECOND AMENDED AND RESTATED
                          REGISTRATION RIGHTS AGREEMENT

                                      among

                               CRITICAL PATH, INC.

                       GENERAL ATLANTIC PARTNERS 74, L.P.,

                       GAP COINVESTMENT PARTNERS II, L.P.,

                                  GAPSTAR, LLC,

                               GAPCO GMBH & CO. KG

                                       and

                         THE OTHER PARTIES LISTED HEREIN

                                   ----------

                             Dated: January 16, 2004

                                   ----------



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





                                TABLE OF CONTENTS




                                                                                                        Page
                                                                                                        ----
                                                                                                  
1.       Definitions.....................................................................................2

2.       General; Securities Subject to this Agreement...................................................6
         (a)      Grant of Rights........................................................................6
         (b)      Registrable Securities.................................................................6
         (c)      Holders of Registrable Securities......................................................6

3.       Demand Registration.............................................................................7
         (a)      Request for Demand Registration........................................................7
         (b)      Incidental or "Piggy-Back" Rights with Respect to a Demand Registration................7
         (c)      Effective Demand Registration..........................................................8
         (d)      Expenses...............................................................................8
         (e)      Underwriting Procedures................................................................8
         (f)      Selection of Underwriters..............................................................9

4.       Incidental or "Piggy-Back" Registration.........................................................9
         (a)      Request for Incidental Registration....................................................9
         (b)      Expenses..............................................................................10

5.       Holdback Agreements............................................................................10
         (a)      Restrictions on Public Sale by Designated Holders.....................................10
         (b)      Restrictions on Public Sale by the Company............................................11

6.       Registration Procedures........................................................................11
         (a)      Obligations of the Company............................................................11
         (b)      Seller Information....................................................................14
         (c)      Notice to Discontinue.................................................................14
         (d)      Registration Expenses.................................................................14

7.       Indemnification; Contribution..................................................................15
         (a)      Indemnification by the Company........................................................15
         (b)      Indemnification by Designated Holders.................................................15
         (c)      Conduct of Indemnification Proceedings................................................16
         (d)      Contribution..........................................................................16

8.       Rule 144.......................................................................................17

9.       Miscellaneous..................................................................................17
         (a)      Recapitalizations, Exchanges, etc.....................................................17
         (b)      No Inconsistent Agreements............................................................17
         (c)      Remedies..............................................................................17
         (d)      Amendments and Waivers................................................................18
         (e)      Notices...............................................................................18
         (f)      Successors and Assigns; Third Party Beneficiaries.....................................20


                                       i








                                                                                                        Page
                                                                                                        ----
                                                                                                  
         (g)      Counterparts..........................................................................20
         (h)      Headings..............................................................................21
         (i)      Governing Law.........................................................................21
         (j)      Severability..........................................................................21
         (k)      Rules of Construction.................................................................21
         (l)      Entire Agreement......................................................................21
         (m)      Further Assurances....................................................................21
         (n)      Other Agreements......................................................................21
         (o)      Effective Date and Termination........................................................21


                                       ii





                           SECOND AMENDED AND RESTATED
                          REGISTRATION RIGHTS AGREEMENT

         SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated
January 16, 2004 (this "Agreement"), among Critical Path, Inc., a California
corporation (the "Company"), General Atlantic Partners 74, L.P., a Delaware
limited partnership ("GAP LP"), GAP Coinvestment Partners II, L.P., a Delaware
limited partnership ("GAP Coinvestment"), GapStar, LLC, a Delaware limited
liability company ("GapStar"), GAPCO GmbH & Co. KG, a German limited partnership
("GmbH Coinvestment"), Cenwell Limited ("Cenwell"), Campina Enterprises Limited
("Campina"), Great Affluent Limited ("Great Affluent"), Dragonfield Limited
("Dragonfield"), Lion Cosmos Limited ("Lion Cosmos"), Vectis CP Holdings, LLC, a
Delaware limited liability company ("Vectis"), Permal U.S. Opportunities Limited
("Permal"), Zaxis Equity Neutral, L.P. ("Zaxis Equity"), Zaxis Institutional
Partners, L.P. ("Zaxis Institutional"), Zaxis Offshore Limited ("Zaxis
Offshore"), Zaxis Partners, L.P. ("Zaxis Partners and collectively with Permal,
Zaxis Equity, Zaxis Institutional and Zaxis Offshore, "Apex Capital"), Passport
Master Fund, L.P. ("Passport Capital"),

         WHEREAS, pursuant to the Stock and Warrant Purchase Agreement, dated
November 8, 2001, as amended from time to time (the "Stock Purchase Agreement"),
among the Company, GAP LP, GAP Coinvestment, GapStar, Cenwell, Campina and
Vectis, the Company has (i) issued and sold to GAP LP, GAP Coinvestment,
GapStar, Cenwell, Campina and Vectis, an aggregate of 2,162,582 shares of Series
D Cumulative Redeemable Convertible Participating Series D Preferred Stock, par
value $0.001 per share, of the Company, as amended from time to time (the
"Series D Preferred Stock"), (ii) issued and delivered to GAP LP, GAP
Coinvestment and GapStar an aggregate of 1,837,418 shares of Series D Preferred
Stock in exchange for a certain amount of convertible subordinated notes of the
Company and (iii) issued and sold to GAP LP, GAP Coinvestment and GapStar
warrants to purchase shares of Common Stock (as hereinafter defined) (the
"Warrants");

         WHEREAS, pursuant to the Convertible Note Purchase and Exchange
Agreement, dated November 18, 2003 (the "Convertible Note Purchase and Exchange
Agreement"), among the Company, GAP LP, GAP Coinvestment, GapStar, GAP-W, LLC, a
Delaware limited liability company, GmbH Coinvestment, Campina, Cenwell, Great
Affluent, Dragonfield and Lion Cosmos, as amended, (i) the Company has issued
and sold to GAP LP, GAP Coinvestment, GapStar and GmbH Coinvestment convertible
promissory notes (the "GA Notes") which are convertible into shares, par value
$0.001 per share, of Series E Redeemable Convertible Preferred Stock of the
Company (the "Series E Preferred Stock") and (ii) Campina, Cenwell, Great
Affluent, Dragonfield and Lion Cosmos agreed upon the satisfaction of certain
conditions to exchange their CK Sub Notes (as hereinafter defined) for shares of
Series E Preferred Stock;

         WHEREAS, pursuant to the Convertible Note Purchase Agreement, dated
January 16, 2004, among the Company, Apex Capital and Passport Capital (the
"Apex Note Purchase Agreement"), (i) the Company has issued and sold to Apex
Capital and Passport Capital





convertible promissory notes (the "Apex Notes" and, together with the GA Notes,
the "Notes") which are convertible into shares of Series E Preferred Stock; and

         WHEREAS, in order to induce (i) each of GAP LP, GAP Coinvestment,
GapStar, GmbH Coinvestment, Apex Capital and Passport Capital to purchase the
Notes and (ii) Campina, Cenwell, Great Affluent, Dragonfield and Lion Cosmos to
exchange the CK Sub Notes for shares of Series E Preferred Stock, the Company
has agreed to grant registration rights with respect to the Registrable
Securities (as hereinafter defined) as set forth in this Agreement.

         NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:

         1. Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:

                  "Affiliate" shall mean any Person who is an "affiliate" as
defined in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act.

                  "Agreement" means this Agreement as the same may be amended,
supplemented or modified in accordance with the terms hereof.

                  "Amended and Restated Stockholders Agreement" shall mean the
Amended and Restated Stockholders Agreement, dated the date hereof, among the
Company, GAP LP, GAP Coinvestment, GapStar, GmbH Coinvestment and the Persons
listed therein as "Coinvestors."

                  "Apex Capital" has the meaning set forth in the preamble to
this Agreement.

                  "Apex Note Purchase Agreement" has the meaning set forth in
the recitals to this Agreement.

                  "Apex Notes" has the meaning set forth in the recitals to this
Agreement.

                  "Apex Stockholders" means Apex Capital and Passport Capital
and any Affiliate thereof that, after the date hereof, acquires Registrable
Securities.

                  "Approved Underwriter" has the meaning set forth in Section
3(f) of this Agreement.

                  "Board of Directors" means the Board of Directors of the
Company.

                  "Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in the State of New York are authorized or
required by law or executive order to close.

                  "Campina" has the meaning set forth in the preamble to this
Agreement.

                  "Cenwell" has the meaning set forth in the preamble to this
Agreement.


                                       2





                  "Coinvestor Stockholders" means Cenwell, Campina, Great
Affluent, Dragonfield, Lion Cosmos and any Affiliate thereof that, after the
date hereof, acquires Registrable Securities.

                  "CK Sub Notes" means the 53/4% Convertible Subordinated Notes
due April 1, 2005 issued by the Company in the principal face amount of
thirty-two million seven hundred ninety-five thousand dollars ($32,795,000),
pursuant to the Company's Indenture, dated March 31, 2000.

                  "Commission" means the Securities and Exchange Commission or
any similar agency then having jurisdiction to enforce the Securities Act.

                  "Common Stock" means the Common Stock, par value $0.001 per
share, of the Company or any other capital stock of the Company into which such
stock is reclassified or reconstituted and any other common stock of the
Company.

                  "Company" has the meaning set forth in the preamble to this
Agreement.

                  "Company Underwriter" has the meaning set forth in Section
4(a) of this Agreement.

                  "Conversion" has the meaning set forth in the Apex Note
Purchase Agreement.

                  "Conversion and Exchange" has the meaning set forth in the
Convertible Note Purchase and Exchange Agreement.

                  "Convertible Note Purchase and Exchange Agreement" has the
meaning set forth in the recitals to this Agreement.

                  "Daily Trade Amount" means, as to each of the General Atlantic
Stockholders, the Coinvestor Stockholders, the Vectis Stockholders and the Apex
Stockholders (other than Passport Capital), the greater of (w) with respect to
any date a proposed sale pursuant to a Registration Statement is to be executed,
20% of the daily trading volume of the Common Stock on the Nasdaq National
Market System on the date a proposed trade is to take place and (x) 20% of the
average daily trading volume of the Common Stock on the Nasdaq National Market
for the five trading days immediately preceding such date, and as to Passport
Capital, the greater of (y) 6.7% of the daily trading volume of the Common Stock
on the Nasdaq National Market System on the date a proposed trade is to take
place and (z) 6.7% of the average daily trading volume of the Common Stock on
the Nasdaq National Market for the five trading days immediately preceding such
date; provided, however, that for the purpose of calculating the Daily Trade
Amount, a block trade effected by a party outside the Nasdaq National Market
System shall be disregarded for purposes of calculating the amount disposed of
by the party and the daily trading volume. The Daily Trade Amount shall apply to
each such stockholder severally and not jointly, shall not be aggregated among
or between such stockholders, and such stockholders shall not be required hereby
to coordinate their sales or dispositions of Common Stock.


                                       3



                  "Demand Registration" has the meaning set forth in Section
3(a) of this Agreement.

                  "Designated Holder" means each of the General Atlantic
Stockholders, the Coinvestor Stockholders, the Vectis Stockholders and the Apex
Stockholders and any transferee of any of them to whom Registrable Securities
have been transferred in accordance with Section 9(f) of this Agreement, other
than a transferee to whom Registrable Securities have been transferred pursuant
to a Registration Statement under the Securities Act or Rule 144 (or any
successor rule thereto).

                  "Dragonfield" has the meaning set forth in the recitals to
this Agreement.

                  "Exchange" has the meaning set forth in the Convertible Note
Purchase and Exchange Agreement.

                  "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.

                  "GA Notes" has the meaning set forth in the recitals to this
Agreement.

                  "GAP Coinvestment" has the meaning set forth in the preamble
to this Agreement.

                  "GAP LLC" means General Atlantic Partners, LLC, a Delaware
limited liability company and the general partner of GAP LP and the managing
member of GapStar, and any successor to such entity.

                  "GAP LP" has the meaning set forth in the preamble to this
Agreement.

                  "GapStar" has the meaning set forth in the preamble to this
Agreement.

                  "General Atlantic Stockholders" means GAP LP, GAP
Coinvestment, GapStar, GmbH Coinvestment and any Affiliate of GAP LLC that,
after the date hereof, acquires Registrable Securities.

                  "GmbH Coinvestment" means GAPCO GmbH & Co. KG, a German
limited partnership.

                  "Great Affluent" has the meaning set forth in the recitals to
this Agreement.

                  "Holders' Counsel" has the meaning set forth in Section
6(a)(i) of this Agreement.

                  "Incidental Registration" has the meaning set forth in Section
4(a) of this Agreement.

                  "Indemnified Party" has the meaning set forth in Section 7(c)
of this Agreement.


                                       4



                  "Indemnifying Party" has the meaning set forth in Section 7(c)
of this Agreement.

                  "Initiating Holders" has the meaning set forth in Section 3(a)
of this Agreement.

                  "Inspector" has the meaning set forth in Section 6(a)(vii) of
this Agreement.

                  "Liability" has the meaning set forth in Section 7(a) of this
Agreement.

                  "Lion Cosmos" has the meaning set forth in the recitals to
this Agreement.

                  "NASD" means the National Association of Securities Dealers,
Inc.

                  "Passport Capital" has the meaning set forth in the preamble
to this Agreement.

                  "Person" means any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, limited liability company, government (or an
agency or political subdivision thereof) or other entity of any kind, and shall
include any successor (by merger or otherwise) of such entity.

                  "Public Offering" means any public offering of the shares of
Common Stock of the Company pursuant to an effective Registration Statement
filed under the Securities Act.

                  "Records" has the meaning set forth in Section 6(a)(vii) of
this Agreement.

                  "Registrable Securities" means each of the following: (a) any
and all shares of Common Stock issued or issuable upon conversion of shares of
Series D Preferred Stock or exercise of the Warrants, and, subject to
Stockholder Approval, any and all shares of Common Stock issued or issuable upon
conversion of shares of Series E Preferred Stock, (b) if the Subsequent Closing
does not occur by April 30, 2004, the shares of Common Stock issued upon
conversion of the Apex Notes, (c) any other shares of Common Stock acquired or
owned by any of the Designated Holders after the date hereof if such Designated
Holder is an Affiliate of the Company and (d) any shares of Common Stock issued
or issuable to any of the Designated Holders with respect to the Registrable
Securities by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise and any shares of Common Stock or voting common
stock issuable upon conversion, exercise or exchange thereof.

                  "Registration Expenses" has the meaning set forth in Section
6(d) of this Agreement.

                  "Registration Statement" means a Registration Statement filed
pursuant to the Securities Act.

                  "Rights Offering" has the meaning set forth in the Convertible
Note Purchase and Exchange Agreement.

                  "Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder.


                                       5

                  "Series D Preferred Stock" has the meaning set forth in the
recitals to this Agreement.

                  "Series E Preferred Stock" has the meaning set forth in the
recitals to this Agreement.

                  "Stock Purchase Agreement" has the meaning set forth in the
recitals to this Agreement.

                  "Stockholder Approval" has the meaning set forth in the
Convertible Note Purchase and Exchange Agreement.

                  "Valid Business Reason" has the meaning set forth in Section
3(a) of this Agreement.

                  "Vectis" has the meaning set forth in the preamble of this
Agreement.

                  "Vectis Stockholders" means Vectis and any Affiliate thereof
that, after the date hereof, acquires Registrable Securities.

                  "Warrants" has the meaning set forth in the recitals to this
Agreement.

         2. General; Securities Subject to this Agreement.

                  (a) Grant of Rights. The Company hereby grants registration
rights to the Designated Holders upon the terms and conditions set forth in this
Agreement.

                  (b) Registrable Securities. For the purposes of this
Agreement, Registrable Securities will cease to be Registrable Securities, when
(i) a Registration Statement covering such Registrable Securities has been
declared effective under the Securities Act by the Commission and such
Registrable Securities have been disposed of pursuant to such effective
Registration Statement, (ii) (x) the entire amount of the Registrable Securities
owned by a Designated Holder may be sold in a single sale, in the opinion of
counsel satisfactory to the Company and such Designated Holder, each in their
reasonable judgment, without any limitation as to volume pursuant to Rule 144
(or any successor provision then in effect) under the Securities Act and (y)
such Designated Holder owning such Registrable Securities owns less than one
percent (1%) of the outstanding shares of Common Stock on a fully diluted basis,
or (iii) the Registrable Securities are proposed to be sold or distributed by a
Person not entitled to the registration rights granted by this Agreement.

                  (c) Holders of Registrable Securities. A Person is deemed to
be a holder of Registrable Securities whenever such Person owns of record
Registrable Securities, or holds an option to purchase, or a security
convertible into or exercisable or exchangeable for, Registrable Securities
whether or not such acquisition or conversion has actually been effected. If the
Company receives conflicting instructions, notices or elections from two or more
Persons with respect to the same Registrable Securities, the Company may act
upon the basis of the instructions, notice or election received from the
registered owner of such Registrable Securities.


                                       6



Registrable Securities issuable upon exercise of an option or upon conversion of
another security shall be deemed outstanding for the purposes of this Agreement.

         3. Demand Registration.

                  (a) Request for Demand Registration. At any time after the
earliest of (i) the expiration or consummation of the exercise of the right of
the General Atlantic Stockholders and the Coinvestor Stockholders (or their
respective permitted transferees) to subscribe for those shares of Series E
Preferred Stock offered in the Rights Offering but not acquired by holders of
shares of the Company's Common Stock, (ii) the termination of the Rights
Offering and (iii) April 30, 2004, if the Conversion and Exchange and the
Conversion have not occurred on or prior to such date, each of (A) the General
Atlantic Stockholders, (B) the Coinvestor Stockholders and (C) Apex Capital (the
"Initiating Holders"), may each make a written request to the Company to
register, and the Company shall register, under the Securities Act and on an
appropriate registration statement form as reasonably determined by the Company
and approved by the Initiating Holders (a "Demand Registration"), the number of
Registrable Securities stated in such request; provided, however, that the
Company shall not be obligated to effect more than one such Demand Registration
for the General Atlantic Stockholders (subject to Section 3(e)(ii) below), more
than one such Demand Registration for the Coinvestor Stockholders (subject to
Section 3(e)(ii) below) and more than one such Demand Registration for the Apex
Stockholders (subject to Section 3(e)(ii) below). If following receipt of a
written request for a Demand Registration the Board of Directors, in its good
faith judgment, determines that any registration of Registrable Securities
should not be made or continued because it would materially interfere with any
material financing, acquisition, corporate reorganization or merger or other
material transaction involving the Company (a "Valid Business Reason"), the
Company may (x) postpone filing a Registration Statement relating to a Demand
Registration until such Valid Business Reason no longer exists, but in no event
for more than ninety (90) days, and (y) in case a Registration Statement has
been filed relating to a Demand Registration, if the Valid Business Reason has
not resulted from actions taken by the Company, the Company, upon the approval
of a majority of the Board of Directors, such majority to include at least one
Director appointed by the General Atlantic Stockholders, may cause such
Registration Statement to be withdrawn and its effectiveness terminated or may
postpone amending or supplementing such Registration Statement. The Company
shall give written notice of its determination to postpone or withdraw a
Registration Statement and of the fact that the Valid Business Reason for such
postponement or withdrawal no longer exists, in each case, promptly after the
occurrence thereof. Notwithstanding anything to the contrary contained herein,
the Company may not postpone or withdraw a filing under this Section 3(a) more
than once in any twelve (12) month period. Each request for a Demand
Registration by the Initiating Holders shall state the amount of the Registrable
Securities proposed to be sold and the intended method of disposition thereof.

                  (b) Incidental or "Piggy-Back" Rights with Respect to a Demand
Registration. Each of the Designated Holders (other than Initiating Holders
which have requested a registration under Section 3(a)) may offer its or his
Registrable Securities under any Demand Registration pursuant to this Section
3(b). Within five (5) days after the receipt of a request for a Demand
Registration from an Initiating Holder, the Company shall (i) give written
notice thereof to all of the Designated Holders (other than Initiating Holders
which have requested a registration under Section 3(a)) and (ii) subject to
Section 3(e), include in such registration all of


                                       7



the Registrable Securities held by such Designated Holders from whom the Company
has received a written request for inclusion therein within ten (10) days of the
receipt by such Designated Holders of such written notice referred to in clause
(i) above. Each such request by such Designated Holders shall specify the number
of Registrable Securities proposed to be registered. The failure of any
Designated Holder to respond within such 10 day period referred to in clause
(ii) above shall be deemed to be a waiver of such Designated Holder's rights
under this Section 3 with respect to such Demand Registration. Any Designated
Holder may waive its rights under this Section 3 prior to the expiration of such
10-day period by giving written notice to the Company, with a copy to the
Initiating Holders. If a Designated Holder sends the Company a written request
for inclusion of part or all of such Designated Holder's Registrable Securities
in a registration, such Designated Holder shall not be entitled to withdraw or
revoke such request without the prior written consent of the Company in its sole
discretion unless, as a result of facts or circumstances arising after the date
on which such request was made relating to the Company or to market conditions,
such Designated Holder reasonably determines that participation in such
registration would have a material adverse effect on such Designated Holder.

                  (c) Effective Demand Registration. The Company shall use all
commercially reasonable efforts to cause any such Demand Registration to be
filed not later than thirty (30) days after it receives a request under Section
3(a) hereof and to become and remain effective as soon as practicable thereafter
but, in any event, not later than ninety (90) days (or, if the Company is
eligible to effect such registration on Form S-3, sixty (60) days) after such
filing. A registration shall not constitute a Demand Registration unless it has
become effective and remains continuously effective until the earlier of the
date (i) on which all Registrable Securities registered in the Demand
Registration are sold and (ii) that is the second anniversary of the
effectiveness of the Registration Statement relating to such Demand
Registration; provided, however, that a registration shall not constitute a
Demand Registration if (x) after such Demand Registration has become effective,
such registration or the related offer, sale or distribution of Registrable
Securities thereunder is interfered with by any stop order, injunction or other
order or requirement of the Commission or other governmental agency or court for
any reason not attributable to the Initiating Holders and such interference is
not thereafter eliminated or (y) the conditions specified in the underwriting
agreement, if any, entered into in connection with such Demand Registration are
not satisfied or waived, other than by reason of a failure by the Initiating
Holder.

                  (d) Expenses. The Company shall pay all Registration Expenses
in connection with a Demand Registration, whether or not such Demand
Registration becomes effective, except for an underwritten Demand Registration
pursuant to Section 3(e)(i)(y) below, as to which each participating Designated
Holder shall bear its pro rata portion of expenses based on the number of shares
of Common Stock registered pursuant thereto.

                  (e) Underwriting Procedures.

                           (i) If (x) any of the Initiating Holders so elects
for itself or (y) with respect to any given trading day, a Designated Holder
proposes to sell or dispose of more than the Daily Trade Amount and the
Company's board of directors determines in good faith that it is necessary for
an orderly distribution to be made pursuant to a firm commitment underwritten


                                       8



offering, then the Company shall use all commercially reasonable efforts to
cause such Demand Registration to be in the form of, and such Designated Holder
or Designated Holders shall be obligated to sell or dispose of its or their
Registrable Securities pursuant to, a firm commitment underwritten offering and
the managing underwriter or underwriters selected for such offering shall be the
Approved Underwriter selected in accordance with Section 3(f). In connection
with any Demand Registration under this Section 3 involving an underwritten
offering, none of the Registrable Securities held by any Designated Holder
making a request for inclusion of such Registrable Securities pursuant to
Section 3(b) hereof shall be included in such underwritten offering unless such
Designated Holder accepts the terms of the offering as agreed upon by the
Company, the Initiating Holders and the Approved Underwriter, and then only in
such quantity as will not, in the opinion of the Approved Underwriter,
jeopardize the success of such offering by the Initiating Holders. If the
Approved Underwriter advises the Company in its reasonable opinion that the
aggregate amount of such Registrable Securities requested to be included in such
offering is sufficiently large to have a material adverse effect on the success
of such offering, then the Company shall include in such registration only the
aggregate amount of Registrable Securities that the Approved Underwriter
believes may be sold without any such material adverse effect and shall reduce
the amount of Registrable Securities to be included in such registration by
removing from such registration securities owned, first by the Company and
second by the Designated Holders (including the Initiating Holders) pro rata
based on the number of Registrable Securities owned by each such Designated
Holder.

                           (ii) If an Initiating Holder makes a request for a
Demand Registration and, pursuant to Section 3(e)(i) above, the Approved
Underwriter advises the Company to reduce the aggregate amount of Registrable
Securities requested to be included in such offering such that less than
seventy-five percent (75%) of the Registrable Securities requested to be
included by any Initiating Holder are ultimately included in and sold pursuant
to such Demand Registration, the Initiating Holder shall have the right to
require the Company to effect an additional Demand Registration; provided,
however, that in no event shall the aggregate number of Demand Registrations to
be effected by the Company for any one Initiating Holder exceed two (2).

                  (f) Selection of Underwriters. If any Demand Registration of
Registrable Securities is in the form of an underwritten offering, the Company
shall select and obtain an investment banking firm of national reputation to act
as the managing underwriter of the offering (the "Approved Underwriter");
provided, however, that the Approved Underwriter shall, in any case, also be
approved by the Initiating Holders.

         4. Incidental or "Piggy-Back" Registration.

                  (a) Request for Incidental Registration. If at any time the
Company proposes to file a Registration Statement under the Securities Act with
respect to an offering by the Company for its own account (other than a
Registration Statement on Form S-4 or S-8 or any successor thereto) or for the
account of any stockholder of the Company other than the Designated Holders,
then the Company shall give written notice of such proposed filing to each of
the Designated Holders at least twenty (20) days before the anticipated filing
date, and such notice shall describe the proposed registration and distribution
and offer such Designated Holders the opportunity to register the number of
Registrable Securities as each such Designated


                                       9



Holder may request (an "Incidental Registration"). The Company shall use all
commercially reasonable efforts (within twenty (20) days of the notice provided
for in the preceding sentence) to cause the managing underwriter or underwriters
in the case of a proposed underwritten offering (the "Company Underwriter") to
permit each of the Designated Holders who have requested in writing to
participate in the Incidental Registration to include its or his Registrable
Securities in such offering on the same terms and conditions as the securities
of the Company or the account of such other stockholder, as the case may be,
included therein. In connection with any Incidental Registration under this
Section 4(a) involving an underwritten offering, the Company shall not be
required to include any Registrable Securities in such underwritten offering
unless the Designated Holders thereof accept the terms of the underwritten
offering as agreed upon between the Company, such other stockholders, if any,
and the Company Underwriter, and then only in such quantity as the Company
Underwriter believes will not jeopardize the success of the offering by the
Company. If the Company Underwriter determines that the registration of all or
part of the Registrable Securities which the Designated Holders have requested
to be included would materially adversely affect the success of such offering,
then the Company shall be required to include in such Incidental Registration,
to the extent of the amount that the Company Underwriter believes may be sold
without causing such adverse effect, first, all of the securities to be offered
for the account of the Company or on the account of the selling stockholder that
caused the registration statement that has triggered the Incidental Registration
to be filed, as the case may be; second, the Registrable Securities to be
offered for the account of the Designated Holders pursuant to this Section 4,
pro rata based on the number of Registrable Securities owned by each such
Designated Holder; and third, any other securities requested to be included in
such offering.

                  (b) Expenses. The Company shall bear all Registration Expenses
in connection with any Incidental Registration pursuant to this Section 4,
whether or not such Incidental Registration becomes effective.

         5. Holdback Agreements.

                  (a) Restrictions on Public Sale by Designated Holders. To the
extent (i) requested (A) by the Company or the Initiating Holders, as the case
may be, in the case of a non-underwritten public offering and (B) by the
Approved Underwriter or the Company Underwriter, as the case may be, in the case
of an underwritten public offering and (ii) all of the Company's officers,
directors and holders in excess of one percent (1%) of its outstanding capital
stock execute agreements identical to those referred to in this Section 5(a),
each Designated Holder agrees (x) not to effect any public sale or distribution
of any Registrable Securities or of any securities convertible into or
exchangeable or exercisable for such Registrable Securities, including a sale
pursuant to Rule 144 under the Securities Act, or offer to sell, contract to
sell (including without limitation any short sale), grant any option to purchase
or enter into any hedging or similar transaction with the same economic effect
as a public sale any Registrable Securities and (y) not to make any request for
a Demand Registration under this Agreement, during the ninety (90) day period or
such shorter period, if any, mutually agreed upon by such Designated Holder and
the requesting party beginning on the effective date of the Registration
Statement (except as part of such registration) for such public offering. No
Designated Holder of Registrable Securities subject to this Section 5(a) shall
be released from any obligation under any agreement, arrangement or
understanding entered into pursuant to this


                                       10



Section 5(a) unless all other Designated Holders of Registrable Securities
subject to the same obligation are also released. All Designated Holders of
Registrable Securities shall be automatically released from any obligations
under any agreement, arrangement or understanding entered into pursuant to this
Section 5(a) immediately upon the expiration of the 90 day period, and in any
case, on the date that is two years from the date of this Agreement.

                  (b) Restrictions on Public Sale by the Company. The Company
agrees not to effect any public sale or distribution of any of its securities,
or any securities convertible into or exchangeable or exercisable for such
securities (except pursuant to registrations on Form S-4 or S-8 or any successor
thereto), during the period beginning on the effective date of any Registration
Statement in which the Designated Holders of Registrable Securities are
participating and ending on the earlier of (i) the date on which all Registrable
Securities registered on such Registration Statement are sold and (ii) 120 days
after the effective date of such Registration Statement (except as part of such
registration).

         6. Registration Procedures.

                  (a) Obligations of the Company. Whenever registration of
Registrable Securities has been requested pursuant to Section 3 or Section 4 of
this Agreement, the Company shall use all commercially reasonable efforts to
effect the registration and sale of such Registrable Securities in accordance
with the intended method of distribution thereof as quickly as practicable, and
in connection with any such request, the Company shall, as expeditiously as
possible:

                           (i) prepare and file with the Commission a
Registration Statement on any form for which the Company then qualifies or which
counsel for the Company shall deem appropriate and which form shall be available
for the sale of such Registrable Securities in accordance with the intended
method of distribution thereof, and cause such Registration Statement to become
effective; provided, however, that (x) before filing a Registration Statement or
prospectus or any amendments or supplements thereto, the Company shall provide
counsel selected by the Designated Holders holding a majority of the Registrable
Securities being registered in such registration ("Holders' Counsel") with an
adequate opportunity to review and comment on such Registration Statement and
each prospectus included therein (and each amendment or supplement thereto) to
be filed with the Commission, subject to such documents being under the
Company's control, and (y) the Company shall notify the Holders' Counsel and
each seller of Registrable Securities of any stop order issued or threatened by
the Commission and take all action required to prevent the entry of such stop
order or to remove it if entered;

                           (ii) prepare and file with the Commission such
amendments and supplements to such Registration Statement and the prospectus
used in connection therewith as may be necessary to keep such Registration
Statement effective for the lesser of (x) 120 days and (y) such shorter period
which will terminate when all Registrable Securities covered by such
Registration Statement have been sold, and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
Registration Statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such Registration
Statement;


                                       11



                           (iii) furnish to each seller of Registrable
Securities, prior to filing a Registration Statement, at least one copy of such
Registration Statement as is proposed to be filed, and thereafter such number of
copies of such Registration Statement, each amendment and supplement thereto (in
each case including all exhibits thereto), and the prospectus included in such
Registration Statement (including each preliminary prospectus) and any
prospectus filed under Rule 424 under the Securities Act as each such seller may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such seller;

                           (iv) register or qualify such Registrable Securities
under such other securities or "blue sky" laws of such jurisdictions as any
seller of Registrable Securities may request, and to continue such qualification
in effect in such jurisdiction for as long as permissible pursuant to the laws
of such jurisdiction, or for as long as any such seller requests or until all of
such Registrable Securities are sold, whichever is shortest, and do any and all
other acts and things which may be reasonably necessary or advisable to enable
any such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller; provided, however, that the Company
shall not be required to (x) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 6(a)(iv), (y) subject itself to taxation in any such jurisdiction or (z)
consent to general service of process in any such jurisdiction;

                           (v) notify each seller of Registrable Securities at
any time when a prospectus relating thereto is required to be delivered under
the Securities Act, upon discovery that, or upon the happening of any event as a
result of which, the prospectus included in such Registration Statement contains
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading and the
Company shall promptly prepare a supplement or amendment to such prospectus and
furnish to each seller of Registrable Securities a reasonable number of copies
of such supplement to or an amendment of such prospectus as may be necessary so
that, after delivery to the purchasers of such Registrable Securities, such
prospectus shall not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading;

                           (vi) enter into and perform customary agreements
(including an underwriting agreement containing representations, warranties,
covenants and indemnities for securities law matters and otherwise in customary
form with the Approved Underwriter or Company Underwriter, if any, selected as
provided in Section 3 or Section 4, as the case may be) and take such other
actions as are prudent and reasonably required in order to expedite or
facilitate the disposition of such Registrable Securities, including causing its
officers to participate in "road shows" and other information meetings organized
by the Approved Underwriter or Company Underwriter;

                           (vii) make available at reasonable times for
inspection by any seller of Registrable Securities, any managing underwriter
participating in any disposition of such Registrable Securities pursuant to a
Registration Statement, Holders' Counsel and any attorney, accountant or other
agent retained by any such seller or any managing underwriter (each, an
"Inspector" and collectively, the "Inspectors"), all financial and other
records, pertinent


                                       12



corporate documents and properties of the Company and its subsidiaries
(collectively, the "Records") as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause the Company's and its
subsidiaries' officers, directors and employees, and the independent public
accountants of the Company, to supply all information reasonably requested by
any such Inspector in connection with such Registration Statement. Records that
the Company determines, in good faith, to be confidential and which it notifies
the Inspectors are confidential shall not be disclosed by the Inspectors (and
the Inspectors shall confirm their agreement in writing in advance to the
Company if the Company shall so request) unless (x) the disclosure of such
Records is necessary, in the Company's judgment, to avoid or correct a
misstatement or omission in the Registration Statement, (y) the release of such
Records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction after exhaustion of all appeals therefrom or (z) the
information in such Records was known to the Inspectors on a non-confidential
basis prior to its disclosure by the Company or has been made generally
available to the public. Each seller of Registrable Securities agrees that it
shall, upon learning that disclosure of such Records is sought in a court of
competent jurisdiction, give notice to the Company and allow the Company, at the
Company's expense, to undertake appropriate action to prevent disclosure of the
Records deemed confidential;

                           (viii) if such sale is pursuant to an underwritten
offering, obtain a "cold comfort" letter dated the effective date of the
Registration Statement and the date of the closing under the underwriting
agreement from the Company's independent public accountants in customary form
and covering such matters of the type customarily covered by "cold comfort"
letters as the managing underwriter reasonably requests;

                           (ix) furnish, at the request of any seller of
Registrable Securities on the date such securities are delivered to the
underwriters for sale pursuant to such registration or, if such securities are
not being sold through underwriters, on the date the Registration Statement with
respect to such securities becomes effective, an opinion, if reasonably
available, dated such date, of counsel representing the Company for the purposes
of such registration, addressed to the underwriters, if any, and to the seller
making such request, covering such legal matters with respect to the
registration in respect of which such opinion is being given as the
underwriters, if any, and such seller may reasonably request and are customarily
included in such opinions;

                           (x) comply with all applicable rules and regulations
of the Commission, and make available to its security holders, as soon as
reasonably practicable but no later than fifteen (15) months after the effective
date of the Registration Statement, an earnings statement covering a period of
twelve (12) months beginning after the effective date of the Registration
Statement, in a manner which satisfies the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder;

                           (xi) cause all such Registrable Securities to be
listed on each securities exchange on which similar securities issued by the
Company are then listed, provided that the applicable listing requirements are
satisfied;

                           (xii) cooperate with each seller of Registrable
Securities and each underwriter participating in the disposition of such
Registrable Securities and their respective counsel in connection with any
filings required to be made with the NASD; and


                                       13



                           (xiii) take all other steps reasonably necessary to
effect the registration of the Registrable Securities contemplated hereby.

                  (b) Seller Information. The Company may require each seller of
Registrable Securities as to which any registration is being effected to
furnish, and such seller shall furnish, to the Company such information
regarding the distribution of such securities as the Company may from time to
time reasonably request in writing.

                  (c) Notice to Discontinue. Each Designated Holder agrees that,
not more than two times in any 12-month period, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
6(a)(v), such Designated Holder shall, for a total period not longer than 90
days during each such 12-month period (inclusive of any delay pursuant to a
Valid Business Reason under Section 3(a) or period during which the Designated
Holder is unable to dispose of Registrable Securities under the Registration
Statement pursuant to a notice by the Company under Section 6(a)(v) hereof),
forthwith discontinue disposition of Registrable Securities pursuant to the
Registration Statement covering such Registrable Securities until such
Designated Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 6(a)(v) and, if so directed by the Company,
such Designated Holder shall deliver to the Company (at the Company's expense)
all copies, other than permanent file copies then in such Designated Holder's
possession, of the prospectus covering such Registrable Securities which is
current at the time of receipt of such notice. If the Company shall give any
such notice, the Company shall extend the period during which such Registration
Statement shall be maintained effective pursuant to this Agreement (including,
without limitation, the period referred to in Section 6(a)(ii)) by the number of
days during the period from and including the date of the giving of such notice
pursuant to Section 6(a)(v) to and including the date when sellers of such
Registrable Securities under such Registration Statement shall have received the
copies of the supplemented or amended prospectus contemplated by and meeting the
requirements of Section 6(a)(v).

                  (d) Registration Expenses. The Company shall pay all expenses
arising from or incident to its performance of, or compliance with, this
Agreement, including, without limitation, (i) Commission, stock exchange and
NASD registration and filing fees, (ii) all fees and expenses incurred in
complying with securities or "blue sky" laws (including reasonable fees, charges
and disbursements of counsel to any underwriter incurred in connection with
"blue sky" qualifications of the Registrable Securities as may be set forth in
any underwriting agreement), (iii) all printing, messenger and delivery expenses
and (iv) the fees, charges and expenses of counsel to the Company and of its
independent public accountants and any other accounting fees, charges and
expenses incurred by the Company (including, without limitation, any expenses
arising from any "cold comfort" letters or any special audits incident to or
required by any registration or qualification) and any reasonable legal fees,
charges and expenses incurred by one counsel for the General Atlantic
Stockholders. All of the expenses described in the preceding sentence of this
Section 6(d) are referred to herein as "Registration Expenses." The Designated
Holders of Registrable Securities sold pursuant to a Registration Statement
shall bear the expense of any underwriter's discount or commission relating to
registration and sale of such Designated Holders' Registrable Securities.


                                       14



         7. Indemnification; Contribution.

                  (a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Designated Holder, its partners, directors,
officers, affiliates and each Person who controls (within the meaning of Section
15 of the Securities Act) such Designated Holder from and against any and all
losses, claims, damages, liabilities and expenses (including reasonable costs of
investigation) (each, a "Liability" and collectively, "Liabilities"), arising
out of or based upon any untrue, or allegedly untrue, statement of a material
fact contained in any Registration Statement, prospectus or preliminary
prospectus (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) or arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances under which such statements were made, except insofar as
such Liability arises out of or is based upon any untrue statement or alleged
untrue statement or omission or alleged omission contained in such Registration
Statement, preliminary prospectus or final prospectus in reliance and in
conformity with information concerning such Designated Holder furnished in
writing to the Company by such Designated Holder expressly for use therein,
including, without limitation, the information furnished to the Company pursuant
to Section 7(b). The Company shall also provide customary indemnities to any
underwriters of the Registrable Securities, their officers, directors and
employees and each Person who controls such underwriters (within the meaning of
Section 15 of the Securities Act) to the same extent as provided above with
respect to the indemnification of the Designated Holders of Registrable
Securities.

                  (b) Indemnification by Designated Holders. In connection with
any Registration Statement in which a Designated Holder is participating
pursuant to Section 3 or Section 4 hereof, each such Designated Holder shall
promptly furnish to the Company in writing such information with respect to such
Designated Holder as the Company may reasonably request or as may be required by
law for use in connection with any such Registration Statement or prospectus and
all information required to be disclosed in order to make the information
previously furnished to the Company by such Designated Holder not materially
misleading or necessary to cause such Registration Statement not to omit a
material fact with respect to such Designated Holder necessary in order to make
the statements therein not misleading. Each Designated Holder agrees to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, any underwriter retained by
the Company and each Person who controls the Company or such underwriter (within
the meaning of Section 15 of the Securities Act) to the same extent as the
foregoing indemnity from the Company to the Designated Holders, but only if such
statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with information with respect to such Designated
Holder furnished in writing to the Company by such Designated Holder expressly
for use in such Registration Statement or prospectus, including, without
limitation, the information furnished to the Company pursuant to this Section
7(b); provided, however, that the total amount to be indemnified by such
Designated Holder pursuant to this Section 7(b) shall be limited to the net
proceeds (after deducting the underwriters' discounts and commissions) received
by such Designated Holder in the offering to which the Registration Statement or
prospectus relates.


                                       15



                  (c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder (the "Indemnified Party") agrees to give
prompt written notice to the indemnifying party (the "Indemnifying Party") after
the receipt by the Indemnified Party of any written notice of the commencement
of any action, suit, proceeding or investigation or threat thereof made in
writing for which the Indemnified Party intends to claim indemnification or
contribution pursuant to this Agreement; provided, however, that the failure so
to notify the Indemnifying Party shall not relieve the Indemnifying Party of any
Liability that it may have to the Indemnified Party hereunder (except to the
extent that the Indemnifying Party is materially prejudiced or otherwise
forfeits substantive rights or defenses by reason of such failure). If notice of
commencement of any such action is given to the Indemnifying Party as above
provided, the Indemnifying Party shall be entitled to participate in and, to the
extent it may wish, jointly with any other Indemnifying Party similarly
notified, to assume the defense of such action at its own expense, with counsel
chosen by it and reasonably satisfactory to such Indemnified Party. The
Indemnified Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be paid by the Indemnified Party unless (i) the Indemnifying Party
agrees to pay the same, (ii) the Indemnifying Party fails to assume the defense
of such action with counsel reasonably satisfactory to the Indemnified Party or
(iii) the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party and such parties
have been advised by such counsel that either (x) representation of such
Indemnified Party and the Indemnifying Party by the same counsel would be
inappropriate under applicable standards of professional conduct or (y) there
may be one or more legal defenses available to the Indemnified Party which are
different from or additional to those available to the Indemnifying Party. In
any of such cases, the Indemnifying Party shall not have the right to assume the
defense of such action on behalf of such Indemnified Party, it being understood,
however, that the Indemnifying Party shall not be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all Indemnified Parties. No Indemnifying Party shall be liable for
any settlement entered into without its written consent, which consent shall not
be unreasonably withheld. No Indemnifying Party shall, without the consent of
such Indemnified Party, effect any settlement of any pending or threatened
proceeding in respect of which such Indemnified Party is a party and indemnity
has been sought hereunder by such Indemnified Party, unless such settlement
includes an unconditional release of such Indemnified Party from all liability
for claims that are the subject matter of such proceeding.

                  (d) Contribution. If the indemnification provided for in this
Section 7 from the Indemnifying Party is unavailable to an Indemnified Party
hereunder in respect of any Liabilities referred to herein, then the
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Liabilities in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions which resulted in such Liabilities, as well as any other relevant
equitable considerations. The relative faults of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such Indemnifying Party or
Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the Liabilities referred to above shall


                                       16



be deemed to include, subject to the limitations set forth in Sections 7(a),
7(b) and 7(c), any legal or other fees, charges or expenses reasonably incurred
by such party in connection with any investigation or proceeding; provided that
the total amount to be contributed by such Designated Holder shall be limited to
the net proceeds (after deducting the underwriters' discounts and commissions)
received by such Designated Holder in the offering.

                  The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.

         8. Rule 144. The Company covenants that it shall (a) file any reports
required to be filed by it under the Exchange Act and (b) take such further
action as each Designated Holder may reasonably request (including providing any
information necessary to comply with Rule 144 under the Securities Act), all to
the extent required from time to time to enable such Designated Holder to sell
Registrable Securities without registration under the Securities Act within the
limitation of the exemptions provided by (i) Rule 144 under the Securities Act,
as such rule may be amended from time to time or (ii) any similar rules or
regulations hereafter adopted by the Commission. The Company shall, upon the
request of any Designated Holder, deliver to such Designated Holder a written
statement as to whether it has complied with such requirements.

         9. Miscellaneous.

                  (a) Recapitalizations, Exchanges, etc. The provisions of this
Agreement shall apply to the full extent set forth herein with respect to (i)
the shares of Common Stock, (ii) any and all shares of voting common stock of
the Company into which the shares of Common Stock are converted, exchanged or
substituted in any recapitalization or other capital reorganization by the
Company and (iii) any and all equity securities of the Company or any successor
or assign of the Company (whether by merger, consolidation, sale of assets or
otherwise) which may be issued in respect of, in conversion of, in exchange for
or in substitution of, the shares of Common Stock and shall be appropriately
adjusted for any stock dividends, splits, reverse splits, combinations,
recapitalizations and the like occurring after the date hereof. The Company
shall use all commercially reasonable efforts to cause any successor or assign
(whether by merger, consolidation, sale of assets or otherwise) to enter into a
new registration rights agreement with the Designated Holders on terms
substantially the same as this Agreement as a condition of any such transaction.

                  (b) No Inconsistent Agreements. The Company shall not enter
into any agreement with respect to its securities that is inconsistent with the
rights granted to the Designated Holders in this Agreement or grant any
additional registration rights to any Person or with respect to any securities
which are not Registrable Securities which are prior in right to or inconsistent
with the rights granted in this Agreement.

                  (c) Remedies. The Designated Holders, in addition to being
entitled to exercise all rights granted by law, including recovery of damages,
shall be entitled to specific


                                       17

performance of their rights under this Agreement. The Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Agreement and hereby agrees
to waive in any action for specific performance the defense that a remedy at law
would be adequate.

                  (d) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless consented to in writing by (i) the Company and (ii) the
General Atlantic Stockholders, Coinvestor Stockholders, Vectis Stockholders and
Apex Stockholders holding Registrable Securities representing (after giving
effect to any adjustments) at least a majority of the aggregate number of
Registrable Securities owned by all of the General Atlantic Stockholders,
Coinvestor Stockholders, Vectis Stockholders and Apex Stockholders; provided,
however, that to the extent any amendment or waiver shall adversely affect any
of such stockholders, such amendment or waiver shall require the prior written
consent of each stockholder so adversely affected. Any such written consent
shall be binding upon the Company and all of the Designated Holders.

                  (e) Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be made
by registered or certified first-class mail, return receipt requested,
telecopier, courier service or personal delivery:

                           (i)    if to the Company:

                                  Critical Path, Inc.
                                  350 The Embarcadero
                                  San Francisco, CA 94105-1204
                                  Telecopy: (415) 541-2300
                                  Attention:  Chief Financial Officer

                                  with a copy to:

                                  Pillsbury Winthrop LLP
                                  50 Fremont Street
                                  San Francisco, CA  94105
                                  Telecopy:  (415) 983-1200
                                  Attention: Gregg F. Vignos, Esq.

                           (ii)   if to the General Atlantic Stockholders:

                                  c/o General Atlantic Service Company
                                  3 Pickwick Plaza
                                  Greenwich, CT  06830
                                  Telecopy:  (203) 622-8818
                                  Attention:  Matthew Nimetz
                                              Thomas J. Murphy


                                       18



                                  with a copy to:

                                  Paul, Weiss, Rifkind, Wharton & Garrison LLP
                                  1285 Avenue of the Americas
                                  New York, NY 10019-6064
                                  Telecopy:  (212) 757-3990
                                  Attention:  Douglas A. Cifu, Esq.

                           (iii)  if to Campina, Great Affluent, Dragonfield or
                                  Lion Cosmos:

                                  c/o 7th Floor
                                  Cheung Kong Center
                                  2 Queen's Road Central
                                  Hong Kong
                                  Telecopy:  (852) 2845-2057
                                  Attention:  Mr. Edmond Ip

                           (iv)   if to Cenwell:

                                  c/o 22nd Floor
                                  Hutchison House
                                  10 Harcourt Road
                                  Hong Kong
                                  Telecopy:  (852) 2128-1778
                                  Attention:  Company Secretary

                           (v)    if to Vectis:

                                  c/o Vectis Group, LLC
                                  117 Greenwich Street
                                  San Francisco, CA 94111
                                  Telecopy: 415-352-5310
                                  Attention: Matthew Hobart

                                  with a copy to:

                                  Kirkland & Ellis
                                  153 East 53rd Street
                                  New York, NY 10022-4675
                                  Telecopy: 212-446-4900
                                  Attention: Michael Movsovich, Esq.


                                       19



                           (vi)   if to Apex Capital:

                                  Apex Capital, LLC
                                  25 Orinda Way, Suite 300
                                  Orinda, CA  94563
                                  Telecopy:  (925) 253-1809
                                  Attention:  Adam Fiore, General Counsel

                           (vii)  if to Passport Capital:

                                  Passport Capital, LLC
                                  One Sansome Street, 39th Floor
                                  San Francisco, CA  94104
                                  Telecopy:  (415) 399-7608
                                  Attention:  John Burbank, Managing Partner

                           (viii) if to any other Designated Holder, at its
                                  address as it appears on the record books of
                                  the Company.

         All such notices, demands and other communications shall be deemed to
have been duly given when delivered by hand, if personally delivered; when
delivered by courier, if delivered by commercial courier service; five (5)
Business Days after being deposited in the mail, postage prepaid, if mailed; and
when receipt is mechanically acknowledged, if telecopied. Any party may by
notice given in accordance with this Section 9(e) designate another address or
Person for receipt of notices hereunder.

                  (f) Successors and Assigns; Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of the parties hereto as hereinafter provided. The Demand
Registration rights and related rights of the General Atlantic Stockholders, the
Coinvestor Stockholders or the Apex Stockholders contained in Section 3 hereof
shall be (i) with respect to any Registrable Security that is transferred to an
Affiliate of a General Atlantic Stockholder, a Coinvestor Stockholder or an Apex
Stockholder, automatically transferred to such Affiliate and (ii) with respect
to any Registrable Security that is transferred in all cases to a non-Affiliate,
transferred only with the consent of the Company which consent shall not be
unreasonably withheld, conditioned or delayed. The incidental or "piggy-back"
registration rights of the Designated Holders contained in Sections 3(b) and 4
hereof and the other rights of each of the Designated Holders with respect
thereto shall be, with respect to any Registrable Security, automatically
transferred to any Person who is the transferee of such Registrable Security so
long as such transferee agrees to be bound by this Agreement. All of the
obligations of the Company hereunder shall survive any such transfer. Except as
provided in Section 7, no Person other than the parties hereto and their
successors and permitted assigns is intended to be a beneficiary of this
Agreement.

                  (g) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.


                                       20



                  (h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

                  (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.

                  (j) Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, unless the
provisions held invalid, illegal or unenforceable shall substantially impair the
benefits of the remaining provisions hereof.

                  (k) Rules of Construction. Unless the context otherwise
requires, references to sections or subsections refer to sections or subsections
of this Agreement.

                  (l) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
with respect to the subject matter contained herein. There are no restrictions,
promises, representations, warranties or undertakings with respect to the
subject matter contained herein, other than those set forth or referred to
herein. Subject to Section 9(o), upon the Subsequent Closing (as defined in the
Convertible Note Purchase and Exchange Agreement and the Apex Note Purchase
Agreement), this Agreement shall supersede all prior agreements and
understandings among the parties with respect to such subject matter.

                  (m) Further Assurances. Each of the parties shall execute such
documents and perform such further acts as may be reasonably required or
desirable to carry out or to perform the provisions of this Agreement.

                  (n) Other Agreements. Nothing contained in this Agreement
shall be deemed to be a waiver of, or release from, any obligations any party
hereto may have under, or any restrictions on the transfer of Registrable
Securities or other securities of the Company imposed by, any other agreement
including, but not limited to, the Stock Purchase Agreement, the Convertible
Note Purchase and Exchange Agreement, the Apex Note Purchase Agreement or the
Amended and Restated Stockholders Agreement.

                  (o) Effective Date and Termination. Subject to the provisions
of this Section 9(o), this Agreement shall become effective immediately
following the Subsequent Closing. If the Subsequent Closing does not occur and
the obligation to consummate the Conversion and the Exchange and the Conversion
has been terminated pursuant to Article IX of the Convertible Note Purchase and
Exchange Agreement or Article IX of the Apex Note Purchase Agreement, then this
Agreement shall become effective as of the date of such termination; provided,
however, that Registrable Securities shall not include any shares of Common
Stock issued or issuable upon conversion of the Series E Preferred Stock.




                                       21




         IN WITNESS WHEREOF, the undersigned have executed, or have caused to be
executed, this Amended and Restated Registration Rights Agreement on the date
first written above.

                                CRITICAL PATH, INC.



                                By: /s/ William E. McGlashan, Jr.
                                   -----------------------------------------
                                   Name: William E. McGlashan, Jr.
                                   Title: Chairman, Chief Executive Officer




      SIGNATURE PAGE TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT







                                  GENERAL ATLANTIC PARTNERS 74, L.P.

                                     By:  GENERAL ATLANTIC PARTNERS, LLC,
                                          its General Partner

                                     By:   /s/ Matthew Nimetz
                                          -----------------------------------
                                          Name: Matthew Nimetz
                                          Title: A Managing Member



                                  GAP COINVESTMENT PARTNERS II, L.P.


                                     By:   /s/ Matthew Nimetz
                                          -----------------------------------
                                          Name: Matthew Nimetz
                                          Title: A General Partner



                                  GAPSTAR, LLC

                                     By:  GENERAL ATLANTIC PARTNERS, LLC,
                                          its Managing Member

                                     By:   /s/ Matthew Nimetz
                                          -----------------------------------
                                          Name: Matthew Nimetz
                                          Title: A Managing Member



                                  GAPCO GMBH & CO. KG



                                     By:  GAPCO MANAGEMENT GMBH,
                                          its General Partner

                                     By:   /s/ Matthew Nimetz
                                          -----------------------------------
                                          Name: Matthew Nimetz
                                          Title: A Managing Director


      SIGNATURE PAGE TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT





                                    VECTIS CP HOLDINGS, LLC,
                                    a Delaware limited liability company

                                    By:   VECTIS GROUP, LLC
                                          its Managing Member

                                     By:   /s/ Matthew T. Hobart
                                          -----------------------------------
                                          Name: Matthew T. Hobart
                                          Title: Managing Director

      SIGNATURE PAGE TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT


                                CENWELL LIMITED


                                By: /s/ Ma Lai Chee, Gerald
                                   -----------------------------------------
                                   Name:  Ma Lai Chee, Gerald
                                   Title:  Authorised Person

                                CAMPINA ENTERPRISES LIMITED


                                By: /s/ Ma Lai Chee, Gerald
                                   -----------------------------------------
                                   Name:  Ma Lai Chee, Gerald
                                   Title:  Authorised Person

                                GREAT AFFLUENT LIMITED


                                By: /s/ Ma Lai Chee, Gerald
                                   -----------------------------------------
                                   Name:  Ma Lai Chee, Gerald
                                   Title:  Authorised Person

                                DRAGONFIELD LIMITED


                                By: /s/ Ma Lai Chee, Gerald
                                   -----------------------------------------
                                   Name:  Ma Lai Chee, Gerald
                                   Title:  Authorised Person

                                LION COSMOS LIMITED


                                By: /s/ Ma Lai Chee, Gerald
                                   -----------------------------------------
                                   Name:  Ma Lai Chee, Gerald
                                   Title:  Authorised Person

      SIGNATURE PAGE TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT




                                PERMAL U.S. OPPORTUNITIES LIMITED

                                By: Apex Capital, LLC, its Authorized Investment
                                    Advisor


                                    By: /s/ Sanford J. Colen
                                       ----------------------------------------
                                       Name:  Sanford J. Colen
                                       Title:  Manager and Principal

                                ZAXIS PARTNERS, L.P.

                                By: Apex Capital, LLC, its General Partner


                                    By: /s/ Sanford J. Colen
                                       ----------------------------------------
                                       Name:  Sanford J. Colen
                                       Title:  Manager and Principal

                                ZAXIS EQUITY NEUTRAL, L.P.

                                By: Apex Capital, LLC, its General Partner


                                    By: /s/ Sanford J. Colen
                                       ----------------------------------------
                                       Name:  Sanford J. Colen
                                       Title:  Manager and Principal

                                ZAXIS OFFSHORE LIMITED

                                By: Apex Capital, LLC, its Authorized Investment
                                    Advisor


                                    By: /s/ Sanford J. Colen
                                       ----------------------------------------
                                       Name:  Sanford J. Colen
                                       Title:  Manager and Principal

                                ZAXIS INSTITUTIONAL PARTNERS, L.P.

                                By:  Apex Capital, LLC, its General Partner

                                    By: /s/ Sanford J. Colen
                                       ----------------------------------------
                                       Name:  Sanford J. Colen
                                       Title:  Manager and Principal


      SIGNATURE PAGE TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT




                                PASSPORT MASTER FUND, LP



                                By: /s/ John Burbank
                                   -----------------------------------------
                                   Name:  John Burbank
                                   Title:  Managing Partner


      SIGNATURE PAGE TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT

EX-4.26

                                                                    EXHIBIT 4.26

     THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
     SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN
     REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
     SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
     TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER
     OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.

                               CRITICAL PATH, INC.

                    CONVERTIBLE SUBORDINATED PROMISSORY NOTE

$3,465,000.00                                          San Francisco, California
                                                       January 16, 2004

          Critical Path, Inc., a California corporation (the "Company"), the
principal office of which is located in San Francisco, California, for value
received hereby promises to pay to the order of Permal U.S. Opportunities
Limited, or its registered assigns ("Holder"), the sum of three million four
hundred sixty-five thousand dollars ($3,465,000), or such lesser amount as shall
then equal the outstanding principal amount hereof on the terms and conditions
set forth hereinafter. The outstanding principal amount hereof and all accrued
and unpaid interest hereon, as set forth below, shall be due and payable on the
earlier to occur of (i) January 16, 2008, (ii) when declared due and payable by
Holder upon the occurrence of an Event of Default (as defined below), (iii)
consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v) any
sale of capital stock or Stock Equivalents by the Company, any cash capital
contribution from any third person or any other debt or equity financing
consummated by the Company after the date of issuance of this Note which, in the
case of (v), individually or in the aggregate raises proceeds of at least forty
million dollars ($40,000,000) in cash or cash equivalents (the earliest of the
events set forth in items (i)-(v) immediately above, the "Maturity Date").

          The following is a statement of the rights of the Holder of this Note
and the conditions to which this Note is subject, and to which the Holder
hereof, by the acceptance of this Note, agrees:

          1. Definitions. Except as otherwise defined herein, each capitalized
term used herein shall have the meaning assigned to it in the Note Purchase
Agreement, as in effect on the date hereof, and without regard to any subsequent
termination of the Note Purchase Agreement. All other references to the Note
Purchase Agreement in this Note refer to the Note Purchase Agreement as in
effect on the date hereof, and without regard to any subsequent termination of
the Note Purchase Agreement. As used in this

                                                                               2


Note, the following terms, unless the context otherwise requires, have the
following meanings:

               1.1 "Affiliate" means any Person who is an "affiliate" as defined
in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange
Act of 1934, as amended.

               1.2 "Capitalized Lease Obligations" means, with respect to any
Person, all rental obligations of such Person which, under GAAP, are or will be
required to be capitalized on the books of such Person, in each case taken at
the amount thereof accounted for as indebtedness in accordance with such
principles.

               1.3 "Change of Control" shall mean (i) any merger, consolidation
or other business combination transaction (or series of related transactions) in
which the stockholders owning a majority of the voting securities of the Company
prior to such transaction do not own a majority of the voting securities of the
surviving entity, (ii) any tender offer, exchange offer or other transaction
whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as amended) (other than
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell
Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and
the Affiliates of the foregoing, provided that Affiliates shall be deemed not to
include any portfolio companies of any of the foregoing) obtains a majority of
the outstanding shares of capital stock entitled to vote in the election of
directors, (iii) any proxy contest in which a majority of the Board of Directors
of the Company (or persons appointed by such Board of Directors) prior to such
contest do not constitute a majority of the Company's Board of Directors after
such contest or (iv) any other transaction described in any stockholder rights
agreement or "poison pill," if any, to which the Company is party, which may
permit the holders of any rights or similar certificates to exercise the rights
evidenced thereby.

               1.4 "Company" shall have the meaning set forth in the recitals
hereto, and includes any corporation that shall succeed to or assume the
obligations of the Company under this Note.

               1.5 "Common Conversion Date" shall have the meaning set forth in
Section 3.1(b) hereof.

               1.6 "Common Stock" means the common stock, par value $0.001 per
share, of the Company.

               1.7 "Conversion Date" shall mean the Subsequent Closing Date.

               1.8 "Domestic Subsidiary" shall have the meaning set forth in
Section 5.10 hereof.

                                                                               3


               1.9 "Event of Default" shall have the meaning set forth in
Section 6 hereof.

               1.10 "GA Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP
Entities pursuant to the Purchase and Exchange Agreement.

               1.11 "GAP Entities" shall mean General Atlantic Partners 74,
L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG.

               1.12 "Guarantor" shall have the meaning set forth in the Security
Agreement.

               1.13 "Holder" shall mean the registered holder of this Note from
time to time, and in the plural, shall mean all registered holders of Notes from
time to time issued by the Company pursuant to the Note Purchase Agreement.

               1.14 "Intercreditor Agreement" shall mean the Intercreditor
Agreement, dated the date hereof, among the GAP Entities, Permal U.S.
Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners,
L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund,
L.P.

               1.15 "Interest Amount" shall have the meaning set forth in
Section 3.1 hereof.

               1.16 "Investment" means (i) the acquisition (whether for cash,
property, services, assumption of Indebtedness, securities or otherwise) of
assets (other than equipment, inventory, supplies or other assets acquired in
the ordinary course of business of the Company), capital stock, bonds, notes,
debentures, partnership, joint venture or other ownership interests or other
securities of any Person, (ii) any deposit with, or advance, loan or other
extension of credit to, or on behalf of, any Person (other than deposits made in
connection with the purchase of equipment, inventory, services, leases, supplies
or other assets in the ordinary course of business of the Company), and (iii)
any other capital contribution to or investment in any Person, including,
without limitation, any guaranty obligation incurred for the benefit of any
Person. For the sake of clarity, Investments shall include any transfer of
property or assets by the Company to any of its Subsidiaries or by any
Subsidiary of the Company to any other Subsidiary.

               1.17 "Loan Documents" shall have the meaning set forth in the
Security Agreement.

               1.18 "Note" shall mean this note, and in the plural, shall mean
all notes issued to the Lenders pursuant to the terms of the Note Purchase
Agreement, including this Note, and all amendments, modifications and extensions
thereto.

               1.19 "Note Purchase Agreement" means that certain Convertible
Note Purchase Agreement, dated January 16, 2004, among the Company, the Holder
and

                                                                               4


the other parties thereto from time to time, and all amendments, modifications
and extensions thereto.

               1.20 "Permitted Investments" means (i) Investments in cash or
cash equivalents, (ii) accounts receivable created, acquired or made in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (iii) Investments existing on the closing date, and
listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty
obligations permitted by Section 5.3 of this Agreement, (v) loans to employees,
directors or officers of the Company in connection with the award of convertible
bonds or capital stock under a stock incentive plan, stock option plan or other
equity-based compensation plan or arrangement, (vi) other advances or loans to
employees, directors, officers or agents of the Company in the ordinary course
of business not to exceed $500,000 in the aggregate at any time outstanding;
(vii) loans, advances and investments in foreign Subsidiaries (that are not
incorporated or otherwise organized under the laws of the United States of
America or any state thereof) in an amount not to exceed $1,000,000 in the
aggregate at any time outstanding; (viii) any acquisition for which the prior
written consent of the Holders of a majority of the outstanding principal amount
of all of the Notes issued by the Company pursuant to the Note Purchase
Agreement has been obtained, (ix) other loans, advances and investments of a
nature not contemplated by the foregoing sections in an amount not to exceed
$500,000 in the aggregate at any time outstanding or (x) Investments by the
Company in the Guarantor.

               1.21 "Permitted Liens" shall have the meaning set forth in
Section 5.4.

               1.22 "Person" means any individual, firm, corporation,
partnership, trust, joint venture, joint stock company, limited liability
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.

               1.23 "Price Per Share" shall have the meaning attributed to such
term in the Series E Certificate of Determination, as filed with the Secretary
of State of the State of California.

               1.24 "Purchase and Exchange Agreement" shall mean the Convertible
Note Purchase and Exchange Agreement, dated November 18, 2003, among the
Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended.

               1.25 "Qualified Asset Sale" means the sale, transfer or other
disposition of any of the assets of the Company or any of its Subsidiaries,
other than (a) sales of assets in the ordinary course of business, (b) sales of
assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the
sale, transfer or other disposition of assets of the Company where the proceeds
are applied to the purchase price or traded in for credit against the purchase
price of other assets, provided that any such purchase is made, or credit
issued, within 90 days of the sale, transfer or other disposition, and (d) one
or more sales of the Company's assets (other than sales otherwise included in
clauses

                                                                               5


(a), (b), and (c) immediately above) which collectively yield up to an aggregate
of one million dollars ($1,000,000) in gross proceeds to the Company while this
Note is outstanding.

               1.26 "Restricted Payment" means (a) any dividend or other
distribution (whether in cash, securities or other property) with respect to any
shares of any class of capital stock of the Company or any of its Subsidiaries
or (b) any payment (whether in cash, securities or other property), including
any sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any shares of any class
of capital stock of the Company or any Subsidiary or any option, warrant or
other right to acquire any such shares of capital stock of the Company or any
Subsidiary.

               1.27 "Security Agreement" means that certain Guaranty and
Security Agreement, of even date herewith between the Company, Compass Holding
Corp., the Lenders and the other parties thereto from time to time, and all
amendments, modifications and extensions thereto.

               1.28 "Series E Conversion Price" shall have the meaning set forth
in the Series E Certificate of Determination.

               1.29 "Series E Preferred Stock" means the Series E Preferred
Stock, par value $0.001, of the Company.

               1.30 "Subordination Agreement" shall have the meaning set forth
in Section 5.3.

               1.31 "Subsequent Closing Date" shall have the meaning set forth
in Section 2.4(e) of the Note Purchase Agreement.

               1.32 "SVB" means Silicon Valley Bank, a California chartered
bank, or any Affiliates thereof.

               1.33 "Ten Percent Holder" means, with respect to a class of
equity securities of the Company, a Person (together with such Person's
Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such
class of equity securities of the Company, as defined by Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

               1.34 "UCC" shall have the meaning set forth in Section 5.4.

          2. Interest. Simple interest shall accrue at the rate of ten percent
(10%) per annum (or such lesser amount as shall equal the highest rate of
interest allowable under applicable law) (the "Interest Rate"), on the
outstanding principal of this Note from the date of this Note until the Maturity
Date or the date this Note is otherwise repaid. The Company shall not be
obligated to make any payments of interest which shall have accrued under this
Note prior to the Maturity Date. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. In the event that the

                                                                               6


principal amount of this Note, any interest, or any amount payable hereunder is
not paid in full when such amount becomes due and payable, or upon the
occurrence of an Event of Default, interest shall accrue at the lesser of (a)
the initial Interest Rate plus five percent (5%) per annum or (b) the highest
rate of interest allowable under applicable law, on the balance of all amounts
outstanding until such overdue amounts are paid or the Event of Default is
cured, and such interest shall be payable on demand.

          3. Conversion.

               3.1 Conversion.

                    (a) On the Conversion Date, the principal amount of this
Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall
be automatically converted into the number of fully paid and nonassessable
shares of Series E Preferred Stock equal to the quotient obtained by dividing
(a) the entire principal amount of this Note plus the Interest Amount by (b) the
Price Per Share.

                    (b) In the event that the Conversion Date has not occurred
on or prior to April 30, 2004 (the "Common Conversion Date"), then, following
the Common Conversion Date, the principal amount of this Note plus the Interest
Amount shall be convertible, at the option of Holder and from time to time, into
Common Stock at a conversion price per share equal to $1.65, as adjusted for any
stock dividends, stock splits or similar consolidations or subdivisions,
following the date hereof; provided, however, that Holder shall not be permitted
to convert any portion of the principal of this Note or the Interest Amount into
Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion,
the conversion would cause Holder to be a Ten Percent Holder.

               3.2 Notice of Conversion. Upon conversion of this Note as
provided in Section 3.1, Holder shall surrender this Note to the Company and
shall state the name or names in which the certificate or certificates for such
shares of Series E Preferred Stock or Common Stock, as the case may be, are to
be issued. The Person or Persons entitled to receive the shares of Series E
Preferred Stock or Common Stock, as the case may be, issuable upon such
conversion shall be treated for all purposes as the record holder or holders (a)
of such shares of Series E Preferred Stock as of the Conversion Date and (b) of
such shares of Common Stock as of the date of any conversion pursuant to Section
3.1(b).

               3.3 Delivery of Stock Certificates. Upon conversion of this Note
as provided in Section 3.1, the Company at its expense will issue and deliver to
Holder of this Note a certificate or certificates (bearing such legends as are
required by applicable state and federal securities laws in the opinion of
counsel to the Company) for the number of full shares of Series E Preferred
Stock or Common Stock, as the case may be, issuable upon such conversion.

               3.4 Mechanics and Effect of Conversion. No fractional shares of
Series E Preferred Stock or Common Stock, as the case may be, shall be issued
upon conversion of this Note. In lieu of the Company issuing any fractional
shares to Holder

                                                                               7


upon the conversion of this Note, the Company shall pay to Holder the amount of
outstanding principal and interest that is not so converted. Upon conversion of
all amounts due under this Note, the Company shall be released from all of its
obligations under this Note.

          4. Adjustments. The number of shares of Series E Preferred Stock or
Common Stock convertible hereunder are subject to adjustment from time to time
as follows:

               4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at
any time while this Note remains outstanding and unexpired there shall be (a) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (b) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise or (c) a sale or
transfer of the Company's stock, properties or assets as, or substantially as,
an entirety to any other Person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that Holder
shall thereafter be entitled to receive by converting this Note the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon conversion of this Note would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Note had been converted immediately before such reorganization,
merger, consolidation, sale or transfer (notwithstanding that the Stockholder
Approval may not yet have been obtained), all subject to further adjustment as
provided in this Section 4. The foregoing provisions of this Section 4.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation. If the
per share consideration payable to Holder hereof for shares in connection with
any such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
Company's Board of Directors based on the amount the Holder would have otherwise
been entitled to receive had the transaction or transactions not occurred. In
all events, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions of this
Note with respect to the rights and interests of Holder after the transaction,
to the end that the provisions of this Note shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon conversion of this Note. The Company shall be
obligated to retain and set aside, or otherwise make fair provision for exercise
of the right of the Holder to receive, the shares of stock and/or other
securities, cash or other property provided for in this Section 4.1.

               4.2 Election of Holder upon Merger or Sale of Assets.
Notwithstanding anything to the contrary contained herein, if an event shall
occur as provided in Section 4.1 hereof that would otherwise result in the
occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first
paragraph of this Note, then the

                                                                               8


Holder may, in its sole discretion, by written notice to the Company elect to
convert the principal amount of this Note plus the Interest Amount into the
number of shares of stock or other securities or property described in Section
4.1, in lieu of receiving payment in full of all amounts outstanding under this
Note. The number of shares of stock or other securities or property to be issued
upon such conversion shall be determined in accordance with Section 4.1 hereof,
taking into account the occurrence of such event.

               4.3 Reclassification, Etc. If the Company shall, at any time
while this Note, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, change any of the securities as to
which conversion rights under this Note exist into the same or a different
number of securities of any other class or classes, this Note shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable with respect to the securities that were subject to the conversion
rights under this Note immediately prior to such reclassification or other
change, and the Price Per Share shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 4.

               4.4 Split, Subdivision or Combination of Shares. If the Company
at any time while this Note, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the shares of Series E Preferred
Stock or Common Stock into a different number of securities of the same class,
the Price Per Share or conversion price, as the case may be, shall be
proportionately adjusted.

               4.5 Series E Adjustments. The initial Series E Conversion Price
of the shares of Series E Preferred Stock issued upon conversion of this Note
pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on
the Conversion Date, subject to the adjustment of such Series E Conversion Price
from time to time thereafter as provided in the Series E Certificate of
Determination.

               4.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 4, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.

               4.7 No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of Holder against impairment.

          5. Covenants. The Company covenants and agrees that until the earlier
of (i) the date on which all Obligations (as defined in the Security Agreement)
have been paid in full or (ii) the date on which all amounts outstanding under
the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b):

                                                                               9


               5.1 Financial Statements and Other Information. The Company shall
deliver to the Holder of this Note the financial statements and other
information required to be delivered under Section 8.1 of the Note Purchase
Agreement.

               5.2 Financial Covenants. The Company shall at all times comply
with the financial and other covenants set forth in Schedule 8.5 to the Note
Purchase Agreement as if such covenants were set forth herein.

               5.3 Indebtedness. The Company shall not, and shall not permit any
Subsidiary to, issue, incur, assume, create or have outstanding any
Indebtedness, provided, however, that the foregoing shall not restrict nor
operate to prevent:

                    (a) Indebtedness in favor of the Holders under the Loan
Documents;

                    (b) Indebtedness existing on the date hereof, as set forth
on Schedule 3.22 to the Note Purchase Agreement;

                    (c) Indebtedness for accounts payable incurred in the
ordinary course of business by the Company;

                    (d) Indebtedness incurred solely for the purpose of
financing the acquisition of any equipment, machinery, software, improvements or
any other similar property, or extensions, renewals or replacements of any of
the foregoing for the same or a lesser amount; provided, that the aggregate
outstanding principal amount of all Indebtedness permitted pursuant to this
clause (d) outstanding for more than sixty (60) days after the incurrence of
such Indebtedness shall not at any time exceed $500,000;

                    (e) Indebtedness of the Company evidenced by Capitalized
Lease Obligations, provided, that in no event shall the aggregate principal
amount of Capitalized Lease Obligations permitted by this clause (e) exceed
$500,000 at any time outstanding; and

                    (f) Any extension, renewal, refinancing, refunding, or
replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and
(e) above, on such terms and conditions as are, on the whole, not materially
more onerous to the Company than the terms and conditions of such original
Indebtedness on the date of such refinancing (including that the principal
amount of such refinancing Indebtedness does not exceed the principal amount of,
plus the amount of accrued and unpaid interest on, the Indebtedness so
refinanced (plus the amount of reasonable premium and fees and expenses incurred
in connection therewith)), provided that, in the case of a refinancing of
Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall
only apply to the extent consistent with the Subordination Agreement, dated as
of the date hereof, by and among SVB, the Holders and the Company (the
"Subordination Agreement").

                                                                              10


               5.4 Liens. The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
the Company or any of its Subsidiaries, whether now owned or hereafter acquired,
or sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable), or assign any right to receive income or permit the
filing of any financing statement under the Uniform Commercial Code, as from
time to time in effect in the relevant jurisdiction (the "UCC"), or any other
similar notice of Lien under any similar recording or notice statute; provided,
that the provisions of this Section 5.4 shall not prevent the creation,
incurrence, assumption or existence of the following:

                    (a) Liens arising in the ordinary course of business by
statute in connection with worker's compensation, unemployment insurance, old
age benefits, social security obligations, statutory obligations or other
similar charges (other then Liens arising under ERISA), good faith cash deposits
in connection with tenders, contracts or leases to which the Company or any
Subsidiary is a party or other cash deposits required to be made in the ordinary
course of business, provided, that such Liens do not have a material adverse
effect on the ability of the Company to repay amounts due under the Notes;

                    (b) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due or Liens for taxes, assessments or governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP;

                    (c) Liens in respect of property or assets of the Company or
its Subsidiaries imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as carriers',
warehousemen's, materialmen's and mechanics' liens and other similar Liens
arising in the ordinary course of business, and (i) which do not in the
aggregate materially detract from the value of the Company's and its
Subsidiaries' property or assets taken as a whole or result in a material
adverse effect on the Condition of the Company or (ii) which are being contested
in good faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to any such
Lien;

                    (d) the pledge of assets for the purpose of securing an
appeal, stay or discharge in the course of any legal proceeding, provided that
the aggregate amount of liabilities of the Company and its Subsidiaries secured
by a pledge of assets permitted under this subsection, including interest and
penalties thereon, if any, shall not be in excess of $500,000 at any one time
outstanding;

                    (e) any interest or title of a lessor under any operating
lease;

                                                                              11


                    (f) easements, rights-of-way, restrictions and other similar
encumbrances against real property incurred in the ordinary course of business;

                    (g) the Liens existing on the date hereof identified on
Schedule 3.22 to the Note Purchase Agreement;

                    (h) Liens on cash deposited with account debtors to secure
performance by the Company or any Subsidiary in the ordinary course of business
subject to customary and reasonable terms;

                    (i) Liens upon assets of the Company or its Subsidiaries
subject to Capitalized Lease Obligations, provided, that (A) such Liens only
serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising
under such Capitalized Lease Obligation and (B) the Lien encumbering the asset
giving rise to the Capitalized Lease Obligation does not encumber any other
asset of the Company or its Subsidiaries;

                    (j) Liens placed upon equipment, machinery, software,
improvements or any other similar property, used in the ordinary course of
business of the Company or any of its Subsidiaries at the time of the
acquisition thereof by the Company or any of its Subsidiaries or within ninety
(90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above;
provided, that the Liens encumbering the equipment, machinery software,
improvements or any other similar property so acquired do not encumber any other
asset of the Company or its Subsidiaries;

                    (k) set-off rights of depository institutions; and

                    (l) Liens created by the Security Agreement (collectively
with clauses (a) through (k) hereof, the "Permitted Liens").

               5.5 Fundamental Changes. The Company will not, and will not
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (in one transaction or a series of transactions)
all or substantially all of its assets, or all or substantially all of the stock
of any of its Subsidiaries (in each case, whether now owned or hereafter
acquired), or liquidate or dissolve, except that, if at the time and immediately
after giving effect thereto no Event of Default shall have occurred and be
continuing (i) the Company or any of its Subsidiaries may, with the prior
written consent of the Holders, merge with or into any other Person; (ii) any
wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with
or into the Company or any other wholly-owned Subsidiary of the Company; (iii)
any Subsidiary (other than the Guarantor, and except as otherwise prohibited by
this Note) may sell, transfer, lease or otherwise dispose of its assets to the
Company or to another wholly-owned Subsidiary of the Company; and (iv) any
Subsidiary may liquidate or dissolve if the board of directors of the Company
determine in good faith that such liquidation or dissolution is in its best
interests and is not disadvantageous to the Holders.

                                                                              12


               5.6 Restricted Payments. The Company will not, and the Company
will not permit any Subsidiary to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except that (i) any Subsidiary
may make a Restricted Payment to the Company or any of its wholly-owned
Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any
Restricted Payment required by the terms of the Note Purchase Agreement and the
other documents executed in connection therewith.

               5.7 Transactions with Affiliates. The Company will not, and the
Company will not permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions that are at prices and on terms and
conditions not less favorable to the Company or such Subsidiary than could be
obtained on an arm's length basis from unrelated third parties, (b) transactions
exclusively between the Company and the Guarantor and (c) transactions under the
agreements listed on Schedule 3.17 to the Note Purchase Agreement.

               5.8 Investments. The Company will not, and the Company will not
permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment
in any Person, except for Permitted Investments.

               5.9 Nature of Business. The Company will not, and the Company
will not permit any Subsidiary to, engage in any business other than that
conducted on the date hereof and any businesses reasonably related thereto.

               5.10 Property of Existing Domestic Subsidiaries. The Company will
not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise
organized under the laws of the United States of America or any state thereof (a
"Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease,
license, purchase or otherwise acquire any personal or real property (excluding
any material intellectual property) in excess of $50,000 for all property held
by such Subsidiary, or $250,000 in the aggregate for all property held by all
Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own
or otherwise hold any rights to any material intellectual property or (iv)
otherwise conduct any business or maintain operations.

               5.11 Formation of Subsidiaries. The Company will not, and will
not cause or permit any of its Subsidiaries to, form, acquire or permit the
existence of any new domestic Subsidiary, without causing such domestic
Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes
and related security document, in form and substance satisfactory to the
Holders.

               5.12 Books and Records. The Company shall keep proper books of
record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company and its
Subsidiaries in accordance with GAAP consistently applied.

                                                                              13


               5.13 Inspection. The Company shall, and shall cause each of its
Subsidiaries to, permit representatives of the Holders to visit and inspect any
of its properties, to examine its corporate, financial and operating records and
make copies thereof or abstracts therefrom, and to discuss its affairs, finances
and accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested upon notice to the Company.

               5.14 Maintenance of Business. The Company shall, and shall cause
each Subsidiary to, preserve and maintain its existence. The Company shall, and
shall cause each Subsidiary to, preserve and keep in force and effect all
licenses, permits, franchises, approvals, patents, trademarks, trade names,
trade styles, copyrights, and other property rights necessary to the proper
conduct of its business, except where the failure to do so could not reasonably
be expected to have a material adverse effect on the Condition of the Company or
on the prospects of repayment of the Notes.

               5.15 Maintenance of Properties. The Company shall, and shall
cause each Subsidiary to, maintain, preserve and keep its property and equipment
in good repair, working order and condition (ordinary wear and tear excepted)
and shall from time to time make all needful and proper repairs, renewals,
replacements, additions and betterments thereto so that at all times the
efficiency thereof shall by fully preserved and maintained, except in each case
to the extent that, in the reasonable business judgment of such Person, any such
property or equipment is no longer necessary for the proper conduct of the
business of such Person.

          6. The occurrence of any one or more of the following events shall
constitute an "Event of Default":

               6.1 Failure To Pay. (i) The failure of the Company to pay any
principal due under any of the Notes when due and payable (whether by
acceleration, declaration, extension or otherwise), or (ii) the failure of the
Company to pay any other amounts due under any of the Notes when due and payable
if such failure is not cured within five (5) days of Company's receipt of notice
thereof from any of the Holders.

               6.2 Financial Covenants. The failure of Company or any of its
Subsidiaries to perform, observe or comply with any of the Financial Covenants
set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by
reference in this Note in Section 5.2.

               6.3 Other Covenants and Agreements. The failure of Company or any
of its Subsidiaries to perform, observe or comply with any of the covenants of
this Note, the Security Agreement or any of the other Loan Documents (other than
the Financial Covenants set forth on Schedule 8.5 to the Note Purchase
Agreement, and incorporated by reference in this Note in Section 5.2), if such
failure is not cured within sixty (60) days.

                                                                              14


               6.4 Representations and Warranties. If any representation or
warranty made by the Company or any of its Subsidiaries in the Loan Documents is
not true and correct in all material respects on the Initial Closing Date.

               6.5 Default on Other Obligations. The occurrence of any condition
or default under any other indebtedness for borrowed money of the Company or any
of its Subsidiaries with a principal amount of at least five hundred thousand
dollars ($500,000) that results in the acceleration of such indebtedness which
is not cured within sixty (60) days.

               6.6 Involuntary Bankruptcy. There shall be filed against the
Company or any of its Subsidiaries an involuntary petition or other pleading
seeking the entry of a decree or order for relief under the United States
Bankruptcy Code or any similar federal or state insolvency or similar laws
ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a
reorganization of the Company or any of its Subsidiaries or the business and
affairs of the Company or any of its Subsidiaries or (c) the appointment of a
receiver, liquidator, assignee, custodian, trustee or similar official for the
Company or any of its Subsidiaries of the property of the Company or any of its
Subsidiaries.

               6.7 Voluntary Bankruptcy. The commencement by the Company or any
of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any
federal or state insolvency or similar laws or the consent by the Company or any
of its Subsidiaries to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or similar official for the Company or
any of its Subsidiaries of any of the property of the Company or any of its
Subsidiaries or the making by the Company or any of its Subsidiaries of an
assignment for the benefit of creditors, or the failure by Company or any of its
Subsidiaries generally to pay its debts as the debts become due.

               6.8 Judgments, Awards. Any judgment or order for the payment of
money is rendered against the Company or any of its Subsidiaries in an amount in
excess of five hundred thousand dollars ($500,000) individually or in the
aggregate and either (i) enforcement proceedings are commenced by any creditor
upon such judgment or order and not stayed, or (ii) there is any period of sixty
(60) consecutive days during which such judgment has not been paid in full or a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, is not in effect.

               6.9 Attachment by Lenders. Any assets of the Company or any of
its Subsidiaries shall be attached, levied upon, seized or repossessed, or come
into the possession of a trustee, receiver or other custodian and a
determination by any Holder, in good faith but in its sole discretion, that the
same could have a material adverse effect on the prospect for the Holders to
fully and punctually realize the full benefits conferred on the Holders by the
Loan Documents.

               6.10 Adverse Change in Financial Condition. Any event having a
material adverse effect on the business, operations, assets, properties or
condition of the

                                                                              15


Company and its Subsidiaries taken as a whole shall have occurred and be
continuing or a material adverse effect on the validity or enforceability of
this or any of the other Loan Documents or the rights or remedies of the Holders
hereunder or thereunder.

          7. Remedies. Upon and after the occurrence of an Event of Default, the
Holder shall be entitled to the exercise the rights and remedies set forth in
the Security Agreement, the other Loan Documents and under applicable law, all
such rights and remedies being cumulative and enforceable alternatively,
successively or concurrently.

          8. Prepayment. The Company may not prepay this Note prior to the
Maturity Date without the prior written consent of the Holders.

          9. Seniority.

                    (a) Except as set forth in the Subordination Agreement, the
Notes will rank senior in right of payment to all other indebtedness of the
Company, other than the GA Notes, with respect to which the Notes will be pari
passu in right of payment in accordance with the Intercreditor Agreement.

                    (b) Notwithstanding anything to the contrary contained in
the Notes, this Note and the other Notes, and the terms and the conditions
hereof and thereof, are subject to the Intercreditor Agreement.

          10. Assignment. Subject to the restrictions on transfer described in
Section 12 below, the rights and obligations of the Company and Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties. The Company shall not be permitted to assign this
Note without the prior written consent of the Holders.

          11. Waiver of Notice. The Company hereby waives notice, presentment,
demand, protest and notice of dishonor.

          12. Transfer of This Note. With respect to any offer, sale or other
disposition of this Note, Holder will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such Holder's counsel, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any
federal or state law then in effect); provided, that no opinion shall be
required for any transfer to an Affiliate or if the transfer is made in
compliance with the Securities Act, so long as the transferee can make the same
representations and warranties at the time of transfer as set forth in Sections
4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly
upon delivering such written notice and opinion, if so required, Holder may sell
or otherwise dispose of this Note, all in accordance with the terms of the
notice delivered to the Company. Each Note thus transferred shall bear a legend
as to the applicable restrictions on transferability in order to ensure
compliance with the Securities Act, unless in the opinion of counsel for the
Company such legend is not required in order to ensure compliance with the

                                                                              16


Securities Act. The Company may issue stop transfer instructions to its transfer
agent in connection with such restrictions. Notwithstanding the foregoing, the
Holder shall not be permitted to transfer this Note to any Person who is not an
Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii)
the receipt of written notice from the Company that Stockholder Approval cannot
be obtained, or the occurrence of an actual vote of the Company's shareholders
entitled to vote (whether by written consent or at a meeting specially called
for such purpose), the result of which is a decision by a majority of the
Company's shareholders entitled to vote to decline to grant Stockholder
Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of
an Event of Default.

          13. Treatment of Note. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.

          14. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by nationally recognized courier
service or mailed by registered or certified mail, postage prepaid, to the
respective addresses of the parties as set forth on the signature pages hereto
or if sent by facsimile to the respective facsimile numbers of the parties set
forth on the signature pages hereto. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively be
deemed to have been given and received when personally delivered or three (3)
business days after deposited in the mail or one business day after sent by
courier or upon confirmation of facsimile delivery in the manner set forth
above.

          15. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon Holder or any other Person the right to vote or to
consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company.

          16. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, excluding that body of law
relating to conflict of laws.

          17. Amendments and Waivers. No amendments or waivers of any provision
of this Note, and no consent by the Holder to any departure by the Company,
shall in any event be effective unless the same shall be in writing, and signed
by the Holders of a majority of the outstanding principal amount of all of the
Notes issued by the Company pursuant to the Note Purchase Agreement, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given.

          18. Severability. Any provision of this Note that is prohibited or
unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or

                                                                              17


render unenforceable such provision in any other jurisdiction.

          19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY
(A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF
RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION
WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY
TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY
OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN
THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER
OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE.
THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND
VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER
HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY
INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT
THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE
COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF
RIGHT TO TRIAL BY JURY. EACH OF THE COMPANY AND THE HOLDER REPRESENTS AND
WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE
MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE
WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH
COUNSEL.

          20. Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except as otherwise indicated, all references herein to Sections refer to
Sections hereof.

              [the remainder of this page intentionally left blank]

                                                                              18


          IN WITNESS WHEREOF, the Company has caused this Note to be issued this
16th day of January, 2004.

                                    COMPANY:

                                    CRITICAL PATH, INC.,
                                    a California corporation

                                    By: /s/ William E. McGlashan, Jr.
                                        ----------------------------------------
                                        Name: William E. McGlashan, Jr.
                                        Title: Chairman, Chief Executive Officer

                                        Critical Path, Inc.
                                        350 The Embarcadero
                                        San Francisco, CA 94105-1204
                                        Telecopy: (415) 541-2300
                                        Attention: Chief Financial Officer

                                        With a copy to:

                                        Pillsbury Winthrop LLP
                                        50 Fremont Street
                                        San Francisco, CA 94105
                                        Telecopy: (415) 983-1200
                                        Attention: Gregg Vignos, Esq.

Name of Holder: PERMAL U.S. OPPORTUNITIES LIMITED

Address:        c/o Apex Capital, LLC
                25 Orinda Way, Suite 300
                Orinda, CA 94563
                Attention: Adam Fiore, General Counsel

Telephone:      (925) 253-6125

Facsimile:      (925) 253-1809

EX-4.27

                                                                    EXHIBIT 4.27

     THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
     SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN
     REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
     SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
     TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER
     OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.

                               CRITICAL PATH, INC.

                    CONVERTIBLE SUBORDINATED PROMISSORY NOTE

$600,000.00                                            San Francisco, California
                                                       January 16, 2004

          Critical Path, Inc., a California corporation (the "Company"), the
principal office of which is located in San Francisco, California, for value
received hereby promises to pay to the order of Zaxis Equity Neutral, L.P., or
its registered assigns ("Holder"), the sum of six hundred thousand dollars
($600,000), or such lesser amount as shall then equal the outstanding principal
amount hereof on the terms and conditions set forth hereinafter. The outstanding
principal amount hereof and all accrued and unpaid interest hereon, as set forth
below, shall be due and payable on the earlier to occur of (i) January 16, 2008,
(ii) when declared due and payable by Holder upon the occurrence of an Event of
Default (as defined below), (iii) consummation of a Qualified Asset Sale, (iv) a
Change of Control, or (v) any sale of capital stock or Stock Equivalents by the
Company, any cash capital contribution from any third person or any other debt
or equity financing consummated by the Company after the date of issuance of
this Note which, in the case of (v), individually or in the aggregate raises
proceeds of at least forty million dollars ($40,000,000) in cash or cash
equivalents (the earliest of the events set forth in items (i)-(v) immediately
above, the "Maturity Date").

          The following is a statement of the rights of the Holder of this Note
and the conditions to which this Note is subject, and to which the Holder
hereof, by the acceptance of this Note, agrees:

          1. Definitions. Except as otherwise defined herein, each capitalized
term used herein shall have the meaning assigned to it in the Note Purchase
Agreement, as in effect on the date hereof, and without regard to any subsequent
termination of the Note Purchase Agreement. All other references to the Note
Purchase Agreement in this Note refer to the Note Purchase Agreement as in
effect on the date hereof, and without regard to any subsequent termination of
the Note Purchase Agreement. As used in this Note, the following terms, unless
the context otherwise requires, have the following

                                                                               2


meanings:

               1.1 "Affiliate" means any Person who is an "affiliate" as defined
in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange
Act of 1934, as amended.

               1.2 "Capitalized Lease Obligations" means, with respect to any
Person, all rental obligations of such Person which, under GAAP, are or will be
required to be capitalized on the books of such Person, in each case taken at
the amount thereof accounted for as indebtedness in accordance with such
principles.

               1.3 "Change of Control" shall mean (i) any merger, consolidation
or other business combination transaction (or series of related transactions) in
which the stockholders owning a majority of the voting securities of the Company
prior to such transaction do not own a majority of the voting securities of the
surviving entity, (ii) any tender offer, exchange offer or other transaction
whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as amended) (other than
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell
Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and
the Affiliates of the foregoing, provided that Affiliates shall be deemed not to
include any portfolio companies of any of the foregoing) obtains a majority of
the outstanding shares of capital stock entitled to vote in the election of
directors, (iii) any proxy contest in which a majority of the Board of Directors
of the Company (or persons appointed by such Board of Directors) prior to such
contest do not constitute a majority of the Company's Board of Directors after
such contest or (iv) any other transaction described in any stockholder rights
agreement or "poison pill," if any, to which the Company is party, which may
permit the holders of any rights or similar certificates to exercise the rights
evidenced thereby.

               1.4 "Company" shall have the meaning set forth in the recitals
hereto, and includes any corporation that shall succeed to or assume the
obligations of the Company under this Note.

               1.5 "Common Conversion Date" shall have the meaning set forth in
Section 3.1(b) hereof.

               1.6 "Common Stock" means the common stock, par value $0.001 per
share, of the Company.

               1.7 "Conversion Date" shall mean the Subsequent Closing Date.

               1.8 "Domestic Subsidiary" shall have the meaning set forth in
Section 5.10 hereof.

               1.9 "Event of Default" shall have the meaning set forth in
Section 6 hereof.

                                                                               3


               1.10 "GA Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP
Entities pursuant to the Purchase and Exchange Agreement.

               1.11 "GAP Entities" shall mean General Atlantic Partners 74,
L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG.

               1.12 "Guarantor" shall have the meaning set forth in the Security
Agreement.

               1.13 "Holder" shall mean the registered holder of this Note from
time to time, and in the plural, shall mean all registered holders of Notes from
time to time issued by the Company pursuant to the Note Purchase Agreement.

               1.14 "Intercreditor Agreement" shall mean the Intercreditor
Agreement, dated the date hereof, among the GAP Entities, Permal U.S.
Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners,
L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund,
L.P.

               1.15 "Interest Amount" shall have the meaning set forth in
Section 3.1 hereof.

               1.16 "Investment" means (i) the acquisition (whether for cash,
property, services, assumption of Indebtedness, securities or otherwise) of
assets (other than equipment, inventory, supplies or other assets acquired in
the ordinary course of business of the Company), capital stock, bonds, notes,
debentures, partnership, joint venture or other ownership interests or other
securities of any Person, (ii) any deposit with, or advance, loan or other
extension of credit to, or on behalf of, any Person (other than deposits made in
connection with the purchase of equipment, inventory, services, leases, supplies
or other assets in the ordinary course of business of the Company), and (iii)
any other capital contribution to or investment in any Person, including,
without limitation, any guaranty obligation incurred for the benefit of any
Person. For the sake of clarity, Investments shall include any transfer of
property or assets by the Company to any of its Subsidiaries or by any
Subsidiary of the Company to any other Subsidiary.

               1.17 "Loan Documents" shall have the meaning set forth in the
Security Agreement.

               1.18 "Note" shall mean this note, and in the plural, shall mean
all notes issued to the Lenders pursuant to the terms of the Note Purchase
Agreement, including this Note, and all amendments, modifications and extensions
thereto.

               1.19 "Note Purchase Agreement" means that certain Convertible
Note Purchase Agreement, dated January 16, 2004, among the Company, the Holder
and the other parties thereto from time to time, and all amendments,
modifications and extensions thereto.

                                                                               4


               1.20 "Permitted Investments" means (i) Investments in cash or
cash equivalents, (ii) accounts receivable created, acquired or made in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (iii) Investments existing on the closing date, and
listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty
obligations permitted by Section 5.3 of this Agreement, (v) loans to employees,
directors or officers of the Company in connection with the award of convertible
bonds or capital stock under a stock incentive plan, stock option plan or other
equity-based compensation plan or arrangement, (vi) other advances or loans to
employees, directors, officers or agents of the Company in the ordinary course
of business not to exceed $500,000 in the aggregate at any time outstanding;
(vii) loans, advances and investments in foreign Subsidiaries (that are not
incorporated or otherwise organized under the laws of the United States of
America or any state thereof) in an amount not to exceed $1,000,000 in the
aggregate at any time outstanding; (viii) any acquisition for which the prior
written consent of the Holders of a majority of the outstanding principal amount
of all of the Notes issued by the Company pursuant to the Note Purchase
Agreement has been obtained, (ix) other loans, advances and investments of a
nature not contemplated by the foregoing sections in an amount not to exceed
$500,000 in the aggregate at any time outstanding or (x) Investments by the
Company in the Guarantor.

               1.21 "Permitted Liens" shall have the meaning set forth in
Section 5.4.

               1.22 "Person" means any individual, firm, corporation,
partnership, trust, joint venture, joint stock company, limited liability
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.

               1.23 "Price Per Share" shall have the meaning attributed to such
term in the Series E Certificate of Determination, as filed with the Secretary
of State of the State of California.

               1.24 "Purchase and Exchange Agreement" shall mean the Convertible
Note Purchase and Exchange Agreement, dated November 18, 2003, among the
Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended.

               1.25 "Qualified Asset Sale" means the sale, transfer or other
disposition of any of the assets of the Company or any of its Subsidiaries,
other than (a) sales of assets in the ordinary course of business, (b) sales of
assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the
sale, transfer or other disposition of assets of the Company where the proceeds
are applied to the purchase price or traded in for credit against the purchase
price of other assets, provided that any such purchase is made, or credit
issued, within 90 days of the sale, transfer or other disposition, and (d) one
or more sales of the Company's assets (other than sales otherwise included in
clauses (a), (b), and (c) immediately above) which collectively yield up to an
aggregate of one million dollars ($1,000,000) in gross proceeds to the Company
while this Note is outstanding.

                                                                               5


               1.26 "Restricted Payment" means (a) any dividend or other
distribution (whether in cash, securities or other property) with respect to any
shares of any class of capital stock of the Company or any of its Subsidiaries
or (b) any payment (whether in cash, securities or other property), including
any sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any shares of any class
of capital stock of the Company or any Subsidiary or any option, warrant or
other right to acquire any such shares of capital stock of the Company or any
Subsidiary.

               1.27 "Security Agreement" means that certain Guaranty and
Security Agreement, of even date herewith between the Company, Compass Holding
Corp., the Lenders and the other parties thereto from time to time, and all
amendments, modifications and extensions thereto.

               1.28 "Series E Conversion Price" shall have the meaning set forth
in the Series E Certificate of Determination.

               1.29 "Series E Preferred Stock" means the Series E Preferred
Stock, par value $0.001, of the Company.

               1.30 "Subordination Agreement" shall have the meaning set forth
in Section 5.3.

               1.31 "Subsequent Closing Date" shall have the meaning set forth
in Section 2.4(e) of the Note Purchase Agreement.

               1.32 "SVB" means Silicon Valley Bank, a California chartered
bank, or any Affiliates thereof.

               1.33 "Ten Percent Holder" means, with respect to a class of
equity securities of the Company, a Person (together with such Person's
Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such
class of equity securities of the Company, as defined by Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

               1.34 "UCC" shall have the meaning set forth in Section 5.4.

          2. Interest. Simple interest shall accrue at the rate of ten percent
(10%) per annum (or such lesser amount as shall equal the highest rate of
interest allowable under applicable law) (the "Interest Rate"), on the
outstanding principal of this Note from the date of this Note until the Maturity
Date or the date this Note is otherwise repaid. The Company shall not be
obligated to make any payments of interest which shall have accrued under this
Note prior to the Maturity Date. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. In the event that the
principal amount of this Note, any interest, or any amount payable hereunder is
not paid in full when such amount becomes due and payable, or upon the
occurrence of an Event of Default, interest shall accrue at the lesser of (a)
the initial Interest Rate plus five percent (5%) per annum or (b) the highest
rate of interest allowable under applicable law,

                                                                               6


on the balance of all amounts outstanding until such overdue amounts are paid or
the Event of Default is cured, and such interest shall be payable on demand.

          3. Conversion.

               3.1 Conversion.

                    (a) On the Conversion Date, the principal amount of this
Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall
be automatically converted into the number of fully paid and nonassessable
shares of Series E Preferred Stock equal to the quotient obtained by dividing
(a) the entire principal amount of this Note plus the Interest Amount by (b) the
Price Per Share.

                    (b) In the event that the Conversion Date has not occurred
on or prior to April 30, 2004 (the "Common Conversion Date"), then, following
the Common Conversion Date, the principal amount of this Note plus the Interest
Amount shall be convertible, at the option of Holder and from time to time, into
Common Stock at a conversion price per share equal to $1.65, as adjusted for any
stock dividends, stock splits or similar consolidations or subdivisions,
following the date hereof; provided, however, that Holder shall not be permitted
to convert any portion of the principal of this Note or the Interest Amount into
Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion,
the conversion would cause Holder to be a Ten Percent Holder.

               3.2 Notice of Conversion. Upon conversion of this Note as
provided in Section 3.1, Holder shall surrender this Note to the Company and
shall state the name or names in which the certificate or certificates for such
shares of Series E Preferred Stock or Common Stock, as the case may be, are to
be issued. The Person or Persons entitled to receive the shares of Series E
Preferred Stock or Common Stock, as the case may be, issuable upon such
conversion shall be treated for all purposes as the record holder or holders (a)
of such shares of Series E Preferred Stock as of the Conversion Date and (b) of
such shares of Common Stock as of the date of any conversion pursuant to Section
3.1(b).

               3.3 Delivery of Stock Certificates. Upon conversion of this Note
as provided in Section 3.1, the Company at its expense will issue and deliver to
Holder of this Note a certificate or certificates (bearing such legends as are
required by applicable state and federal securities laws in the opinion of
counsel to the Company) for the number of full shares of Series E Preferred
Stock or Common Stock, as the case may be, issuable upon such conversion.

               3.4 Mechanics and Effect of Conversion. No fractional shares of
Series E Preferred Stock or Common Stock, as the case may be, shall be issued
upon conversion of this Note. In lieu of the Company issuing any fractional
shares to Holder upon the conversion of this Note, the Company shall pay to
Holder the amount of outstanding principal and interest that is not so
converted. Upon conversion of all amounts due under this Note, the Company shall
be released from all of its obligations under this Note.

                                                                               7


          4. Adjustments. The number of shares of Series E Preferred Stock or
Common Stock convertible hereunder are subject to adjustment from time to time
as follows:

               4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at
any time while this Note remains outstanding and unexpired there shall be (a) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (b) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise or (c) a sale or
transfer of the Company's stock, properties or assets as, or substantially as,
an entirety to any other Person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that Holder
shall thereafter be entitled to receive by converting this Note the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon conversion of this Note would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Note had been converted immediately before such reorganization,
merger, consolidation, sale or transfer (notwithstanding that the Stockholder
Approval may not yet have been obtained), all subject to further adjustment as
provided in this Section 4. The foregoing provisions of this Section 4.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation. If the
per share consideration payable to Holder hereof for shares in connection with
any such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
Company's Board of Directors based on the amount the Holder would have otherwise
been entitled to receive had the transaction or transactions not occurred. In
all events, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions of this
Note with respect to the rights and interests of Holder after the transaction,
to the end that the provisions of this Note shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon conversion of this Note. The Company shall be
obligated to retain and set aside, or otherwise make fair provision for exercise
of the right of the Holder to receive, the shares of stock and/or other
securities, cash or other property provided for in this Section 4.1.

               4.2 Election of Holder upon Merger or Sale of Assets.
Notwithstanding anything to the contrary contained herein, if an event shall
occur as provided in Section 4.1 hereof that would otherwise result in the
occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first
paragraph of this Note, then the Holder may, in its sole discretion, by written
notice to the Company elect to convert the principal amount of this Note plus
the Interest Amount into the number of shares of stock or other securities or
property described in Section 4.1, in lieu of receiving payment in full of all
amounts outstanding under this Note. The number of shares of stock or other

                                                                               8


securities or property to be issued upon such conversion shall be determined in
accordance with Section 4.1 hereof, taking into account the occurrence of such
event.

               4.3 Reclassification, Etc. If the Company shall, at any time
while this Note, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, change any of the securities as to
which conversion rights under this Note exist into the same or a different
number of securities of any other class or classes, this Note shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable with respect to the securities that were subject to the conversion
rights under this Note immediately prior to such reclassification or other
change, and the Price Per Share shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 4.

               4.4 Split, Subdivision or Combination of Shares. If the Company
at any time while this Note, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the shares of Series E Preferred
Stock or Common Stock into a different number of securities of the same class,
the Price Per Share or conversion price, as the case may be, shall be
proportionately adjusted.

               4.5 Series E Adjustments. The initial Series E Conversion Price
of the shares of Series E Preferred Stock issued upon conversion of this Note
pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on
the Conversion Date, subject to the adjustment of such Series E Conversion Price
from time to time thereafter as provided in the Series E Certificate of
Determination.

               4.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 4, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.

               4.7 No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of Holder against impairment.

          5. Covenants. The Company covenants and agrees that until the earlier
of (i) the date on which all Obligations (as defined in the Security Agreement)
have been paid in full or (ii) the date on which all amounts outstanding under
the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b):

               5.1 Financial Statements and Other Information. The Company shall
deliver to the Holder of this Note the financial statements and other
information required to be delivered under Section 8.1 of the Note Purchase
Agreement.

                                                                               9


               5.2 Financial Covenants. The Company shall at all times comply
with the financial and other covenants set forth in Schedule 8.5 to the Note
Purchase Agreement as if such covenants were set forth herein.

               5.3 Indebtedness. The Company shall not, and shall not permit any
Subsidiary to, issue, incur, assume, create or have outstanding any
Indebtedness, provided, however, that the foregoing shall not restrict nor
operate to prevent:

                    (a) Indebtedness in favor of the Holders under the Loan
Documents;

                    (b) Indebtedness existing on the date hereof, as set forth
on Schedule 3.22 to the Note Purchase Agreement;

                    (c) Indebtedness for accounts payable incurred in the
ordinary course of business by the Company;

                    (d) Indebtedness incurred solely for the purpose of
financing the acquisition of any equipment, machinery, software, improvements or
any other similar property, or extensions, renewals or replacements of any of
the foregoing for the same or a lesser amount; provided, that the aggregate
outstanding principal amount of all Indebtedness permitted pursuant to this
clause (d) outstanding for more than sixty (60) days after the incurrence of
such Indebtedness shall not at any time exceed $500,000;

                    (e) Indebtedness of the Company evidenced by Capitalized
Lease Obligations, provided, that in no event shall the aggregate principal
amount of Capitalized Lease Obligations permitted by this clause (e) exceed
$500,000 at any time outstanding; and

                    (f) Any extension, renewal, refinancing, refunding, or
replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and
(e) above, on such terms and conditions as are, on the whole, not materially
more onerous to the Company than the terms and conditions of such original
Indebtedness on the date of such refinancing (including that the principal
amount of such refinancing Indebtedness does not exceed the principal amount of,
plus the amount of accrued and unpaid interest on, the Indebtedness so
refinanced (plus the amount of reasonable premium and fees and expenses incurred
in connection therewith)), provided that, in the case of a refinancing of
Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall
only apply to the extent consistent with the Subordination Agreement, dated as
of the date hereof, by and among SVB, the Holders and the Company (the
"Subordination Agreement").

               5.4 Liens. The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
the Company or any of its Subsidiaries, whether now owned or hereafter acquired,
or sell any such property or

                                                                              10


assets subject to an understanding or agreement, contingent or otherwise, to
repurchase such property or assets (including sales of accounts receivable), or
assign any right to receive income or permit the filing of any financing
statement under the Uniform Commercial Code, as from time to time in effect in
the relevant jurisdiction (the "UCC"), or any other similar notice of Lien under
any similar recording or notice statute; provided, that the provisions of this
Section 5.4 shall not prevent the creation, incurrence, assumption or existence
of the following:

                    (a) Liens arising in the ordinary course of business by
statute in connection with worker's compensation, unemployment insurance, old
age benefits, social security obligations, statutory obligations or other
similar charges (other then Liens arising under ERISA), good faith cash deposits
in connection with tenders, contracts or leases to which the Company or any
Subsidiary is a party or other cash deposits required to be made in the ordinary
course of business, provided, that such Liens do not have a material adverse
effect on the ability of the Company to repay amounts due under the Notes;

                    (b) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due or Liens for taxes, assessments or governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP;

                    (c) Liens in respect of property or assets of the Company or
its Subsidiaries imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as carriers',
warehousemen's, materialmen's and mechanics' liens and other similar Liens
arising in the ordinary course of business, and (i) which do not in the
aggregate materially detract from the value of the Company's and its
Subsidiaries' property or assets taken as a whole or result in a material
adverse effect on the Condition of the Company or (ii) which are being contested
in good faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to any such
Lien;

                    (d) the pledge of assets for the purpose of securing an
appeal, stay or discharge in the course of any legal proceeding, provided that
the aggregate amount of liabilities of the Company and its Subsidiaries secured
by a pledge of assets permitted under this subsection, including interest and
penalties thereon, if any, shall not be in excess of $500,000 at any one time
outstanding;

                    (e) any interest or title of a lessor under any operating
lease;

                    (f) easements, rights-of-way, restrictions and other similar
encumbrances against real property incurred in the ordinary course of business;

                                                                              11


                    (g) the Liens existing on the date hereof identified on
Schedule 3.22 to the Note Purchase Agreement;

                    (h) Liens on cash deposited with account debtors to secure
performance by the Company or any Subsidiary in the ordinary course of business
subject to customary and reasonable terms;

                    (i) Liens upon assets of the Company or its Subsidiaries
subject to Capitalized Lease Obligations, provided, that (A) such Liens only
serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising
under such Capitalized Lease Obligation and (B) the Lien encumbering the asset
giving rise to the Capitalized Lease Obligation does not encumber any other
asset of the Company or its Subsidiaries;

                    (j) Liens placed upon equipment, machinery, software,
improvements or any other similar property, used in the ordinary course of
business of the Company or any of its Subsidiaries at the time of the
acquisition thereof by the Company or any of its Subsidiaries or within ninety
(90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above;
provided, that the Liens encumbering the equipment, machinery software,
improvements or any other similar property so acquired do not encumber any other
asset of the Company or its Subsidiaries;

                    (k) set-off rights of depository institutions; and

                    (l) Liens created by the Security Agreement (collectively
with clauses (a) through (k) hereof, the "Permitted Liens").

               5.5 Fundamental Changes. The Company will not, and will not
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (in one transaction or a series of transactions)
all or substantially all of its assets, or all or substantially all of the stock
of any of its Subsidiaries (in each case, whether now owned or hereafter
acquired), or liquidate or dissolve, except that, if at the time and immediately
after giving effect thereto no Event of Default shall have occurred and be
continuing (i) the Company or any of its Subsidiaries may, with the prior
written consent of the Holders, merge with or into any other Person; (ii) any
wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with
or into the Company or any other wholly-owned Subsidiary of the Company; (iii)
any Subsidiary (other than the Guarantor, and except as otherwise prohibited by
this Note) may sell, transfer, lease or otherwise dispose of its assets to the
Company or to another wholly-owned Subsidiary of the Company; and (iv) any
Subsidiary may liquidate or dissolve if the board of directors of the Company
determine in good faith that such liquidation or dissolution is in its best
interests and is not disadvantageous to the Holders.

               5.6 Restricted Payments. The Company will not, and the Company
will not permit any Subsidiary to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except that (i) any Subsidiary
may make a

                                                                              12


Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and
(ii) the Company or any of its Subsidiaries may make any Restricted Payment
required by the terms of the Note Purchase Agreement and the other documents
executed in connection therewith.

               5.7 Transactions with Affiliates. The Company will not, and the
Company will not permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions that are at prices and on terms and
conditions not less favorable to the Company or such Subsidiary than could be
obtained on an arm's length basis from unrelated third parties, (b) transactions
exclusively between the Company and the Guarantor and (c) transactions under the
agreements listed on Schedule 3.17 to the Note Purchase Agreement.

               5.8 Investments. The Company will not, and the Company will not
permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment
in any Person, except for Permitted Investments.

               5.9 Nature of Business. The Company will not, and the Company
will not permit any Subsidiary to, engage in any business other than that
conducted on the date hereof and any businesses reasonably related thereto.

               5.10 Property of Existing Domestic Subsidiaries. The Company will
not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise
organized under the laws of the United States of America or any state thereof (a
"Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease,
license, purchase or otherwise acquire any personal or real property (excluding
any material intellectual property) in excess of $50,000 for all property held
by such Subsidiary, or $250,000 in the aggregate for all property held by all
Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own
or otherwise hold any rights to any material intellectual property or (iv)
otherwise conduct any business or maintain operations.

               5.11 Formation of Subsidiaries. The Company will not, and will
not cause or permit any of its Subsidiaries to, form, acquire or permit the
existence of any new domestic Subsidiary, without causing such domestic
Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes
and related security document, in form and substance satisfactory to the
Holders.

               5.12 Books and Records. The Company shall keep proper books of
record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company and its
Subsidiaries in accordance with GAAP consistently applied.

               5.13 Inspection. The Company shall, and shall cause each of its
Subsidiaries to, permit representatives of the Holders to visit and inspect any
of its properties, to examine its corporate, financial and operating records and
make copies

                                                                              13


thereof or abstracts therefrom, and to discuss its affairs, finances and
accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested upon notice to the Company.

               5.14 Maintenance of Business. The Company shall, and shall cause
each Subsidiary to, preserve and maintain its existence. The Company shall, and
shall cause each Subsidiary to, preserve and keep in force and effect all
licenses, permits, franchises, approvals, patents, trademarks, trade names,
trade styles, copyrights, and other property rights necessary to the proper
conduct of its business, except where the failure to do so could not reasonably
be expected to have a material adverse effect on the Condition of the Company or
on the prospects of repayment of the Notes.

               5.15 Maintenance of Properties. The Company shall, and shall
cause each Subsidiary to, maintain, preserve and keep its property and equipment
in good repair, working order and condition (ordinary wear and tear excepted)
and shall from time to time make all needful and proper repairs, renewals,
replacements, additions and betterments thereto so that at all times the
efficiency thereof shall by fully preserved and maintained, except in each case
to the extent that, in the reasonable business judgment of such Person, any such
property or equipment is no longer necessary for the proper conduct of the
business of such Person.

          6. The occurrence of any one or more of the following events shall
constitute an "Event of Default":

               6.1 Failure To Pay. (i) The failure of the Company to pay any
principal due under any of the Notes when due and payable (whether by
acceleration, declaration, extension or otherwise), or (ii) the failure of the
Company to pay any other amounts due under any of the Notes when due and payable
if such failure is not cured within five (5) days of Company's receipt of notice
thereof from any of the Holders.

               6.2 Financial Covenants. The failure of Company or any of its
Subsidiaries to perform, observe or comply with any of the Financial Covenants
set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by
reference in this Note in Section 5.2.

               6.3 Other Covenants and Agreements. The failure of Company or any
of its Subsidiaries to perform, observe or comply with any of the covenants of
this Note, the Security Agreement or any of the other Loan Documents (other than
the Financial Covenants set forth on Schedule 8.5 to the Note Purchase
Agreement, and incorporated by reference in this Note in Section 5.2), if such
failure is not cured within sixty (60) days.

               6.4 Representations and Warranties. If any representation or
warranty made by the Company or any of its Subsidiaries in the Loan Documents is
not true and correct in all material respects on the Initial Closing Date.

                                                                              14


               6.5 Default on Other Obligations. The occurrence of any condition
or default under any other indebtedness for borrowed money of the Company or any
of its Subsidiaries with a principal amount of at least five hundred thousand
dollars ($500,000) that results in the acceleration of such indebtedness which
is not cured within sixty (60) days.

               6.6 Involuntary Bankruptcy. There shall be filed against the
Company or any of its Subsidiaries an involuntary petition or other pleading
seeking the entry of a decree or order for relief under the United States
Bankruptcy Code or any similar federal or state insolvency or similar laws
ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a
reorganization of the Company or any of its Subsidiaries or the business and
affairs of the Company or any of its Subsidiaries or (c) the appointment of a
receiver, liquidator, assignee, custodian, trustee or similar official for the
Company or any of its Subsidiaries of the property of the Company or any of its
Subsidiaries.

               6.7 Voluntary Bankruptcy. The commencement by the Company or any
of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any
federal or state insolvency or similar laws or the consent by the Company or any
of its Subsidiaries to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or similar official for the Company or
any of its Subsidiaries of any of the property of the Company or any of its
Subsidiaries or the making by the Company or any of its Subsidiaries of an
assignment for the benefit of creditors, or the failure by Company or any of its
Subsidiaries generally to pay its debts as the debts become due.

               6.8 Judgments, Awards. Any judgment or order for the payment of
money is rendered against the Company or any of its Subsidiaries in an amount in
excess of five hundred thousand dollars ($500,000) individually or in the
aggregate and either (i) enforcement proceedings are commenced by any creditor
upon such judgment or order and not stayed, or (ii) there is any period of sixty
(60) consecutive days during which such judgment has not been paid in full or a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, is not in effect.

               6.9 Attachment by Lenders. Any assets of the Company or any of
its Subsidiaries shall be attached, levied upon, seized or repossessed, or come
into the possession of a trustee, receiver or other custodian and a
determination by any Holder, in good faith but in its sole discretion, that the
same could have a material adverse effect on the prospect for the Holders to
fully and punctually realize the full benefits conferred on the Holders by the
Loan Documents.

               6.10 Adverse Change in Financial Condition. Any event having a
material adverse effect on the business, operations, assets, properties or
condition of the Company and its Subsidiaries taken as a whole shall have
occurred and be continuing or a material adverse effect on the validity or
enforceability of this or any of the other Loan Documents or the rights or
remedies of the Holders hereunder or thereunder.

                                                                              15


          7. Remedies. Upon and after the occurrence of an Event of Default, the
Holder shall be entitled to the exercise the rights and remedies set forth in
the Security Agreement, the other Loan Documents and under applicable law, all
such rights and remedies being cumulative and enforceable alternatively,
successively or concurrently.

          8. Prepayment. The Company may not prepay this Note prior to the
Maturity Date without the prior written consent of the Holders.

          9. Seniority.

                    (a) Except as set forth in the Subordination Agreement, the
Notes will rank senior in right of payment to all other indebtedness of the
Company, other than the GA Notes, with respect to which the Notes will be pari
passu in right of payment in accordance with the Intercreditor Agreement.

                    (b) Notwithstanding anything to the contrary contained in
the Notes, this Note and the other Notes, and the terms and the conditions
hereof and thereof, are subject to the Intercreditor Agreement.

          10. Assignment. Subject to the restrictions on transfer described in
Section 12 below, the rights and obligations of the Company and Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties. The Company shall not be permitted to assign this
Note without the prior written consent of the Holders.

          11. Waiver of Notice. The Company hereby waives notice, presentment,
demand, protest and notice of dishonor.

          12. Transfer of This Note. With respect to any offer, sale or other
disposition of this Note, Holder will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such Holder's counsel, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any
federal or state law then in effect); provided, that no opinion shall be
required for any transfer to an Affiliate or if the transfer is made in
compliance with the Securities Act, so long as the transferee can make the same
representations and warranties at the time of transfer as set forth in Sections
4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly
upon delivering such written notice and opinion, if so required, Holder may sell
or otherwise dispose of this Note, all in accordance with the terms of the
notice delivered to the Company. Each Note thus transferred shall bear a legend
as to the applicable restrictions on transferability in order to ensure
compliance with the Securities Act, unless in the opinion of counsel for the
Company such legend is not required in order to ensure compliance with the
Securities Act. The Company may issue stop transfer instructions to its transfer
agent in connection with such restrictions. Notwithstanding the foregoing, the
Holder shall not be permitted to transfer this Note to any Person who is not an
Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii)
the receipt of written notice from the

                                                                              16


Company that Stockholder Approval cannot be obtained, or the occurrence of an
actual vote of the Company's shareholders entitled to vote (whether by written
consent or at a meeting specially called for such purpose), the result of which
is a decision by a majority of the Company's shareholders entitled to vote to
decline to grant Stockholder Approval, (iii) six (6) months from the date hereof
and (iv) the occurrence of an Event of Default.

          13. Treatment of Note. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.

          14. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by nationally recognized courier
service or mailed by registered or certified mail, postage prepaid, to the
respective addresses of the parties as set forth on the signature pages hereto
or if sent by facsimile to the respective facsimile numbers of the parties set
forth on the signature pages hereto. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively be
deemed to have been given and received when personally delivered or three (3)
business days after deposited in the mail or one business day after sent by
courier or upon confirmation of facsimile delivery in the manner set forth
above.

          15. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon Holder or any other Person the right to vote or to
consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company.

          16. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, excluding that body of law
relating to conflict of laws.

          17. Amendments and Waivers. No amendments or waivers of any provision
of this Note, and no consent by the Holder to any departure by the Company,
shall in any event be effective unless the same shall be in writing, and signed
by the Holders of a majority of the outstanding principal amount of all of the
Notes issued by the Company pursuant to the Note Purchase Agreement, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given.

          18. Severability. Any provision of this Note that is prohibited or
unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

          19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY
(A) COVENANTS AND AGREES NOT TO

                                                                              17


ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES
TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND THE HOLDER
MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO
THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES,
COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING
IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD
AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS
AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST
PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS
SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND
THE HOLDER, AND THE COMPANY AND THE HOLDER HEREBY AGREE THAT NO REPRESENTATIONS
OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF
TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE COMPANY AND THE
HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING
JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO
SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF
THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED
IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT
LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

          20. Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except as otherwise indicated, all references herein to Sections refer to
Sections hereof.

              [the remainder of this page intentionally left blank]

                                                                              18


          IN WITNESS WHEREOF, the Company has caused this Note to be issued this
16th day of January, 2004.

                                   COMPANY:

                                   CRITICAL PATH, INC.,
                                   a California corporation

                                   By: /s/ William E. McGlashan, Jr.
                                       -----------------------------------------
                                       Name: William E. McGlashan, Jr.
                                       Title: Chairman, Chief Executive Officer

                                       Critical Path, Inc.
                                       350 The Embarcadero
                                       San Francisco, CA 94105-1204
                                       Telecopy: (415) 541-2300
                                       Attention: Chief Financial Officer

                                       With a copy to:

                                       Pillsbury Winthrop LLP
                                       50 Fremont Street
                                       San Francisco, CA 94105
                                       Telecopy: (415) 983-1200
                                       Attention: Gregg Vignos, Esq.

Name of Holder: ZAXIS EQUITY NEUTRAL, L.P.

Address:        c/o Apex Capital, LLC
                25 Orinda Way, Suite 300
                Orinda, CA  94563
                Attention: Adam Fiore, General Counsel

Telephone:      (925) 253-6125

Facsimile:      (925) 253-1809

EX-4.28

                                                                    EXHIBIT 4.28

     THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
     SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN
     REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
     SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
     TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER
     OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.

                               CRITICAL PATH, INC.

                    CONVERTIBLE SUBORDINATED PROMISSORY NOTE

$930,000.00                                            San Francisco, California
                                                       January 16, 2004

          Critical Path, Inc., a California corporation (the "Company"), the
principal office of which is located in San Francisco, California, for value
received hereby promises to pay to the order of Zaxis Institutional Partners,
L.P., or its registered assigns ("Holder"), the sum of nine hundred thirty
thousand dollars ($930,000), or such lesser amount as shall then equal the
outstanding principal amount hereof on the terms and conditions set forth
hereinafter. The outstanding principal amount hereof and all accrued and unpaid
interest hereon, as set forth below, shall be due and payable on the earlier to
occur of (i) January 16, 2008, (ii) when declared due and payable by Holder upon
the occurrence of an Event of Default (as defined below), (iii) consummation of
a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital
stock or Stock Equivalents by the Company, any cash capital contribution from
any third person or any other debt or equity financing consummated by the
Company after the date of issuance of this Note which, in the case of (v),
individually or in the aggregate raises proceeds of at least forty million
dollars ($40,000,000) in cash or cash equivalents (the earliest of the events
set forth in items (i)-(v) immediately above, the "Maturity Date").

          The following is a statement of the rights of the Holder of this Note
and the conditions to which this Note is subject, and to which the Holder
hereof, by the acceptance of this Note, agrees:

          1. Definitions. Except as otherwise defined herein, each capitalized
term used herein shall have the meaning assigned to it in the Note Purchase
Agreement, as in effect on the date hereof, and without regard to any subsequent
termination of the Note Purchase Agreement. All other references to the Note
Purchase Agreement in this Note refer to the Note Purchase Agreement as in
effect on the date hereof, and without regard to any subsequent termination of
the Note Purchase Agreement. As used in this Note, the following terms, unless
the context otherwise requires, have the following

                                                                               2


meanings:

               1.1 "Affiliate" means any Person who is an "affiliate" as defined
in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange
Act of 1934, as amended.

               1.2 "Capitalized Lease Obligations" means, with respect to any
Person, all rental obligations of such Person which, under GAAP, are or will be
required to be capitalized on the books of such Person, in each case taken at
the amount thereof accounted for as indebtedness in accordance with such
principles.

               1.3 "Change of Control" shall mean (i) any merger, consolidation
or other business combination transaction (or series of related transactions) in
which the stockholders owning a majority of the voting securities of the Company
prior to such transaction do not own a majority of the voting securities of the
surviving entity, (ii) any tender offer, exchange offer or other transaction
whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as amended) (other than
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell
Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and
the Affiliates of the foregoing, provided that Affiliates shall be deemed not to
include any portfolio companies of any of the foregoing) obtains a majority of
the outstanding shares of capital stock entitled to vote in the election of
directors, (iii) any proxy contest in which a majority of the Board of Directors
of the Company (or persons appointed by such Board of Directors) prior to such
contest do not constitute a majority of the Company's Board of Directors after
such contest or (iv) any other transaction described in any stockholder rights
agreement or "poison pill," if any, to which the Company is party, which may
permit the holders of any rights or similar certificates to exercise the rights
evidenced thereby.

               1.4 "Company" shall have the meaning set forth in the recitals
hereto, and includes any corporation that shall succeed to or assume the
obligations of the Company under this Note.

               1.5 "Common Conversion Date" shall have the meaning set forth in
Section 3.1(b) hereof.

               1.6 "Common Stock" means the common stock, par value $0.001 per
share, of the Company.

               1.7 "Conversion Date" shall mean the Subsequent Closing Date.

               1.8 "Domestic Subsidiary" shall have the meaning set forth in
Section 5.10 hereof.

               1.9 "Event of Default" shall have the meaning set forth in
Section 6 hereof.

                                                                               3


               1.10 "GA Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP
Entities pursuant to the Purchase and Exchange Agreement.

               1.11 "GAP Entities" shall mean General Atlantic Partners 74,
L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG.

               1.12 "Guarantor" shall have the meaning set forth in the Security
Agreement.

               1.13 "Holder" shall mean the registered holder of this Note from
time to time, and in the plural, shall mean all registered holders of Notes from
time to time issued by the Company pursuant to the Note Purchase Agreement.

               1.14 "Intercreditor Agreement" shall mean the Intercreditor
Agreement, dated the date hereof, among the GAP Entities, Permal U.S.
Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners,
L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund,
L.P.

               1.15 "Interest Amount" shall have the meaning set forth in
Section 3.1 hereof.

               1.16 "Investment" means (i) the acquisition (whether for cash,
property, services, assumption of Indebtedness, securities or otherwise) of
assets (other than equipment, inventory, supplies or other assets acquired in
the ordinary course of business of the Company), capital stock, bonds, notes,
debentures, partnership, joint venture or other ownership interests or other
securities of any Person, (ii) any deposit with, or advance, loan or other
extension of credit to, or on behalf of, any Person (other than deposits made in
connection with the purchase of equipment, inventory, services, leases, supplies
or other assets in the ordinary course of business of the Company), and (iii)
any other capital contribution to or investment in any Person, including,
without limitation, any guaranty obligation incurred for the benefit of any
Person. For the sake of clarity, Investments shall include any transfer of
property or assets by the Company to any of its Subsidiaries or by any
Subsidiary of the Company to any other Subsidiary.

               1.17 "Loan Documents" shall have the meaning set forth in the
Security Agreement.

               1.18 "Note" shall mean this note, and in the plural, shall mean
all notes issued to the Lenders pursuant to the terms of the Note Purchase
Agreement, including this Note, and all amendments, modifications and extensions
thereto.

               1.19 "Note Purchase Agreement" means that certain Convertible
Note Purchase Agreement, dated January 16, 2004, among the Company, the Holder
and the other parties thereto from time to time, and all amendments,
modifications and extensions thereto.

                                                                               4


               1.20 "Permitted Investments" means (i) Investments in cash or
cash equivalents, (ii) accounts receivable created, acquired or made in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (iii) Investments existing on the closing date, and
listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty
obligations permitted by Section 5.3 of this Agreement, (v) loans to employees,
directors or officers of the Company in connection with the award of convertible
bonds or capital stock under a stock incentive plan, stock option plan or other
equity-based compensation plan or arrangement, (vi) other advances or loans to
employees, directors, officers or agents of the Company in the ordinary course
of business not to exceed $500,000 in the aggregate at any time outstanding;
(vii) loans, advances and investments in foreign Subsidiaries (that are not
incorporated or otherwise organized under the laws of the United States of
America or any state thereof) in an amount not to exceed $1,000,000 in the
aggregate at any time outstanding; (viii) any acquisition for which the prior
written consent of the Holders of a majority of the outstanding principal amount
of all of the Notes issued by the Company pursuant to the Note Purchase
Agreement has been obtained, (ix) other loans, advances and investments of a
nature not contemplated by the foregoing sections in an amount not to exceed
$500,000 in the aggregate at any time outstanding or (x) Investments by the
Company in the Guarantor.

               1.21 "Permitted Liens" shall have the meaning set forth in
Section 5.4.

               1.22 "Person" means any individual, firm, corporation,
partnership, trust, joint venture, joint stock company, limited liability
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.

               1.23 "Price Per Share" shall have the meaning attributed to such
term in the Series E Certificate of Determination, as filed with the Secretary
of State of the State of California.

               1.24 "Purchase and Exchange Agreement" shall mean the Convertible
Note Purchase and Exchange Agreement, dated November 18, 2003, among the
Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended.

               1.25 "Qualified Asset Sale" means the sale, transfer or other
disposition of any of the assets of the Company or any of its Subsidiaries,
other than (a) sales of assets in the ordinary course of business, (b) sales of
assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the
sale, transfer or other disposition of assets of the Company where the proceeds
are applied to the purchase price or traded in for credit against the purchase
price of other assets, provided that any such purchase is made, or credit
issued, within 90 days of the sale, transfer or other disposition, and (d) one
or more sales of the Company's assets (other than sales otherwise included in
clauses (a), (b), and (c) immediately above) which collectively yield up to an
aggregate of one million dollars ($1,000,000) in gross proceeds to the Company
while this Note is outstanding.

                                                                               5


               1.26 "Restricted Payment" means (a) any dividend or other
distribution (whether in cash, securities or other property) with respect to any
shares of any class of capital stock of the Company or any of its Subsidiaries
or (b) any payment (whether in cash, securities or other property), including
any sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any shares of any class
of capital stock of the Company or any Subsidiary or any option, warrant or
other right to acquire any such shares of capital stock of the Company or any
Subsidiary.

               1.27 "Security Agreement" means that certain Guaranty and
Security Agreement, of even date herewith between the Company, Compass Holding
Corp., the Lenders and the other parties thereto from time to time, and all
amendments, modifications and extensions thereto.

               1.28 "Series E Conversion Price" shall have the meaning set forth
in the Series E Certificate of Determination.

               1.29 "Series E Preferred Stock" means the Series E Preferred
Stock, par value $0.001, of the Company.

               1.30 "Subordination Agreement" shall have the meaning set forth
in Section 5.3.

               1.31 "Subsequent Closing Date" shall have the meaning set forth
in Section 2.4(e) of the Note Purchase Agreement.

               1.32 "SVB" means Silicon Valley Bank, a California chartered
bank, or any Affiliates thereof.

               1.33 "Ten Percent Holder" means, with respect to a class of
equity securities of the Company, a Person (together with such Person's
Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such
class of equity securities of the Company, as defined by Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

               1.34 "UCC" shall have the meaning set forth in Section 5.4.

          2. Interest. Simple interest shall accrue at the rate of ten percent
(10%) per annum (or such lesser amount as shall equal the highest rate of
interest allowable under applicable law) (the "Interest Rate"), on the
outstanding principal of this Note from the date of this Note until the Maturity
Date or the date this Note is otherwise repaid. The Company shall not be
obligated to make any payments of interest which shall have accrued under this
Note prior to the Maturity Date. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. In the event that the
principal amount of this Note, any interest, or any amount payable hereunder is
not paid in full when such amount becomes due and payable, or upon the
occurrence of an Event of Default, interest shall accrue at the lesser of (a)
the initial Interest Rate plus five percent (5%) per annum or (b) the highest
rate of interest allowable under applicable law,

                                                                               6


on the balance of all amounts outstanding until such overdue amounts are paid or
the Event of Default is cured, and such interest shall be payable on demand.

          3. Conversion.

               3.1 Conversion.

                    (a) On the Conversion Date, the principal amount of this
Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall
be automatically converted into the number of fully paid and nonassessable
shares of Series E Preferred Stock equal to the quotient obtained by dividing
(a) the entire principal amount of this Note plus the Interest Amount by (b) the
Price Per Share.

                    (b) In the event that the Conversion Date has not occurred
on or prior to April 30, 2004 (the "Common Conversion Date"), then, following
the Common Conversion Date, the principal amount of this Note plus the Interest
Amount shall be convertible, at the option of Holder and from time to time, into
Common Stock at a conversion price per share equal to $1.65, as adjusted for any
stock dividends, stock splits or similar consolidations or subdivisions,
following the date hereof; provided, however, that Holder shall not be permitted
to convert any portion of the principal of this Note or the Interest Amount into
Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion,
the conversion would cause Holder to be a Ten Percent Holder.

               3.2 Notice of Conversion. Upon conversion of this Note as
provided in Section 3.1, Holder shall surrender this Note to the Company and
shall state the name or names in which the certificate or certificates for such
shares of Series E Preferred Stock or Common Stock, as the case may be, are to
be issued. The Person or Persons entitled to receive the shares of Series E
Preferred Stock or Common Stock, as the case may be, issuable upon such
conversion shall be treated for all purposes as the record holder or holders (a)
of such shares of Series E Preferred Stock as of the Conversion Date and (b) of
such shares of Common Stock as of the date of any conversion pursuant to Section
3.1(b).

               3.3 Delivery of Stock Certificates. Upon conversion of this Note
as provided in Section 3.1, the Company at its expense will issue and deliver to
Holder of this Note a certificate or certificates (bearing such legends as are
required by applicable state and federal securities laws in the opinion of
counsel to the Company) for the number of full shares of Series E Preferred
Stock or Common Stock, as the case may be, issuable upon such conversion.

               3.4 Mechanics and Effect of Conversion. No fractional shares of
Series E Preferred Stock or Common Stock, as the case may be, shall be issued
upon conversion of this Note. In lieu of the Company issuing any fractional
shares to Holder upon the conversion of this Note, the Company shall pay to
Holder the amount of outstanding principal and interest that is not so
converted. Upon conversion of all amounts due under this Note, the Company shall
be released from all of its obligations under this Note.

                                                                               7


          4. Adjustments. The number of shares of Series E Preferred Stock or
Common Stock convertible hereunder are subject to adjustment from time to time
as follows:

               4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at
any time while this Note remains outstanding and unexpired there shall be (a) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (b) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise or (c) a sale or
transfer of the Company's stock, properties or assets as, or substantially as,
an entirety to any other Person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that Holder
shall thereafter be entitled to receive by converting this Note the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon conversion of this Note would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Note had been converted immediately before such reorganization,
merger, consolidation, sale or transfer (notwithstanding that the Stockholder
Approval may not yet have been obtained), all subject to further adjustment as
provided in this Section 4. The foregoing provisions of this Section 4.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation. If the
per share consideration payable to Holder hereof for shares in connection with
any such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
Company's Board of Directors based on the amount the Holder would have otherwise
been entitled to receive had the transaction or transactions not occurred. In
all events, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions of this
Note with respect to the rights and interests of Holder after the transaction,
to the end that the provisions of this Note shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon conversion of this Note. The Company shall be
obligated to retain and set aside, or otherwise make fair provision for exercise
of the right of the Holder to receive, the shares of stock and/or other
securities, cash or other property provided for in this Section 4.1.

               4.2 Election of Holder upon Merger or Sale of Assets.
Notwithstanding anything to the contrary contained herein, if an event shall
occur as provided in Section 4.1 hereof that would otherwise result in the
occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first
paragraph of this Note, then the Holder may, in its sole discretion, by written
notice to the Company elect to convert the principal amount of this Note plus
the Interest Amount into the number of shares of stock or other securities or
property described in Section 4.1, in lieu of receiving payment in full of all
amounts outstanding under this Note. The number of shares of stock or other

                                                                               8


securities or property to be issued upon such conversion shall be determined in
accordance with Section 4.1 hereof, taking into account the occurrence of such
event.

               4.3 Reclassification, Etc. If the Company shall, at any time
while this Note, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, change any of the securities as to
which conversion rights under this Note exist into the same or a different
number of securities of any other class or classes, this Note shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable with respect to the securities that were subject to the conversion
rights under this Note immediately prior to such reclassification or other
change, and the Price Per Share shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 4.

               4.4 Split, Subdivision or Combination of Shares. If the Company
at any time while this Note, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the shares of Series E Preferred
Stock or Common Stock into a different number of securities of the same class,
the Price Per Share or conversion price, as the case may be, shall be
proportionately adjusted.

               4.5 Series E Adjustments. The initial Series E Conversion Price
of the shares of Series E Preferred Stock issued upon conversion of this Note
pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on
the Conversion Date, subject to the adjustment of such Series E Conversion Price
from time to time thereafter as provided in the Series E Certificate of
Determination.

               4.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 4, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.

               4.7 No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of Holder against impairment.

          5. Covenants. The Company covenants and agrees that until the earlier
of (i) the date on which all Obligations (as defined in the Security Agreement)
have been paid in full or (ii) the date on which all amounts outstanding under
the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b):

               5.1 Financial Statements and Other Information. The Company shall
deliver to the Holder of this Note the financial statements and other
information required to be delivered under Section 8.1 of the Note Purchase
Agreement.

                                                                               9


               5.2 Financial Covenants. The Company shall at all times comply
with the financial and other covenants set forth in Schedule 8.5 to the Note
Purchase Agreement as if such covenants were set forth herein.

               5.3 Indebtedness. The Company shall not, and shall not permit any
Subsidiary to, issue, incur, assume, create or have outstanding any
Indebtedness, provided, however, that the foregoing shall not restrict nor
operate to prevent:

                    (a) Indebtedness in favor of the Holders under the Loan
Documents;

                    (b) Indebtedness existing on the date hereof, as set forth
on Schedule 3.22 to the Note Purchase Agreement;

                    (c) Indebtedness for accounts payable incurred in the
ordinary course of business by the Company;

                    (d) Indebtedness incurred solely for the purpose of
financing the acquisition of any equipment, machinery, software, improvements or
any other similar property, or extensions, renewals or replacements of any of
the foregoing for the same or a lesser amount; provided, that the aggregate
outstanding principal amount of all Indebtedness permitted pursuant to this
clause (d) outstanding for more than sixty (60) days after the incurrence of
such Indebtedness shall not at any time exceed $500,000;

                    (e) Indebtedness of the Company evidenced by Capitalized
Lease Obligations, provided, that in no event shall the aggregate principal
amount of Capitalized Lease Obligations permitted by this clause (e) exceed
$500,000 at any time outstanding; and

                    (f) Any extension, renewal, refinancing, refunding, or
replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and
(e) above, on such terms and conditions as are, on the whole, not materially
more onerous to the Company than the terms and conditions of such original
Indebtedness on the date of such refinancing (including that the principal
amount of such refinancing Indebtedness does not exceed the principal amount of,
plus the amount of accrued and unpaid interest on, the Indebtedness so
refinanced (plus the amount of reasonable premium and fees and expenses incurred
in connection therewith)), provided that, in the case of a refinancing of
Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall
only apply to the extent consistent with the Subordination Agreement, dated as
of the date hereof, by and among SVB, the Holders and the Company (the
"Subordination Agreement").

               5.4 Liens. The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
the Company or any of its Subsidiaries, whether now owned or hereafter acquired,
or sell any such property or

                                                                              10


assets subject to an understanding or agreement, contingent or otherwise, to
repurchase such property or assets (including sales of accounts receivable), or
assign any right to receive income or permit the filing of any financing
statement under the Uniform Commercial Code, as from time to time in effect in
the relevant jurisdiction (the "UCC"), or any other similar notice of Lien under
any similar recording or notice statute; provided, that the provisions of this
Section 5.4 shall not prevent the creation, incurrence, assumption or existence
of the following:

                    (a) Liens arising in the ordinary course of business by
statute in connection with worker's compensation, unemployment insurance, old
age benefits, social security obligations, statutory obligations or other
similar charges (other then Liens arising under ERISA), good faith cash deposits
in connection with tenders, contracts or leases to which the Company or any
Subsidiary is a party or other cash deposits required to be made in the ordinary
course of business, provided, that such Liens do not have a material adverse
effect on the ability of the Company to repay amounts due under the Notes;

                    (b) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due or Liens for taxes, assessments or governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP;

                    (c) Liens in respect of property or assets of the Company or
its Subsidiaries imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as carriers',
warehousemen's, materialmen's and mechanics' liens and other similar Liens
arising in the ordinary course of business, and (i) which do not in the
aggregate materially detract from the value of the Company's and its
Subsidiaries' property or assets taken as a whole or result in a material
adverse effect on the Condition of the Company or (ii) which are being contested
in good faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to any such
Lien;

                    (d) the pledge of assets for the purpose of securing an
appeal, stay or discharge in the course of any legal proceeding, provided that
the aggregate amount of liabilities of the Company and its Subsidiaries secured
by a pledge of assets permitted under this subsection, including interest and
penalties thereon, if any, shall not be in excess of $500,000 at any one time
outstanding;

                    (e) any interest or title of a lessor under any operating
lease;

                    (f) easements, rights-of-way, restrictions and other similar
encumbrances against real property incurred in the ordinary course of business;

                                                                              11


                    (g) the Liens existing on the date hereof identified on
Schedule 3.22 to the Note Purchase Agreement;

                    (h) Liens on cash deposited with account debtors to secure
performance by the Company or any Subsidiary in the ordinary course of business
subject to customary and reasonable terms;

                    (i) Liens upon assets of the Company or its Subsidiaries
subject to Capitalized Lease Obligations, provided, that (A) such Liens only
serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising
under such Capitalized Lease Obligation and (B) the Lien encumbering the asset
giving rise to the Capitalized Lease Obligation does not encumber any other
asset of the Company or its Subsidiaries;

                    (j) Liens placed upon equipment, machinery, software,
improvements or any other similar property, used in the ordinary course of
business of the Company or any of its Subsidiaries at the time of the
acquisition thereof by the Company or any of its Subsidiaries or within ninety
(90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above;
provided, that the Liens encumbering the equipment, machinery software,
improvements or any other similar property so acquired do not encumber any other
asset of the Company or its Subsidiaries;

                    (k) set-off rights of depository institutions; and

                    (l) Liens created by the Security Agreement (collectively
with clauses (a) through (k) hereof, the "Permitted Liens").

               5.5 Fundamental Changes. The Company will not, and will not
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (in one transaction or a series of transactions)
all or substantially all of its assets, or all or substantially all of the stock
of any of its Subsidiaries (in each case, whether now owned or hereafter
acquired), or liquidate or dissolve, except that, if at the time and immediately
after giving effect thereto no Event of Default shall have occurred and be
continuing (i) the Company or any of its Subsidiaries may, with the prior
written consent of the Holders, merge with or into any other Person; (ii) any
wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with
or into the Company or any other wholly-owned Subsidiary of the Company; (iii)
any Subsidiary (other than the Guarantor, and except as otherwise prohibited by
this Note) may sell, transfer, lease or otherwise dispose of its assets to the
Company or to another wholly-owned Subsidiary of the Company; and (iv) any
Subsidiary may liquidate or dissolve if the board of directors of the Company
determine in good faith that such liquidation or dissolution is in its best
interests and is not disadvantageous to the Holders.

               5.6 Restricted Payments. The Company will not, and the Company
will not permit any Subsidiary to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except that (i) any Subsidiary
may make a

                                                                              12


Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and
(ii) the Company or any of its Subsidiaries may make any Restricted Payment
required by the terms of the Note Purchase Agreement and the other documents
executed in connection therewith.

               5.7 Transactions with Affiliates. The Company will not, and the
Company will not permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions that are at prices and on terms and
conditions not less favorable to the Company or such Subsidiary than could be
obtained on an arm's length basis from unrelated third parties, (b) transactions
exclusively between the Company and the Guarantor and (c) transactions under the
agreements listed on Schedule 3.17 to the Note Purchase Agreement.

               5.8 Investments. The Company will not, and the Company will not
permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment
in any Person, except for Permitted Investments.

               5.9 Nature of Business. The Company will not, and the Company
will not permit any Subsidiary to, engage in any business other than that
conducted on the date hereof and any businesses reasonably related thereto.

               5.10 Property of Existing Domestic Subsidiaries. The Company will
not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise
organized under the laws of the United States of America or any state thereof (a
"Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease,
license, purchase or otherwise acquire any personal or real property (excluding
any material intellectual property) in excess of $50,000 for all property held
by such Subsidiary, or $250,000 in the aggregate for all property held by all
Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own
or otherwise hold any rights to any material intellectual property or (iv)
otherwise conduct any business or maintain operations.

               5.11 Formation of Subsidiaries. The Company will not, and will
not cause or permit any of its Subsidiaries to, form, acquire or permit the
existence of any new domestic Subsidiary, without causing such domestic
Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes
and related security document, in form and substance satisfactory to the
Holders.

               5.12 Books and Records. The Company shall keep proper books of
record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company and its
Subsidiaries in accordance with GAAP consistently applied.

               5.13 Inspection. The Company shall, and shall cause each of its
Subsidiaries to, permit representatives of the Holders to visit and inspect any
of its properties, to examine its corporate, financial and operating records and
make copies

                                                                              13


thereof or abstracts therefrom, and to discuss its affairs, finances and
accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested upon notice to the Company.

               5.14 Maintenance of Business. The Company shall, and shall cause
each Subsidiary to, preserve and maintain its existence. The Company shall, and
shall cause each Subsidiary to, preserve and keep in force and effect all
licenses, permits, franchises, approvals, patents, trademarks, trade names,
trade styles, copyrights, and other property rights necessary to the proper
conduct of its business, except where the failure to do so could not reasonably
be expected to have a material adverse effect on the Condition of the Company or
on the prospects of repayment of the Notes.

               5.15 Maintenance of Properties. The Company shall, and shall
cause each Subsidiary to, maintain, preserve and keep its property and equipment
in good repair, working order and condition (ordinary wear and tear excepted)
and shall from time to time make all needful and proper repairs, renewals,
replacements, additions and betterments thereto so that at all times the
efficiency thereof shall by fully preserved and maintained, except in each case
to the extent that, in the reasonable business judgment of such Person, any such
property or equipment is no longer necessary for the proper conduct of the
business of such Person.

          6. The occurrence of any one or more of the following events shall
constitute an "Event of Default":

               6.1 Failure To Pay. (i) The failure of the Company to pay any
principal due under any of the Notes when due and payable (whether by
acceleration, declaration, extension or otherwise), or (ii) the failure of the
Company to pay any other amounts due under any of the Notes when due and payable
if such failure is not cured within five (5) days of Company's receipt of notice
thereof from any of the Holders.

               6.2 Financial Covenants. The failure of Company or any of its
Subsidiaries to perform, observe or comply with any of the Financial Covenants
set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by
reference in this Note in Section 5.2.

               6.3 Other Covenants and Agreements. The failure of Company or any
of its Subsidiaries to perform, observe or comply with any of the covenants of
this Note, the Security Agreement or any of the other Loan Documents (other than
the Financial Covenants set forth on Schedule 8.5 to the Note Purchase
Agreement, and incorporated by reference in this Note in Section 5.2), if such
failure is not cured within sixty (60) days.

               6.4 Representations and Warranties. If any representation or
warranty made by the Company or any of its Subsidiaries in the Loan Documents is
not true and correct in all material respects on the Initial Closing Date.

                                                                              14


               6.5 Default on Other Obligations. The occurrence of any condition
or default under any other indebtedness for borrowed money of the Company or any
of its Subsidiaries with a principal amount of at least five hundred thousand
dollars ($500,000) that results in the acceleration of such indebtedness which
is not cured within sixty (60) days.

               6.6 Involuntary Bankruptcy. There shall be filed against the
Company or any of its Subsidiaries an involuntary petition or other pleading
seeking the entry of a decree or order for relief under the United States
Bankruptcy Code or any similar federal or state insolvency or similar laws
ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a
reorganization of the Company or any of its Subsidiaries or the business and
affairs of the Company or any of its Subsidiaries or (c) the appointment of a
receiver, liquidator, assignee, custodian, trustee or similar official for the
Company or any of its Subsidiaries of the property of the Company or any of its
Subsidiaries.

               6.7 Voluntary Bankruptcy. The commencement by the Company or any
of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any
federal or state insolvency or similar laws or the consent by the Company or any
of its Subsidiaries to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or similar official for the Company or
any of its Subsidiaries of any of the property of the Company or any of its
Subsidiaries or the making by the Company or any of its Subsidiaries of an
assignment for the benefit of creditors, or the failure by Company or any of its
Subsidiaries generally to pay its debts as the debts become due.

               6.8 Judgments, Awards. Any judgment or order for the payment of
money is rendered against the Company or any of its Subsidiaries in an amount in
excess of five hundred thousand dollars ($500,000) individually or in the
aggregate and either (i) enforcement proceedings are commenced by any creditor
upon such judgment or order and not stayed, or (ii) there is any period of sixty
(60) consecutive days during which such judgment has not been paid in full or a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, is not in effect.

               6.9 Attachment by Lenders. Any assets of the Company or any of
its Subsidiaries shall be attached, levied upon, seized or repossessed, or come
into the possession of a trustee, receiver or other custodian and a
determination by any Holder, in good faith but in its sole discretion, that the
same could have a material adverse effect on the prospect for the Holders to
fully and punctually realize the full benefits conferred on the Holders by the
Loan Documents.

               6.10 Adverse Change in Financial Condition. Any event having a
material adverse effect on the business, operations, assets, properties or
condition of the Company and its Subsidiaries taken as a whole shall have
occurred and be continuing or a material adverse effect on the validity or
enforceability of this or any of the other Loan Documents or the rights or
remedies of the Holders hereunder or thereunder.

                                                                              15


          7. Remedies. Upon and after the occurrence of an Event of Default, the
Holder shall be entitled to the exercise the rights and remedies set forth in
the Security Agreement, the other Loan Documents and under applicable law, all
such rights and remedies being cumulative and enforceable alternatively,
successively or concurrently.

          8. Prepayment. The Company may not prepay this Note prior to the
Maturity Date without the prior written consent of the Holders.

          9. Seniority.

                    (a) Except as set forth in the Subordination Agreement, the
Notes will rank senior in right of payment to all other indebtedness of the
Company, other than the GA Notes, with respect to which the Notes will be pari
passu in right of payment in accordance with the Intercreditor Agreement.

                    (b) Notwithstanding anything to the contrary contained in
the Notes, this Note and the other Notes, and the terms and the conditions
hereof and thereof, are subject to the Intercreditor Agreement.

          10. Assignment. Subject to the restrictions on transfer described in
Section 12 below, the rights and obligations of the Company and Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties. The Company shall not be permitted to assign this
Note without the prior written consent of the Holders.

          11. Waiver of Notice. The Company hereby waives notice, presentment,
demand, protest and notice of dishonor.

          12. Transfer of This Note. With respect to any offer, sale or other
disposition of this Note, Holder will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such Holder's counsel, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any
federal or state law then in effect); provided, that no opinion shall be
required for any transfer to an Affiliate or if the transfer is made in
compliance with the Securities Act, so long as the transferee can make the same
representations and warranties at the time of transfer as set forth in Sections
4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly
upon delivering such written notice and opinion, if so required, Holder may sell
or otherwise dispose of this Note, all in accordance with the terms of the
notice delivered to the Company. Each Note thus transferred shall bear a legend
as to the applicable restrictions on transferability in order to ensure
compliance with the Securities Act, unless in the opinion of counsel for the
Company such legend is not required in order to ensure compliance with the
Securities Act. The Company may issue stop transfer instructions to its transfer
agent in connection with such restrictions. Notwithstanding the foregoing, the
Holder shall not be permitted to transfer this Note to any Person who is not an
Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii)
the receipt of written notice from the

                                                                              16


Company that Stockholder Approval cannot be obtained, or the occurrence of an
actual vote of the Company's shareholders entitled to vote (whether by written
consent or at a meeting specially called for such purpose), the result of which
is a decision by a majority of the Company's shareholders entitled to vote to
decline to grant Stockholder Approval, (iii) six (6) months from the date hereof
and (iv) the occurrence of an Event of Default.

          13. Treatment of Note. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.

          14. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by nationally recognized courier
service or mailed by registered or certified mail, postage prepaid, to the
respective addresses of the parties as set forth on the signature pages hereto
or if sent by facsimile to the respective facsimile numbers of the parties set
forth on the signature pages hereto. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively be
deemed to have been given and received when personally delivered or three (3)
business days after deposited in the mail or one business day after sent by
courier or upon confirmation of facsimile delivery in the manner set forth
above.

          15. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon Holder or any other Person the right to vote or to
consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company.

          16. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, excluding that body of law
relating to conflict of laws.

          17. Amendments and Waivers. No amendments or waivers of any provision
of this Note, and no consent by the Holder to any departure by the Company,
shall in any event be effective unless the same shall be in writing, and signed
by the Holders of a majority of the outstanding principal amount of all of the
Notes issued by the Company pursuant to the Note Purchase Agreement, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given.

          18. Severability. Any provision of this Note that is prohibited or
unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

          19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY
(A) COVENANTS AND AGREES NOT TO

                                                                              17


ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES
TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND THE HOLDER
MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO
THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES,
COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING
IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD
AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS
AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST
PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS
SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND
THE HOLDER, AND THE COMPANY AND THE HOLDER HEREBY AGREE THAT NO REPRESENTATIONS
OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF
TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE COMPANY AND THE
HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING
JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO
SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF
THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED
IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT
LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

          20. Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except as otherwise indicated, all references herein to Sections refer to
Sections hereof.

              [the remainder of this page intentionally left blank]

                                                                              18


          IN WITNESS WHEREOF, the Company has caused this Note to be issued this
16th day of January, 2004.

                                    COMPANY:

                                    CRITICAL PATH, INC.,
                                    a California corporation

                                    By: /s/ William E. McGlashan, Jr.
                                        ----------------------------------------
                                        Name: William E. McGlashan, Jr.
                                        Title: Chairman, Chief Executive Officer

                                        Critical Path, Inc.
                                        350 The Embarcadero
                                        San Francisco, CA 94105-1204
                                        Telecopy: (415) 541-2300
                                        Attention: Chief Financial Officer

                                        With a copy to:

                                        Pillsbury Winthrop LLP
                                        50 Fremont Street
                                        San Francisco, CA 94105
                                        Telecopy: (415) 983-1200
                                        Attention: Gregg Vignos, Esq.

Name of Holder: ZAXIS INSTITUTIONAL PARTNERS, L.P.

Address:        c/o Apex Capital, LLC
                25 Orinda Way, Suite 300
                Orinda, CA  94563
                Attention: Adam Fiore, General Counsel

Telephone:      (925) 253-6125

Facsimile:      (925) 253-1809

EX-4.29

                                                                    EXHIBIT 4.29

     THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
     SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN
     REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
     SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
     TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER
     OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.

                               CRITICAL PATH, INC.

                    CONVERTIBLE SUBORDINATED PROMISSORY NOTE

$5,250,000.00
                                                       San Francisco, California
                                                       January 16, 2004

          Critical Path, Inc., a California corporation (the "Company"), the
principal office of which is located in San Francisco, California, for value
received hereby promises to pay to the order of Zaxis Offshore Limited, or its
registered assigns ("Holder"), the sum of five million two hundred fifty
thousand dollars ($5,250,000), or such lesser amount as shall then equal the
outstanding principal amount hereof on the terms and conditions set forth
hereinafter. The outstanding principal amount hereof and all accrued and unpaid
interest hereon, as set forth below, shall be due and payable on the earlier to
occur of (i) January 16, 2008, (ii) when declared due and payable by Holder upon
the occurrence of an Event of Default (as defined below), (iii) consummation of
a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital
stock or Stock Equivalents by the Company, any cash capital contribution from
any third person or any other debt or equity financing consummated by the
Company after the date of issuance of this Note which, in the case of (v),
individually or in the aggregate raises proceeds of at least forty million
dollars ($40,000,000) in cash or cash equivalents (the earliest of the events
set forth in items (i)-(v) immediately above, the "Maturity Date").

          The following is a statement of the rights of the Holder of this Note
and the conditions to which this Note is subject, and to which the Holder
hereof, by the acceptance of this Note, agrees:

          1. Definitions. Except as otherwise defined herein, each capitalized
term used herein shall have the meaning assigned to it in the Note Purchase
Agreement, as in effect on the date hereof, and without regard to any subsequent
termination of the Note Purchase Agreement. All other references to the Note
Purchase Agreement in this Note refer to the Note Purchase Agreement as in
effect on the date hereof, and without regard to any subsequent termination of
the Note Purchase Agreement. As used in this Note, the following terms, unless
the context otherwise requires, have the following

                                                                               2


meanings:

               1.1 "Affiliate" means any Person who is an "affiliate" as defined
in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange
Act of 1934, as amended.

               1.2 "Capitalized Lease Obligations" means, with respect to any
Person, all rental obligations of such Person which, under GAAP, are or will be
required to be capitalized on the books of such Person, in each case taken at
the amount thereof accounted for as indebtedness in accordance with such
principles.

               1.3 "Change of Control" shall mean (i) any merger, consolidation
or other business combination transaction (or series of related transactions) in
which the stockholders owning a majority of the voting securities of the Company
prior to such transaction do not own a majority of the voting securities of the
surviving entity, (ii) any tender offer, exchange offer or other transaction
whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as amended) (other than
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell
Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and
the Affiliates of the foregoing, provided that Affiliates shall be deemed not to
include any portfolio companies of any of the foregoing) obtains a majority of
the outstanding shares of capital stock entitled to vote in the election of
directors, (iii) any proxy contest in which a majority of the Board of Directors
of the Company (or persons appointed by such Board of Directors) prior to such
contest do not constitute a majority of the Company's Board of Directors after
such contest or (iv) any other transaction described in any stockholder rights
agreement or "poison pill," if any, to which the Company is party, which may
permit the holders of any rights or similar certificates to exercise the rights
evidenced thereby.

               1.4 "Company" shall have the meaning set forth in the recitals
hereto, and includes any corporation that shall succeed to or assume the
obligations of the Company under this Note.

               1.5 "Common Conversion Date" shall have the meaning set forth in
Section 3.1(b) hereof.

               1.6 "Common Stock" means the common stock, par value $0.001 per
share, of the Company.

               1.7 "Conversion Date" shall mean the Subsequent Closing Date.

               1.8 "Domestic Subsidiary" shall have the meaning set forth in
Section 5.10 hereof.

               1.9 "Event of Default" shall have the meaning set forth in
Section 6 hereof.

                                                                               3


               1.10 "GA Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP
Entities pursuant to the Purchase and Exchange Agreement.

               1.11 "GAP Entities" shall mean General Atlantic Partners 74,
L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG.

               1.12 "Guarantor" shall have the meaning set forth in the Security
Agreement.

               1.13 "Holder" shall mean the registered holder of this Note from
time to time, and in the plural, shall mean all registered holders of Notes from
time to time issued by the Company pursuant to the Note Purchase Agreement.

               1.14 "Intercreditor Agreement" shall mean the Intercreditor
Agreement, dated the date hereof, among the GAP Entities, Permal U.S.
Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners,
L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund,
L.P.

               1.15 "Interest Amount" shall have the meaning set forth in
Section 3.1 hereof.

               1.16 "Investment" means (i) the acquisition (whether for cash,
property, services, assumption of Indebtedness, securities or otherwise) of
assets (other than equipment, inventory, supplies or other assets acquired in
the ordinary course of business of the Company), capital stock, bonds, notes,
debentures, partnership, joint venture or other ownership interests or other
securities of any Person, (ii) any deposit with, or advance, loan or other
extension of credit to, or on behalf of, any Person (other than deposits made in
connection with the purchase of equipment, inventory, services, leases, supplies
or other assets in the ordinary course of business of the Company), and (iii)
any other capital contribution to or investment in any Person, including,
without limitation, any guaranty obligation incurred for the benefit of any
Person. For the sake of clarity, Investments shall include any transfer of
property or assets by the Company to any of its Subsidiaries or by any
Subsidiary of the Company to any other Subsidiary.

               1.17 "Loan Documents" shall have the meaning set forth in the
Security Agreement.

               1.18 "Note" shall mean this note, and in the plural, shall mean
all notes issued to the Lenders pursuant to the terms of the Note Purchase
Agreement, including this Note, and all amendments, modifications and extensions
thereto.

               1.19 "Note Purchase Agreement" means that certain Convertible
Note Purchase Agreement, dated January 16, 2004, among the Company, the Holder
and the other parties thereto from time to time, and all amendments,
modifications and extensions thereto.

                                                                               4


               1.20 "Permitted Investments" means (i) Investments in cash or
cash equivalents, (ii) accounts receivable created, acquired or made in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (iii) Investments existing on the closing date, and
listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty
obligations permitted by Section 5.3 of this Agreement, (v) loans to employees,
directors or officers of the Company in connection with the award of convertible
bonds or capital stock under a stock incentive plan, stock option plan or other
equity-based compensation plan or arrangement, (vi) other advances or loans to
employees, directors, officers or agents of the Company in the ordinary course
of business not to exceed $500,000 in the aggregate at any time outstanding;
(vii) loans, advances and investments in foreign Subsidiaries (that are not
incorporated or otherwise organized under the laws of the United States of
America or any state thereof) in an amount not to exceed $1,000,000 in the
aggregate at any time outstanding; (viii) any acquisition for which the prior
written consent of the Holders of a majority of the outstanding principal amount
of all of the Notes issued by the Company pursuant to the Note Purchase
Agreement has been obtained, (ix) other loans, advances and investments of a
nature not contemplated by the foregoing sections in an amount not to exceed
$500,000 in the aggregate at any time outstanding or (x) Investments by the
Company in the Guarantor.

               1.21 "Permitted Liens" shall have the meaning set forth in
Section 5.4.

               1.22 "Person" means any individual, firm, corporation,
partnership, trust, joint venture, joint stock company, limited liability
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.

               1.23 "Price Per Share" shall have the meaning attributed to such
term in the Series E Certificate of Determination, as filed with the Secretary
of State of the State of California.

               1.24 "Purchase and Exchange Agreement" shall mean the Convertible
Note Purchase and Exchange Agreement, dated November 18, 2003, among the
Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended.

               1.25 "Qualified Asset Sale" means the sale, transfer or other
disposition of any of the assets of the Company or any of its Subsidiaries,
other than (a) sales of assets in the ordinary course of business, (b) sales of
assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the
sale, transfer or other disposition of assets of the Company where the proceeds
are applied to the purchase price or traded in for credit against the purchase
price of other assets, provided that any such purchase is made, or credit
issued, within 90 days of the sale, transfer or other disposition, and (d) one
or more sales of the Company's assets (other than sales otherwise included in
clauses (a), (b), and (c) immediately above) which collectively yield up to an
aggregate of one million dollars ($1,000,000) in gross proceeds to the Company
while this Note is outstanding.

                                                                               5


               1.26 "Restricted Payment" means (a) any dividend or other
distribution (whether in cash, securities or other property) with respect to any
shares of any class of capital stock of the Company or any of its Subsidiaries
or (b) any payment (whether in cash, securities or other property), including
any sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any shares of any class
of capital stock of the Company or any Subsidiary or any option, warrant or
other right to acquire any such shares of capital stock of the Company or any
Subsidiary.

               1.27 "Security Agreement" means that certain Guaranty and
Security Agreement, of even date herewith between the Company, Compass Holding
Corp., the Lenders and the other parties thereto from time to time, and all
amendments, modifications and extensions thereto.

               1.28 "Series E Conversion Price" shall have the meaning set forth
in the Series E Certificate of Determination.

               1.29 "Series E Preferred Stock" means the Series E Preferred
Stock, par value $0.001, of the Company.

               1.30 "Subordination Agreement" shall have the meaning set forth
in Section 5.3.

               1.31 "Subsequent Closing Date" shall have the meaning set forth
in Section 2.4(e) of the Note Purchase Agreement.

               1.32 "SVB" means Silicon Valley Bank, a California chartered
bank, or any Affiliates thereof.

               1.33 "Ten Percent Holder" means, with respect to a class of
equity securities of the Company, a Person (together with such Person's
Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such
class of equity securities of the Company, as defined by Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

               1.34 "UCC" shall have the meaning set forth in Section 5.4.

          2. Interest. Simple interest shall accrue at the rate of ten percent
(10%) per annum (or such lesser amount as shall equal the highest rate of
interest allowable under applicable law) (the "Interest Rate"), on the
outstanding principal of this Note from the date of this Note until the Maturity
Date or the date this Note is otherwise repaid. The Company shall not be
obligated to make any payments of interest which shall have accrued under this
Note prior to the Maturity Date. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. In the event that the
principal amount of this Note, any interest, or any amount payable hereunder is
not paid in full when such amount becomes due and payable, or upon the
occurrence of an Event of Default, interest shall accrue at the lesser of (a)
the initial Interest Rate plus five percent (5%) per annum or (b) the highest
rate of interest allowable under applicable law,

                                                                               6


on the balance of all amounts outstanding until such overdue amounts are paid or
the Event of Default is cured, and such interest shall be payable on demand.

          3. Conversion.

               3.1 Conversion.

                    (a) On the Conversion Date, the principal amount of this
Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall
be automatically converted into the number of fully paid and nonassessable
shares of Series E Preferred Stock equal to the quotient obtained by dividing
(a) the entire principal amount of this Note plus the Interest Amount by (b) the
Price Per Share.

                    (b) In the event that the Conversion Date has not occurred
on or prior to April 30, 2004 (the "Common Conversion Date"), then, following
the Common Conversion Date, the principal amount of this Note plus the Interest
Amount shall be convertible, at the option of Holder and from time to time, into
Common Stock at a conversion price per share equal to $1.65, as adjusted for any
stock dividends, stock splits or similar consolidations or subdivisions,
following the date hereof; provided, however, that Holder shall not be permitted
to convert any portion of the principal of this Note or the Interest Amount into
Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion,
the conversion would cause Holder to be a Ten Percent Holder.

               3.2 Notice of Conversion. Upon conversion of this Note as
provided in Section 3.1, Holder shall surrender this Note to the Company and
shall state the name or names in which the certificate or certificates for such
shares of Series E Preferred Stock or Common Stock, as the case may be, are to
be issued. The Person or Persons entitled to receive the shares of Series E
Preferred Stock or Common Stock, as the case may be, issuable upon such
conversion shall be treated for all purposes as the record holder or holders (a)
of such shares of Series E Preferred Stock as of the Conversion Date and (b) of
such shares of Common Stock as of the date of any conversion pursuant to Section
3.1(b).

               3.3 Delivery of Stock Certificates. Upon conversion of this Note
as provided in Section 3.1, the Company at its expense will issue and deliver to
Holder of this Note a certificate or certificates (bearing such legends as are
required by applicable state and federal securities laws in the opinion of
counsel to the Company) for the number of full shares of Series E Preferred
Stock or Common Stock, as the case may be, issuable upon such conversion.

               3.4 Mechanics and Effect of Conversion. No fractional shares of
Series E Preferred Stock or Common Stock, as the case may be, shall be issued
upon conversion of this Note. In lieu of the Company issuing any fractional
shares to Holder upon the conversion of this Note, the Company shall pay to
Holder the amount of outstanding principal and interest that is not so
converted. Upon conversion of all amounts due under this Note, the Company shall
be released from all of its obligations under this Note.

                                                                               7


          4. Adjustments. The number of shares of Series E Preferred Stock or
Common Stock convertible hereunder are subject to adjustment from time to time
as follows:

               4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at
any time while this Note remains outstanding and unexpired there shall be (a) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (b) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise or (c) a sale or
transfer of the Company's stock, properties or assets as, or substantially as,
an entirety to any other Person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that Holder
shall thereafter be entitled to receive by converting this Note the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon conversion of this Note would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Note had been converted immediately before such reorganization,
merger, consolidation, sale or transfer (notwithstanding that the Stockholder
Approval may not yet have been obtained), all subject to further adjustment as
provided in this Section 4. The foregoing provisions of this Section 4.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation. If the
per share consideration payable to Holder hereof for shares in connection with
any such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
Company's Board of Directors based on the amount the Holder would have otherwise
been entitled to receive had the transaction or transactions not occurred. In
all events, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions of this
Note with respect to the rights and interests of Holder after the transaction,
to the end that the provisions of this Note shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon conversion of this Note. The Company shall be
obligated to retain and set aside, or otherwise make fair provision for exercise
of the right of the Holder to receive, the shares of stock and/or other
securities, cash or other property provided for in this Section 4.1.

               4.2 Election of Holder upon Merger or Sale of Assets.
Notwithstanding anything to the contrary contained herein, if an event shall
occur as provided in Section 4.1 hereof that would otherwise result in the
occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first
paragraph of this Note, then the Holder may, in its sole discretion, by written
notice to the Company elect to convert the principal amount of this Note plus
the Interest Amount into the number of shares of stock or other securities or
property described in Section 4.1, in lieu of receiving payment in full of all
amounts outstanding under this Note. The number of shares of stock or other

                                                                               8


securities or property to be issued upon such conversion shall be determined in
accordance with Section 4.1 hereof, taking into account the occurrence of such
event.

               4.3 Reclassification, Etc. If the Company shall, at any time
while this Note, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, change any of the securities as to
which conversion rights under this Note exist into the same or a different
number of securities of any other class or classes, this Note shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable with respect to the securities that were subject to the conversion
rights under this Note immediately prior to such reclassification or other
change, and the Price Per Share shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 4.

               4.4 Split, Subdivision or Combination of Shares. If the Company
at any time while this Note, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the shares of Series E Preferred
Stock or Common Stock into a different number of securities of the same class,
the Price Per Share or conversion price, as the case may be, shall be
proportionately adjusted.

               4.5 Series E Adjustments. The initial Series E Conversion Price
of the shares of Series E Preferred Stock issued upon conversion of this Note
pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on
the Conversion Date, subject to the adjustment of such Series E Conversion Price
from time to time thereafter as provided in the Series E Certificate of
Determination.

               4.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 4, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.

               4.7 No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of Holder against impairment.

          5. Covenants. The Company covenants and agrees that until the earlier
of (i) the date on which all Obligations (as defined in the Security Agreement)
have been paid in full or (ii) the date on which all amounts outstanding under
the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b):

               5.1 Financial Statements and Other Information. The Company shall
deliver to the Holder of this Note the financial statements and other
information required to be delivered under Section 8.1 of the Note Purchase
Agreement.

                                                                               9


               5.2 Financial Covenants. The Company shall at all times comply
with the financial and other covenants set forth in Schedule 8.5 to the Note
Purchase Agreement as if such covenants were set forth herein.

               5.3 Indebtedness. The Company shall not, and shall not permit any
Subsidiary to, issue, incur, assume, create or have outstanding any
Indebtedness, provided, however, that the foregoing shall not restrict nor
operate to prevent:

                    (a) Indebtedness in favor of the Holders under the Loan
Documents;

                    (b) Indebtedness existing on the date hereof, as set forth
on Schedule 3.22 to the Note Purchase Agreement;

                    (c) Indebtedness for accounts payable incurred in the
ordinary course of business by the Company;

                    (d) Indebtedness incurred solely for the purpose of
financing the acquisition of any equipment, machinery, software, improvements or
any other similar property, or extensions, renewals or replacements of any of
the foregoing for the same or a lesser amount; provided, that the aggregate
outstanding principal amount of all Indebtedness permitted pursuant to this
clause (d) outstanding for more than sixty (60) days after the incurrence of
such Indebtedness shall not at any time exceed $500,000;

                    (e) Indebtedness of the Company evidenced by Capitalized
Lease Obligations, provided, that in no event shall the aggregate principal
amount of Capitalized Lease Obligations permitted by this clause (e) exceed
$500,000 at any time outstanding; and

                    (f) Any extension, renewal, refinancing, refunding, or
replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and
(e) above, on such terms and conditions as are, on the whole, not materially
more onerous to the Company than the terms and conditions of such original
Indebtedness on the date of such refinancing (including that the principal
amount of such refinancing Indebtedness does not exceed the principal amount of,
plus the amount of accrued and unpaid interest on, the Indebtedness so
refinanced (plus the amount of reasonable premium and fees and expenses incurred
in connection therewith)), provided that, in the case of a refinancing of
Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall
only apply to the extent consistent with the Subordination Agreement, dated as
of the date hereof, by and among SVB, the Holders and the Company (the
"Subordination Agreement").

               5.4 Liens. The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
the Company or any of its Subsidiaries, whether now owned or hereafter acquired,
or sell any such property or

                                                                              10


assets subject to an understanding or agreement, contingent or otherwise, to
repurchase such property or assets (including sales of accounts receivable), or
assign any right to receive income or permit the filing of any financing
statement under the Uniform Commercial Code, as from time to time in effect in
the relevant jurisdiction (the "UCC"), or any other similar notice of Lien under
any similar recording or notice statute; provided, that the provisions of this
Section 5.4 shall not prevent the creation, incurrence, assumption or existence
of the following:

                    (a) Liens arising in the ordinary course of business by
statute in connection with worker's compensation, unemployment insurance, old
age benefits, social security obligations, statutory obligations or other
similar charges (other then Liens arising under ERISA), good faith cash deposits
in connection with tenders, contracts or leases to which the Company or any
Subsidiary is a party or other cash deposits required to be made in the ordinary
course of business, provided, that such Liens do not have a material adverse
effect on the ability of the Company to repay amounts due under the Notes;

                    (b) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due or Liens for taxes, assessments or governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP;

                    (c) Liens in respect of property or assets of the Company or
its Subsidiaries imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as carriers',
warehousemen's, materialmen's and mechanics' liens and other similar Liens
arising in the ordinary course of business, and (i) which do not in the
aggregate materially detract from the value of the Company's and its
Subsidiaries' property or assets taken as a whole or result in a material
adverse effect on the Condition of the Company or (ii) which are being contested
in good faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to any such
Lien;

                    (d) the pledge of assets for the purpose of securing an
appeal, stay or discharge in the course of any legal proceeding, provided that
the aggregate amount of liabilities of the Company and its Subsidiaries secured
by a pledge of assets permitted under this subsection, including interest and
penalties thereon, if any, shall not be in excess of $500,000 at any one time
outstanding;

                    (e) any interest or title of a lessor under any operating
lease;

                    (f) easements, rights-of-way, restrictions and other similar
encumbrances against real property incurred in the ordinary course of business;

                                                                              11


                    (g) the Liens existing on the date hereof identified on
Schedule 3.22 to the Note Purchase Agreement;

                    (h) Liens on cash deposited with account debtors to secure
performance by the Company or any Subsidiary in the ordinary course of business
subject to customary and reasonable terms;

                    (i) Liens upon assets of the Company or its Subsidiaries
subject to Capitalized Lease Obligations, provided, that (A) such Liens only
serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising
under such Capitalized Lease Obligation and (B) the Lien encumbering the asset
giving rise to the Capitalized Lease Obligation does not encumber any other
asset of the Company or its Subsidiaries;

                    (j) Liens placed upon equipment, machinery, software,
improvements or any other similar property, used in the ordinary course of
business of the Company or any of its Subsidiaries at the time of the
acquisition thereof by the Company or any of its Subsidiaries or within ninety
(90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above;
provided, that the Liens encumbering the equipment, machinery software,
improvements or any other similar property so acquired do not encumber any other
asset of the Company or its Subsidiaries;

                    (k) set-off rights of depository institutions; and

                    (l) Liens created by the Security Agreement (collectively
with clauses (a) through (k) hereof, the "Permitted Liens").

               5.5 Fundamental Changes. The Company will not, and will not
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (in one transaction or a series of transactions)
all or substantially all of its assets, or all or substantially all of the stock
of any of its Subsidiaries (in each case, whether now owned or hereafter
acquired), or liquidate or dissolve, except that, if at the time and immediately
after giving effect thereto no Event of Default shall have occurred and be
continuing (i) the Company or any of its Subsidiaries may, with the prior
written consent of the Holders, merge with or into any other Person; (ii) any
wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with
or into the Company or any other wholly-owned Subsidiary of the Company; (iii)
any Subsidiary (other than the Guarantor, and except as otherwise prohibited by
this Note) may sell, transfer, lease or otherwise dispose of its assets to the
Company or to another wholly-owned Subsidiary of the Company; and (iv) any
Subsidiary may liquidate or dissolve if the board of directors of the Company
determine in good faith that such liquidation or dissolution is in its best
interests and is not disadvantageous to the Holders.

               5.6 Restricted Payments. The Company will not, and the Company
will not permit any Subsidiary to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except that (i) any Subsidiary
may make a

                                                                              12


Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and
(ii) the Company or any of its Subsidiaries may make any Restricted Payment
required by the terms of the Note Purchase Agreement and the other documents
executed in connection therewith.

               5.7 Transactions with Affiliates. The Company will not, and the
Company will not permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions that are at prices and on terms and
conditions not less favorable to the Company or such Subsidiary than could be
obtained on an arm's length basis from unrelated third parties, (b) transactions
exclusively between the Company and the Guarantor and (c) transactions under the
agreements listed on Schedule 3.17 to the Note Purchase Agreement.

               5.8 Investments. The Company will not, and the Company will not
permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment
in any Person, except for Permitted Investments.

               5.9 Nature of Business. The Company will not, and the Company
will not permit any Subsidiary to, engage in any business other than that
conducted on the date hereof and any businesses reasonably related thereto.

               5.10 Property of Existing Domestic Subsidiaries. The Company will
not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise
organized under the laws of the United States of America or any state thereof (a
"Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease,
license, purchase or otherwise acquire any personal or real property (excluding
any material intellectual property) in excess of $50,000 for all property held
by such Subsidiary, or $250,000 in the aggregate for all property held by all
Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own
or otherwise hold any rights to any material intellectual property or (iv)
otherwise conduct any business or maintain operations.

               5.11 Formation of Subsidiaries. The Company will not, and will
not cause or permit any of its Subsidiaries to, form, acquire or permit the
existence of any new domestic Subsidiary, without causing such domestic
Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes
and related security document, in form and substance satisfactory to the
Holders.

               5.12 Books and Records. The Company shall keep proper books of
record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company and its
Subsidiaries in accordance with GAAP consistently applied.

               5.13 Inspection. The Company shall, and shall cause each of its
Subsidiaries to, permit representatives of the Holders to visit and inspect any
of its properties, to examine its corporate, financial and operating records and
make copies

                                                                              13


thereof or abstracts therefrom, and to discuss its affairs, finances and
accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested upon notice to the Company.

               5.14 Maintenance of Business. The Company shall, and shall cause
each Subsidiary to, preserve and maintain its existence. The Company shall, and
shall cause each Subsidiary to, preserve and keep in force and effect all
licenses, permits, franchises, approvals, patents, trademarks, trade names,
trade styles, copyrights, and other property rights necessary to the proper
conduct of its business, except where the failure to do so could not reasonably
be expected to have a material adverse effect on the Condition of the Company or
on the prospects of repayment of the Notes.

               5.15 Maintenance of Properties. The Company shall, and shall
cause each Subsidiary to, maintain, preserve and keep its property and equipment
in good repair, working order and condition (ordinary wear and tear excepted)
and shall from time to time make all needful and proper repairs, renewals,
replacements, additions and betterments thereto so that at all times the
efficiency thereof shall by fully preserved and maintained, except in each case
to the extent that, in the reasonable business judgment of such Person, any such
property or equipment is no longer necessary for the proper conduct of the
business of such Person.

          6. The occurrence of any one or more of the following events shall
constitute an "Event of Default":

               6.1 Failure To Pay. (i) The failure of the Company to pay any
principal due under any of the Notes when due and payable (whether by
acceleration, declaration, extension or otherwise), or (ii) the failure of the
Company to pay any other amounts due under any of the Notes when due and payable
if such failure is not cured within five (5) days of Company's receipt of notice
thereof from any of the Holders.

               6.2 Financial Covenants. The failure of Company or any of its
Subsidiaries to perform, observe or comply with any of the Financial Covenants
set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by
reference in this Note in Section 5.2.

               6.3 Other Covenants and Agreements. The failure of Company or any
of its Subsidiaries to perform, observe or comply with any of the covenants of
this Note, the Security Agreement or any of the other Loan Documents (other than
the Financial Covenants set forth on Schedule 8.5 to the Note Purchase
Agreement, and incorporated by reference in this Note in Section 5.2), if such
failure is not cured within sixty (60) days.

               6.4 Representations and Warranties. If any representation or
warranty made by the Company or any of its Subsidiaries in the Loan Documents is
not true and correct in all material respects on the Initial Closing Date.

                                                                              14


               6.5 Default on Other Obligations. The occurrence of any condition
or default under any other indebtedness for borrowed money of the Company or any
of its Subsidiaries with a principal amount of at least five hundred thousand
dollars ($500,000) that results in the acceleration of such indebtedness which
is not cured within sixty (60) days.

               6.6 Involuntary Bankruptcy. There shall be filed against the
Company or any of its Subsidiaries an involuntary petition or other pleading
seeking the entry of a decree or order for relief under the United States
Bankruptcy Code or any similar federal or state insolvency or similar laws
ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a
reorganization of the Company or any of its Subsidiaries or the business and
affairs of the Company or any of its Subsidiaries or (c) the appointment of a
receiver, liquidator, assignee, custodian, trustee or similar official for the
Company or any of its Subsidiaries of the property of the Company or any of its
Subsidiaries.

               6.7 Voluntary Bankruptcy. The commencement by the Company or any
of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any
federal or state insolvency or similar laws or the consent by the Company or any
of its Subsidiaries to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or similar official for the Company or
any of its Subsidiaries of any of the property of the Company or any of its
Subsidiaries or the making by the Company or any of its Subsidiaries of an
assignment for the benefit of creditors, or the failure by Company or any of its
Subsidiaries generally to pay its debts as the debts become due.

               6.8 Judgments, Awards. Any judgment or order for the payment of
money is rendered against the Company or any of its Subsidiaries in an amount in
excess of five hundred thousand dollars ($500,000) individually or in the
aggregate and either (i) enforcement proceedings are commenced by any creditor
upon such judgment or order and not stayed, or (ii) there is any period of sixty
(60) consecutive days during which such judgment has not been paid in full or a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, is not in effect.

               6.9 Attachment by Lenders. Any assets of the Company or any of
its Subsidiaries shall be attached, levied upon, seized or repossessed, or come
into the possession of a trustee, receiver or other custodian and a
determination by any Holder, in good faith but in its sole discretion, that the
same could have a material adverse effect on the prospect for the Holders to
fully and punctually realize the full benefits conferred on the Holders by the
Loan Documents.

               6.10 Adverse Change in Financial Condition. Any event having a
material adverse effect on the business, operations, assets, properties or
condition of the Company and its Subsidiaries taken as a whole shall have
occurred and be continuing or a material adverse effect on the validity or
enforceability of this or any of the other Loan Documents or the rights or
remedies of the Holders hereunder or thereunder.

                                                                              15


          7. Remedies. Upon and after the occurrence of an Event of Default, the
Holder shall be entitled to the exercise the rights and remedies set forth in
the Security Agreement, the other Loan Documents and under applicable law, all
such rights and remedies being cumulative and enforceable alternatively,
successively or concurrently.

          8. Prepayment. The Company may not prepay this Note prior to the
Maturity Date without the prior written consent of the Holders.

          9. Seniority.

                    (a) Except as set forth in the Subordination Agreement, the
Notes will rank senior in right of payment to all other indebtedness of the
Company, other than the GA Notes, with respect to which the Notes will be pari
passu in right of payment in accordance with the Intercreditor Agreement.

                    (b) Notwithstanding anything to the contrary contained in
the Notes, this Note and the other Notes, and the terms and the conditions
hereof and thereof, are subject to the Intercreditor Agreement.

          10. Assignment. Subject to the restrictions on transfer described in
Section 12 below, the rights and obligations of the Company and Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties. The Company shall not be permitted to assign this
Note without the prior written consent of the Holders.

          11. Waiver of Notice. The Company hereby waives notice, presentment,
demand, protest and notice of dishonor.

          12. Transfer of This Note. With respect to any offer, sale or other
disposition of this Note, Holder will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such Holder's counsel, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any
federal or state law then in effect); provided, that no opinion shall be
required for any transfer to an Affiliate or if the transfer is made in
compliance with the Securities Act, so long as the transferee can make the same
representations and warranties at the time of transfer as set forth in Sections
4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly
upon delivering such written notice and opinion, if so required, Holder may sell
or otherwise dispose of this Note, all in accordance with the terms of the
notice delivered to the Company. Each Note thus transferred shall bear a legend
as to the applicable restrictions on transferability in order to ensure
compliance with the Securities Act, unless in the opinion of counsel for the
Company such legend is not required in order to ensure compliance with the
Securities Act. The Company may issue stop transfer instructions to its transfer
agent in connection with such restrictions. Notwithstanding the foregoing, the
Holder shall not be permitted to transfer this Note to any Person who is not an
Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii)
the receipt of written notice from the

                                                                              16


Company that Stockholder Approval cannot be obtained, or the occurrence of an
actual vote of the Company's shareholders entitled to vote (whether by written
consent or at a meeting specially called for such purpose), the result of which
is a decision by a majority of the Company's shareholders entitled to vote to
decline to grant Stockholder Approval, (iii) six (6) months from the date hereof
and (iv) the occurrence of an Event of Default.

          13. Treatment of Note. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.

          14. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by nationally recognized courier
service or mailed by registered or certified mail, postage prepaid, to the
respective addresses of the parties as set forth on the signature pages hereto
or if sent by facsimile to the respective facsimile numbers of the parties set
forth on the signature pages hereto. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively be
deemed to have been given and received when personally delivered or three (3)
business days after deposited in the mail or one business day after sent by
courier or upon confirmation of facsimile delivery in the manner set forth
above.

          15. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon Holder or any other Person the right to vote or to
consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company.

          16. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, excluding that body of law
relating to conflict of laws.

          17. Amendments and Waivers. No amendments or waivers of any provision
of this Note, and no consent by the Holder to any departure by the Company,
shall in any event be effective unless the same shall be in writing, and signed
by the Holders of a majority of the outstanding principal amount of all of the
Notes issued by the Company pursuant to the Note Purchase Agreement, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given.

          18. Severability. Any provision of this Note that is prohibited or
unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

          19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY
(A) COVENANTS AND AGREES NOT TO

                                                                              17


ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES
TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND THE HOLDER
MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO
THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES,
COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING
IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD
AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS
AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST
PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS
SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND
THE HOLDER, AND THE COMPANY AND THE HOLDER HEREBY AGREE THAT NO REPRESENTATIONS
OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF
TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE COMPANY AND THE
HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING
JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO
SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF
THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED
IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT
LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

          20. Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except as otherwise indicated, all references herein to Sections refer to
Sections hereof.

              [the remainder of this page intentionally left blank]

                                                                              18


          IN WITNESS WHEREOF, the Company has caused this Note to be issued this
16th day of January, 2004.

                                    COMPANY:

                                    CRITICAL PATH, INC.,
                                    a California corporation

                                    By: /s/ William E. McGlashan, Jr.
                                        ----------------------------------------
                                        Name: William E. McGlashan, Jr.
                                        Title: Chairman, Chief Executive Officer

                                        Critical Path, Inc.
                                        350 The Embarcadero
                                        San Francisco, CA 94105-1204
                                        Telecopy: (415) 541-2300
                                        Attention: Chief Financial Officer

                                        With a copy to:

                                        Pillsbury Winthrop LLP
                                        50 Fremont Street
                                        San Francisco, CA 94105
                                        Telecopy: (415) 983-1200
                                        Attention: Gregg Vignos, Esq.

Name of Holder: ZAXIS OFFSHORE LIMITED

Address:        c/o Apex Capital, LLC
                25 Orinda Way, Suite 300
                Orinda, CA 94563
                Attention: Adam Fiore, General Counsel

Telephone:      (925) 253-6125

Facsimile:      (925) 253-1809

EX-4.30

                                                                    EXHIBIT 4.30

     THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
     SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN
     REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
     SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
     TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER
     OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.

                               CRITICAL PATH, INC.

                    CONVERTIBLE SUBORDINATED PROMISSORY NOTE

$1,005,000.00                                          San Francisco, California
                                                       January 16, 2004

          Critical Path, Inc., a California corporation (the "Company"), the
principal office of which is located in San Francisco, California, for value
received hereby promises to pay to the order of Zaxis Partners, L.P., or its
registered assigns ("Holder"), the sum of one million five thousand dollars
($1,005,000), or such lesser amount as shall then equal the outstanding
principal amount hereof on the terms and conditions set forth hereinafter. The
outstanding principal amount hereof and all accrued and unpaid interest hereon,
as set forth below, shall be due and payable on the earlier to occur of (i)
January 16, 2008, (ii) when declared due and payable by Holder upon the
occurrence of an Event of Default (as defined below), (iii) consummation of a
Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock
or Stock Equivalents by the Company, any cash capital contribution from any
third person or any other debt or equity financing consummated by the Company
after the date of issuance of this Note which, in the case of (v), individually
or in the aggregate raises proceeds of at least forty million dollars
($40,000,000) in cash or cash equivalents (the earliest of the events set forth
in items (i)-(v) immediately above, the "Maturity Date").

          The following is a statement of the rights of the Holder of this Note
and the conditions to which this Note is subject, and to which the Holder
hereof, by the acceptance of this Note, agrees:

          1. Definitions. Except as otherwise defined herein, each capitalized
term used herein shall have the meaning assigned to it in the Note Purchase
Agreement, as in effect on the date hereof, and without regard to any subsequent
termination of the Note Purchase Agreement. All other references to the Note
Purchase Agreement in this Note refer to the Note Purchase Agreement as in
effect on the date hereof, and without regard to any subsequent termination of
the Note Purchase Agreement. As used in this Note, the following terms, unless
the context otherwise requires, have the following

                                                                               2


meanings:

               1.1 "Affiliate" means any Person who is an "affiliate" as defined
in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange
Act of 1934, as amended.

               1.2 "Capitalized Lease Obligations" means, with respect to any
Person, all rental obligations of such Person which, under GAAP, are or will be
required to be capitalized on the books of such Person, in each case taken at
the amount thereof accounted for as indebtedness in accordance with such
principles.

               1.3 "Change of Control" shall mean (i) any merger, consolidation
or other business combination transaction (or series of related transactions) in
which the stockholders owning a majority of the voting securities of the Company
prior to such transaction do not own a majority of the voting securities of the
surviving entity, (ii) any tender offer, exchange offer or other transaction
whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as amended) (other than
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell
Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and
the Affiliates of the foregoing, provided that Affiliates shall be deemed not to
include any portfolio companies of any of the foregoing) obtains a majority of
the outstanding shares of capital stock entitled to vote in the election of
directors, (iii) any proxy contest in which a majority of the Board of Directors
of the Company (or persons appointed by such Board of Directors) prior to such
contest do not constitute a majority of the Company's Board of Directors after
such contest or (iv) any other transaction described in any stockholder rights
agreement or "poison pill," if any, to which the Company is party, which may
permit the holders of any rights or similar certificates to exercise the rights
evidenced thereby.

               1.4 "Company" shall have the meaning set forth in the recitals
hereto, and includes any corporation that shall succeed to or assume the
obligations of the Company under this Note.

               1.5 "Common Conversion Date" shall have the meaning set forth in
Section 3.1(b) hereof.

               1.6 "Common Stock" means the common stock, par value $0.001 per
share, of the Company.

               1.7 "Conversion Date" shall mean the Subsequent Closing Date.

               1.8 "Domestic Subsidiary" shall have the meaning set forth in
Section 5.10 hereof.

               1.9 "Event of Default" shall have the meaning set forth in
Section 6 hereof.

                                                                               3


               1.10 "GA Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP
Entities pursuant to the Purchase and Exchange Agreement.

               1.11 "GAP Entities" shall mean General Atlantic Partners 74,
L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG.

               1.12 "Guarantor" shall have the meaning set forth in the Security
Agreement.

               1.13 "Holder" shall mean the registered holder of this Note from
time to time, and in the plural, shall mean all registered holders of Notes from
time to time issued by the Company pursuant to the Note Purchase Agreement.

               1.14 "Intercreditor Agreement" shall mean the Intercreditor
Agreement, dated the date hereof, among the GAP Entities, Permal U.S.
Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners,
L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund,
L.P.

               1.15 "Interest Amount" shall have the meaning set forth in
Section 3.1 hereof.

               1.16 "Investment" means (i) the acquisition (whether for cash,
property, services, assumption of Indebtedness, securities or otherwise) of
assets (other than equipment, inventory, supplies or other assets acquired in
the ordinary course of business of the Company), capital stock, bonds, notes,
debentures, partnership, joint venture or other ownership interests or other
securities of any Person, (ii) any deposit with, or advance, loan or other
extension of credit to, or on behalf of, any Person (other than deposits made in
connection with the purchase of equipment, inventory, services, leases, supplies
or other assets in the ordinary course of business of the Company), and (iii)
any other capital contribution to or investment in any Person, including,
without limitation, any guaranty obligation incurred for the benefit of any
Person. For the sake of clarity, Investments shall include any transfer of
property or assets by the Company to any of its Subsidiaries or by any
Subsidiary of the Company to any other Subsidiary.

               1.17 "Loan Documents" shall have the meaning set forth in the
Security Agreement.

               1.18 "Note" shall mean this note, and in the plural, shall mean
all notes issued to the Lenders pursuant to the terms of the Note Purchase
Agreement, including this Note, and all amendments, modifications and extensions
thereto.

               1.19 "Note Purchase Agreement" means that certain Convertible
Note Purchase Agreement, dated January 16, 2004, among the Company, the Holder
and the other parties thereto from time to time, and all amendments,
modifications and extensions thereto.

                                                                               4


               1.20 "Permitted Investments" means (i) Investments in cash or
cash equivalents, (ii) accounts receivable created, acquired or made in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (iii) Investments existing on the closing date, and
listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty
obligations permitted by Section 5.3 of this Agreement, (v) loans to employees,
directors or officers of the Company in connection with the award of convertible
bonds or capital stock under a stock incentive plan, stock option plan or other
equity-based compensation plan or arrangement, (vi) other advances or loans to
employees, directors, officers or agents of the Company in the ordinary course
of business not to exceed $500,000 in the aggregate at any time outstanding;
(vii) loans, advances and investments in foreign Subsidiaries (that are not
incorporated or otherwise organized under the laws of the United States of
America or any state thereof) in an amount not to exceed $1,000,000 in the
aggregate at any time outstanding; (viii) any acquisition for which the prior
written consent of the Holders of a majority of the outstanding principal amount
of all of the Notes issued by the Company pursuant to the Note Purchase
Agreement has been obtained, (ix) other loans, advances and investments of a
nature not contemplated by the foregoing sections in an amount not to exceed
$500,000 in the aggregate at any time outstanding or (x) Investments by the
Company in the Guarantor.

               1.21 "Permitted Liens" shall have the meaning set forth in
Section 5.4.

               1.22 "Person" means any individual, firm, corporation,
partnership, trust, joint venture, joint stock company, limited liability
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.

               1.23 "Price Per Share" shall have the meaning attributed to such
term in the Series E Certificate of Determination, as filed with the Secretary
of State of the State of California.

               1.24 "Purchase and Exchange Agreement" shall mean the Convertible
Note Purchase and Exchange Agreement, dated November 18, 2003, among the
Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended.

               1.25 "Qualified Asset Sale" means the sale, transfer or other
disposition of any of the assets of the Company or any of its Subsidiaries,
other than (a) sales of assets in the ordinary course of business, (b) sales of
assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the
sale, transfer or other disposition of assets of the Company where the proceeds
are applied to the purchase price or traded in for credit against the purchase
price of other assets, provided that any such purchase is made, or credit
issued, within 90 days of the sale, transfer or other disposition, and (d) one
or more sales of the Company's assets (other than sales otherwise included in
clauses (a), (b), and (c) immediately above) which collectively yield up to an
aggregate of one million dollars ($1,000,000) in gross proceeds to the Company
while this Note is outstanding.

                                                                               5


               1.26 "Restricted Payment" means (a) any dividend or other
distribution (whether in cash, securities or other property) with respect to any
shares of any class of capital stock of the Company or any of its Subsidiaries
or (b) any payment (whether in cash, securities or other property), including
any sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any shares of any class
of capital stock of the Company or any Subsidiary or any option, warrant or
other right to acquire any such shares of capital stock of the Company or any
Subsidiary.

               1.27 "Security Agreement" means that certain Guaranty and
Security Agreement, of even date herewith between the Company, Compass Holding
Corp., the Lenders and the other parties thereto from time to time, and all
amendments, modifications and extensions thereto.

               1.28 "Series E Conversion Price" shall have the meaning set forth
in the Series E Certificate of Determination.

               1.29 "Series E Preferred Stock" means the Series E Preferred
Stock, par value $0.001, of the Company.

               1.30 "Subordination Agreement" shall have the meaning set forth
in Section 5.3.

               1.31 "Subsequent Closing Date" shall have the meaning set forth
in Section 2.4(e) of the Note Purchase Agreement.

               1.32 "SVB" means Silicon Valley Bank, a California chartered
bank, or any Affiliates thereof.

               1.33 "Ten Percent Holder" means, with respect to a class of
equity securities of the Company, a Person (together with such Person's
Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such
class of equity securities of the Company, as defined by Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

               1.34 "UCC" shall have the meaning set forth in Section 5.4.

          2. Interest. Simple interest shall accrue at the rate of ten percent
(10%) per annum (or such lesser amount as shall equal the highest rate of
interest allowable under applicable law) (the "Interest Rate"), on the
outstanding principal of this Note from the date of this Note until the Maturity
Date or the date this Note is otherwise repaid. The Company shall not be
obligated to make any payments of interest which shall have accrued under this
Note prior to the Maturity Date. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. In the event that the
principal amount of this Note, any interest, or any amount payable hereunder is
not paid in full when such amount becomes due and payable, or upon the
occurrence of an Event of Default, interest shall accrue at the lesser of (a)
the initial Interest Rate plus five percent (5%) per annum or (b) the highest
rate of interest allowable under applicable law,

                                                                               6


on the balance of all amounts outstanding until such overdue amounts are paid or
the Event of Default is cured, and such interest shall be payable on demand.

          3. Conversion.

               3.1 Conversion.

                    (a) On the Conversion Date, the principal amount of this
Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall
be automatically converted into the number of fully paid and nonassessable
shares of Series E Preferred Stock equal to the quotient obtained by dividing
(a) the entire principal amount of this Note plus the Interest Amount by (b) the
Price Per Share.

                    (b) In the event that the Conversion Date has not occurred
on or prior to April 30, 2004 (the "Common Conversion Date"), then, following
the Common Conversion Date, the principal amount of this Note plus the Interest
Amount shall be convertible, at the option of Holder and from time to time, into
Common Stock at a conversion price per share equal to $1.65, as adjusted for any
stock dividends, stock splits or similar consolidations or subdivisions,
following the date hereof; provided, however, that Holder shall not be permitted
to convert any portion of the principal of this Note or the Interest Amount into
Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion,
the conversion would cause Holder to be a Ten Percent Holder.

               3.2 Notice of Conversion. Upon conversion of this Note as
provided in Section 3.1, Holder shall surrender this Note to the Company and
shall state the name or names in which the certificate or certificates for such
shares of Series E Preferred Stock or Common Stock, as the case may be, are to
be issued. The Person or Persons entitled to receive the shares of Series E
Preferred Stock or Common Stock, as the case may be, issuable upon such
conversion shall be treated for all purposes as the record holder or holders (a)
of such shares of Series E Preferred Stock as of the Conversion Date and (b) of
such shares of Common Stock as of the date of any conversion pursuant to Section
3.1(b).

               3.3 Delivery of Stock Certificates. Upon conversion of this Note
as provided in Section 3.1, the Company at its expense will issue and deliver to
Holder of this Note a certificate or certificates (bearing such legends as are
required by applicable state and federal securities laws in the opinion of
counsel to the Company) for the number of full shares of Series E Preferred
Stock or Common Stock, as the case may be, issuable upon such conversion.

               3.4 Mechanics and Effect of Conversion. No fractional shares of
Series E Preferred Stock or Common Stock, as the case may be, shall be issued
upon conversion of this Note. In lieu of the Company issuing any fractional
shares to Holder upon the conversion of this Note, the Company shall pay to
Holder the amount of outstanding principal and interest that is not so
converted. Upon conversion of all amounts due under this Note, the Company shall
be released from all of its obligations under this Note.

                                                                               7


          4. Adjustments. The number of shares of Series E Preferred Stock or
Common Stock convertible hereunder are subject to adjustment from time to time
as follows:

               4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at
any time while this Note remains outstanding and unexpired there shall be (a) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (b) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise or (c) a sale or
transfer of the Company's stock, properties or assets as, or substantially as,
an entirety to any other Person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that Holder
shall thereafter be entitled to receive by converting this Note the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon conversion of this Note would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Note had been converted immediately before such reorganization,
merger, consolidation, sale or transfer (notwithstanding that the Stockholder
Approval may not yet have been obtained), all subject to further adjustment as
provided in this Section 4. The foregoing provisions of this Section 4.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation. If the
per share consideration payable to Holder hereof for shares in connection with
any such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
Company's Board of Directors based on the amount the Holder would have otherwise
been entitled to receive had the transaction or transactions not occurred. In
all events, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions of this
Note with respect to the rights and interests of Holder after the transaction,
to the end that the provisions of this Note shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon conversion of this Note. The Company shall be
obligated to retain and set aside, or otherwise make fair provision for exercise
of the right of the Holder to receive, the shares of stock and/or other
securities, cash or other property provided for in this Section 4.1.

               4.2 Election of Holder upon Merger or Sale of Assets.
Notwithstanding anything to the contrary contained herein, if an event shall
occur as provided in Section 4.1 hereof that would otherwise result in the
occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first
paragraph of this Note, then the Holder may, in its sole discretion, by written
notice to the Company elect to convert the principal amount of this Note plus
the Interest Amount into the number of shares of stock or other securities or
property described in Section 4.1, in lieu of receiving payment in full of all
amounts outstanding under this Note. The number of shares of stock or other

                                                                               8


securities or property to be issued upon such conversion shall be determined in
accordance with Section 4.1 hereof, taking into account the occurrence of such
event.

               4.3 Reclassification, Etc. If the Company shall, at any time
while this Note, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, change any of the securities as to
which conversion rights under this Note exist into the same or a different
number of securities of any other class or classes, this Note shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable with respect to the securities that were subject to the conversion
rights under this Note immediately prior to such reclassification or other
change, and the Price Per Share shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 4.

               4.4 Split, Subdivision or Combination of Shares. If the Company
at any time while this Note, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the shares of Series E Preferred
Stock or Common Stock into a different number of securities of the same class,
the Price Per Share or conversion price, as the case may be, shall be
proportionately adjusted.

               4.5 Series E Adjustments. The initial Series E Conversion Price
of the shares of Series E Preferred Stock issued upon conversion of this Note
pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on
the Conversion Date, subject to the adjustment of such Series E Conversion Price
from time to time thereafter as provided in the Series E Certificate of
Determination.

               4.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 4, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.

               4.7 No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of Holder against impairment.

          5. Covenants. The Company covenants and agrees that until the earlier
of (i) the date on which all Obligations (as defined in the Security Agreement)
have been paid in full or (ii) the date on which all amounts outstanding under
the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b):

               5.1 Financial Statements and Other Information. The Company shall
deliver to the Holder of this Note the financial statements and other
information required to be delivered under Section 8.1 of the Note Purchase
Agreement.

                                                                               9


               5.2 Financial Covenants. The Company shall at all times comply
with the financial and other covenants set forth in Schedule 8.5 to the Note
Purchase Agreement as if such covenants were set forth herein.

               5.3 Indebtedness. The Company shall not, and shall not permit any
Subsidiary to, issue, incur, assume, create or have outstanding any
Indebtedness, provided, however, that the foregoing shall not restrict nor
operate to prevent:

                    (a) Indebtedness in favor of the Holders under the Loan
Documents;

                    (b) Indebtedness existing on the date hereof, as set forth
on Schedule 3.22 to the Note Purchase Agreement;

                    (c) Indebtedness for accounts payable incurred in the
ordinary course of business by the Company;

                    (d) Indebtedness incurred solely for the purpose of
financing the acquisition of any equipment, machinery, software, improvements or
any other similar property, or extensions, renewals or replacements of any of
the foregoing for the same or a lesser amount; provided, that the aggregate
outstanding principal amount of all Indebtedness permitted pursuant to this
clause (d) outstanding for more than sixty (60) days after the incurrence of
such Indebtedness shall not at any time exceed $500,000;

                    (e) Indebtedness of the Company evidenced by Capitalized
Lease Obligations, provided, that in no event shall the aggregate principal
amount of Capitalized Lease Obligations permitted by this clause (e) exceed
$500,000 at any time outstanding; and

                    (f) Any extension, renewal, refinancing, refunding, or
replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and
(e) above, on such terms and conditions as are, on the whole, not materially
more onerous to the Company than the terms and conditions of such original
Indebtedness on the date of such refinancing (including that the principal
amount of such refinancing Indebtedness does not exceed the principal amount of,
plus the amount of accrued and unpaid interest on, the Indebtedness so
refinanced (plus the amount of reasonable premium and fees and expenses incurred
in connection therewith)), provided that, in the case of a refinancing of
Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall
only apply to the extent consistent with the Subordination Agreement, dated as
of the date hereof, by and among SVB, the Holders and the Company (the
"Subordination Agreement").

               5.4 Liens. The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
the Company or any of its Subsidiaries, whether now owned or hereafter acquired,
or sell any such property or

                                                                              10


assets subject to an understanding or agreement, contingent or otherwise, to
repurchase such property or assets (including sales of accounts receivable), or
assign any right to receive income or permit the filing of any financing
statement under the Uniform Commercial Code, as from time to time in effect in
the relevant jurisdiction (the "UCC"), or any other similar notice of Lien under
any similar recording or notice statute; provided, that the provisions of this
Section 5.4 shall not prevent the creation, incurrence, assumption or existence
of the following:

                    (a) Liens arising in the ordinary course of business by
statute in connection with worker's compensation, unemployment insurance, old
age benefits, social security obligations, statutory obligations or other
similar charges (other then Liens arising under ERISA), good faith cash deposits
in connection with tenders, contracts or leases to which the Company or any
Subsidiary is a party or other cash deposits required to be made in the ordinary
course of business, provided, that such Liens do not have a material adverse
effect on the ability of the Company to repay amounts due under the Notes;

                    (b) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due or Liens for taxes, assessments or governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP;

                    (c) Liens in respect of property or assets of the Company or
its Subsidiaries imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as carriers',
warehousemen's, materialmen's and mechanics' liens and other similar Liens
arising in the ordinary course of business, and (i) which do not in the
aggregate materially detract from the value of the Company's and its
Subsidiaries' property or assets taken as a whole or result in a material
adverse effect on the Condition of the Company or (ii) which are being contested
in good faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to any such
Lien;

                    (d) the pledge of assets for the purpose of securing an
appeal, stay or discharge in the course of any legal proceeding, provided that
the aggregate amount of liabilities of the Company and its Subsidiaries secured
by a pledge of assets permitted under this subsection, including interest and
penalties thereon, if any, shall not be in excess of $500,000 at any one time
outstanding;

                    (e) any interest or title of a lessor under any operating
lease;

                    (f) easements, rights-of-way, restrictions and other similar
encumbrances against real property incurred in the ordinary course of business;

                                                                              11


                    (g) the Liens existing on the date hereof identified on
Schedule 3.22 to the Note Purchase Agreement;

                    (h) Liens on cash deposited with account debtors to secure
performance by the Company or any Subsidiary in the ordinary course of business
subject to customary and reasonable terms;

                    (i) Liens upon assets of the Company or its Subsidiaries
subject to Capitalized Lease Obligations, provided, that (A) such Liens only
serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising
under such Capitalized Lease Obligation and (B) the Lien encumbering the asset
giving rise to the Capitalized Lease Obligation does not encumber any other
asset of the Company or its Subsidiaries;

                    (j) Liens placed upon equipment, machinery, software,
improvements or any other similar property, used in the ordinary course of
business of the Company or any of its Subsidiaries at the time of the
acquisition thereof by the Company or any of its Subsidiaries or within ninety
(90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above;
provided, that the Liens encumbering the equipment, machinery software,
improvements or any other similar property so acquired do not encumber any other
asset of the Company or its Subsidiaries;

                    (k) set-off rights of depository institutions; and

                    (l) Liens created by the Security Agreement (collectively
with clauses (a) through (k) hereof, the "Permitted Liens").

               5.5 Fundamental Changes. The Company will not, and will not
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (in one transaction or a series of transactions)
all or substantially all of its assets, or all or substantially all of the stock
of any of its Subsidiaries (in each case, whether now owned or hereafter
acquired), or liquidate or dissolve, except that, if at the time and immediately
after giving effect thereto no Event of Default shall have occurred and be
continuing (i) the Company or any of its Subsidiaries may, with the prior
written consent of the Holders, merge with or into any other Person; (ii) any
wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with
or into the Company or any other wholly-owned Subsidiary of the Company; (iii)
any Subsidiary (other than the Guarantor, and except as otherwise prohibited by
this Note) may sell, transfer, lease or otherwise dispose of its assets to the
Company or to another wholly-owned Subsidiary of the Company; and (iv) any
Subsidiary may liquidate or dissolve if the board of directors of the Company
determine in good faith that such liquidation or dissolution is in its best
interests and is not disadvantageous to the Holders.

               5.6 Restricted Payments. The Company will not, and the Company
will not permit any Subsidiary to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except that (i) any Subsidiary
may make a

                                                                              12


Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and
(ii) the Company or any of its Subsidiaries may make any Restricted Payment
required by the terms of the Note Purchase Agreement and the other documents
executed in connection therewith.

               5.7 Transactions with Affiliates. The Company will not, and the
Company will not permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions that are at prices and on terms and
conditions not less favorable to the Company or such Subsidiary than could be
obtained on an arm's length basis from unrelated third parties, (b) transactions
exclusively between the Company and the Guarantor and (c) transactions under the
agreements listed on Schedule 3.17 to the Note Purchase Agreement.

               5.8 Investments. The Company will not, and the Company will not
permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment
in any Person, except for Permitted Investments.

               5.9 Nature of Business. The Company will not, and the Company
will not permit any Subsidiary to, engage in any business other than that
conducted on the date hereof and any businesses reasonably related thereto.

               5.10 Property of Existing Domestic Subsidiaries. The Company will
not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise
organized under the laws of the United States of America or any state thereof (a
"Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease,
license, purchase or otherwise acquire any personal or real property (excluding
any material intellectual property) in excess of $50,000 for all property held
by such Subsidiary, or $250,000 in the aggregate for all property held by all
Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own
or otherwise hold any rights to any material intellectual property or (iv)
otherwise conduct any business or maintain operations.

               5.11 Formation of Subsidiaries. The Company will not, and will
not cause or permit any of its Subsidiaries to, form, acquire or permit the
existence of any new domestic Subsidiary, without causing such domestic
Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes
and related security document, in form and substance satisfactory to the
Holders.

               5.12 Books and Records. The Company shall keep proper books of
record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company and its
Subsidiaries in accordance with GAAP consistently applied.

               5.13 Inspection. The Company shall, and shall cause each of its
Subsidiaries to, permit representatives of the Holders to visit and inspect any
of its properties, to examine its corporate, financial and operating records and
make copies

                                                                              13


thereof or abstracts therefrom, and to discuss its affairs, finances and
accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested upon notice to the Company.

               5.14 Maintenance of Business. The Company shall, and shall cause
each Subsidiary to, preserve and maintain its existence. The Company shall, and
shall cause each Subsidiary to, preserve and keep in force and effect all
licenses, permits, franchises, approvals, patents, trademarks, trade names,
trade styles, copyrights, and other property rights necessary to the proper
conduct of its business, except where the failure to do so could not reasonably
be expected to have a material adverse effect on the Condition of the Company or
on the prospects of repayment of the Notes.

               5.15 Maintenance of Properties. The Company shall, and shall
cause each Subsidiary to, maintain, preserve and keep its property and equipment
in good repair, working order and condition (ordinary wear and tear excepted)
and shall from time to time make all needful and proper repairs, renewals,
replacements, additions and betterments thereto so that at all times the
efficiency thereof shall by fully preserved and maintained, except in each case
to the extent that, in the reasonable business judgment of such Person, any such
property or equipment is no longer necessary for the proper conduct of the
business of such Person.

          6. The occurrence of any one or more of the following events shall
constitute an "Event of Default":

               6.1 Failure To Pay. (i) The failure of the Company to pay any
principal due under any of the Notes when due and payable (whether by
acceleration, declaration, extension or otherwise), or (ii) the failure of the
Company to pay any other amounts due under any of the Notes when due and payable
if such failure is not cured within five (5) days of Company's receipt of notice
thereof from any of the Holders.

               6.2 Financial Covenants. The failure of Company or any of its
Subsidiaries to perform, observe or comply with any of the Financial Covenants
set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by
reference in this Note in Section 5.2.

               6.3 Other Covenants and Agreements. The failure of Company or any
of its Subsidiaries to perform, observe or comply with any of the covenants of
this Note, the Security Agreement or any of the other Loan Documents (other than
the Financial Covenants set forth on Schedule 8.5 to the Note Purchase
Agreement, and incorporated by reference in this Note in Section 5.2), if such
failure is not cured within sixty (60) days.

               6.4 Representations and Warranties. If any representation or
warranty made by the Company or any of its Subsidiaries in the Loan Documents is
not true and correct in all material respects on the Initial Closing Date.

                                                                              14


               6.5 Default on Other Obligations. The occurrence of any condition
or default under any other indebtedness for borrowed money of the Company or any
of its Subsidiaries with a principal amount of at least five hundred thousand
dollars ($500,000) that results in the acceleration of such indebtedness which
is not cured within sixty (60) days.

               6.6 Involuntary Bankruptcy. There shall be filed against the
Company or any of its Subsidiaries an involuntary petition or other pleading
seeking the entry of a decree or order for relief under the United States
Bankruptcy Code or any similar federal or state insolvency or similar laws
ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a
reorganization of the Company or any of its Subsidiaries or the business and
affairs of the Company or any of its Subsidiaries or (c) the appointment of a
receiver, liquidator, assignee, custodian, trustee or similar official for the
Company or any of its Subsidiaries of the property of the Company or any of its
Subsidiaries.

               6.7 Voluntary Bankruptcy. The commencement by the Company or any
of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any
federal or state insolvency or similar laws or the consent by the Company or any
of its Subsidiaries to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or similar official for the Company or
any of its Subsidiaries of any of the property of the Company or any of its
Subsidiaries or the making by the Company or any of its Subsidiaries of an
assignment for the benefit of creditors, or the failure by Company or any of its
Subsidiaries generally to pay its debts as the debts become due.

               6.8 Judgments, Awards. Any judgment or order for the payment of
money is rendered against the Company or any of its Subsidiaries in an amount in
excess of five hundred thousand dollars ($500,000) individually or in the
aggregate and either (i) enforcement proceedings are commenced by any creditor
upon such judgment or order and not stayed, or (ii) there is any period of sixty
(60) consecutive days during which such judgment has not been paid in full or a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, is not in effect.

               6.9 Attachment by Lenders. Any assets of the Company or any of
its Subsidiaries shall be attached, levied upon, seized or repossessed, or come
into the possession of a trustee, receiver or other custodian and a
determination by any Holder, in good faith but in its sole discretion, that the
same could have a material adverse effect on the prospect for the Holders to
fully and punctually realize the full benefits conferred on the Holders by the
Loan Documents.

               6.10 Adverse Change in Financial Condition. Any event having a
material adverse effect on the business, operations, assets, properties or
condition of the Company and its Subsidiaries taken as a whole shall have
occurred and be continuing or a material adverse effect on the validity or
enforceability of this or any of the other Loan Documents or the rights or
remedies of the Holders hereunder or thereunder.

                                                                              15


          7. Remedies. Upon and after the occurrence of an Event of Default, the
Holder shall be entitled to the exercise the rights and remedies set forth in
the Security Agreement, the other Loan Documents and under applicable law, all
such rights and remedies being cumulative and enforceable alternatively,
successively or concurrently.

          8. Prepayment. The Company may not prepay this Note prior to the
Maturity Date without the prior written consent of the Holders.

          9. Seniority.

                    (a) Except as set forth in the Subordination Agreement, the
Notes will rank senior in right of payment to all other indebtedness of the
Company, other than the GA Notes, with respect to which the Notes will be pari
passu in right of payment in accordance with the Intercreditor Agreement.

                    (b) Notwithstanding anything to the contrary contained in
the Notes, this Note and the other Notes, and the terms and the conditions
hereof and thereof, are subject to the Intercreditor Agreement.

          10. Assignment. Subject to the restrictions on transfer described in
Section 12 below, the rights and obligations of the Company and Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties. The Company shall not be permitted to assign this
Note without the prior written consent of the Holders.

          11. Waiver of Notice. The Company hereby waives notice, presentment,
demand, protest and notice of dishonor.

          12. Transfer of This Note. With respect to any offer, sale or other
disposition of this Note, Holder will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such Holder's counsel, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any
federal or state law then in effect); provided, that no opinion shall be
required for any transfer to an Affiliate or if the transfer is made in
compliance with the Securities Act, so long as the transferee can make the same
representations and warranties at the time of transfer as set forth in Sections
4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly
upon delivering such written notice and opinion, if so required, Holder may sell
or otherwise dispose of this Note, all in accordance with the terms of the
notice delivered to the Company. Each Note thus transferred shall bear a legend
as to the applicable restrictions on transferability in order to ensure
compliance with the Securities Act, unless in the opinion of counsel for the
Company such legend is not required in order to ensure compliance with the
Securities Act. The Company may issue stop transfer instructions to its transfer
agent in connection with such restrictions. Notwithstanding the foregoing, the
Holder shall not be permitted to transfer this Note to any Person who is not an
Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii)
the receipt of written notice from the

                                                                              16


Company that Stockholder Approval cannot be obtained, or the occurrence of an
actual vote of the Company's shareholders entitled to vote (whether by written
consent or at a meeting specially called for such purpose), the result of which
is a decision by a majority of the Company's shareholders entitled to vote to
decline to grant Stockholder Approval, (iii) six (6) months from the date hereof
and (iv) the occurrence of an Event of Default.

          13. Treatment of Note. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.

          14. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by nationally recognized courier
service or mailed by registered or certified mail, postage prepaid, to the
respective addresses of the parties as set forth on the signature pages hereto
or if sent by facsimile to the respective facsimile numbers of the parties set
forth on the signature pages hereto. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively be
deemed to have been given and received when personally delivered or three (3)
business days after deposited in the mail or one business day after sent by
courier or upon confirmation of facsimile delivery in the manner set forth
above.

          15. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon Holder or any other Person the right to vote or to
consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company.

          16. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, excluding that body of law
relating to conflict of laws.

          17. Amendments and Waivers. No amendments or waivers of any provision
of this Note, and no consent by the Holder to any departure by the Company,
shall in any event be effective unless the same shall be in writing, and signed
by the Holders of a majority of the outstanding principal amount of all of the
Notes issued by the Company pursuant to the Note Purchase Agreement, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given.

          18. Severability. Any provision of this Note that is prohibited or
unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

          19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY
(A) COVENANTS AND AGREES NOT TO

                                                                              17


ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES
TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND THE HOLDER
MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO
THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES,
COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING
IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD
AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS
AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST
PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS
SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND
THE HOLDER, AND THE COMPANY AND THE HOLDER HEREBY AGREE THAT NO REPRESENTATIONS
OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF
TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE COMPANY AND THE
HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING
JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO
SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF
THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED
IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT
LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

          20. Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except as otherwise indicated, all references herein to Sections refer to
Sections hereof.

              [the remainder of this page intentionally left blank]

                                                                              18


          IN WITNESS WHEREOF, the Company has caused this Note to be issued this
16th day of January, 2004.

                                    COMPANY:

                                    CRITICAL PATH, INC.,
                                    a California corporation

                                    By: /s/ William E. McGlashan, Jr.
                                        ----------------------------------------
                                        Name: William E. McGlashan, Jr.
                                        Title: Chairman, Chief Executive Officer

                                        Critical Path, Inc.
                                        350 The Embarcadero
                                        San Francisco, CA 94105-1204
                                        Telecopy: (415) 541-2300
                                        Attention: Chief Financial Officer

                                        With a copy to:

                                        Pillsbury Winthrop LLP
                                        50 Fremont Street
                                        San Francisco, CA 94105
                                        Telecopy: (415) 983-1200
                                        Attention: Gregg Vignos, Esq.

Name of Holder: ZAXIS PARTNERS, L.P.

Address:        c/o Apex Capital, LLC
                25 Orinda Way, Suite 300
                Orinda, CA 94563
                Attention: Adam Fiore, General Counsel

Telephone:      (925) 253-6125

Facsimile:      (925) 253-1809

EX-4.31

                                                                    EXHIBIT 4.31

     THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
     SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN
     REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
     SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
     TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER
     OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.

                               CRITICAL PATH, INC.

                    CONVERTIBLE SUBORDINATED PROMISSORY NOTE

$3,750,000.00                                          San Francisco, California
                                                       January 16, 2004

          Critical Path, Inc., a California corporation (the "Company"), the
principal office of which is located in San Francisco, California, for value
received hereby promises to pay to the order of Passport Master Fund, L.P., or
its registered assigns ("Holder"), the sum of three million seven hundred fifty
thousand dollars ($3,750,000), or such lesser amount as shall then equal the
outstanding principal amount hereof on the terms and conditions set forth
hereinafter. The outstanding principal amount hereof and all accrued and unpaid
interest hereon, as set forth below, shall be due and payable on the earlier to
occur of (i) January 16, 2008, (ii) when declared due and payable by Holder upon
the occurrence of an Event of Default (as defined below), (iii) consummation of
a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital
stock or Stock Equivalents by the Company, any cash capital contribution from
any third person or any other debt or equity financing consummated by the
Company after the date of issuance of this Note which, in the case of (v),
individually or in the aggregate raises proceeds of at least forty million
dollars ($40,000,000) in cash or cash equivalents (the earliest of the events
set forth in items (i)-(v) immediately above, the "Maturity Date").

          The following is a statement of the rights of the Holder of this Note
and the conditions to which this Note is subject, and to which the Holder
hereof, by the acceptance of this Note, agrees:

          1. Definitions. Except as otherwise defined herein, each capitalized
term used herein shall have the meaning assigned to it in the Note Purchase
Agreement, as in effect on the date hereof, and without regard to any subsequent
termination of the Note Purchase Agreement. All other references to the Note
Purchase Agreement in this Note refer to the Note Purchase Agreement as in
effect on the date hereof, and without regard to any subsequent termination of
the Note Purchase Agreement. As used in this Note, the following terms, unless
the context otherwise requires, have the following

                                                                               2


meanings:

               1.1 "Affiliate" means any Person who is an "affiliate" as defined
in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange
Act of 1934, as amended.

               1.2 "Capitalized Lease Obligations" means, with respect to any
Person, all rental obligations of such Person which, under GAAP, are or will be
required to be capitalized on the books of such Person, in each case taken at
the amount thereof accounted for as indebtedness in accordance with such
principles.

               1.3 "Change of Control" shall mean (i) any merger, consolidation
or other business combination transaction (or series of related transactions) in
which the stockholders owning a majority of the voting securities of the Company
prior to such transaction do not own a majority of the voting securities of the
surviving entity, (ii) any tender offer, exchange offer or other transaction
whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as amended) (other than
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell
Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and
the Affiliates of the foregoing, provided that Affiliates shall be deemed not to
include any portfolio companies of any of the foregoing) obtains a majority of
the outstanding shares of capital stock entitled to vote in the election of
directors, (iii) any proxy contest in which a majority of the Board of Directors
of the Company (or persons appointed by such Board of Directors) prior to such
contest do not constitute a majority of the Company's Board of Directors after
such contest or (iv) any other transaction described in any stockholder rights
agreement or "poison pill," if any, to which the Company is party, which may
permit the holders of any rights or similar certificates to exercise the rights
evidenced thereby.

               1.4 "Company" shall have the meaning set forth in the recitals
hereto, and includes any corporation that shall succeed to or assume the
obligations of the Company under this Note.

               1.5 "Common Conversion Date" shall have the meaning set forth in
Section 3.1(b) hereof.

               1.6 "Common Stock" means the common stock, par value $0.001 per
share, of the Company.

               1.7 "Conversion Date" shall mean the Subsequent Closing Date.

               1.8 "Domestic Subsidiary" shall have the meaning set forth in
Section 5.10 hereof.

               1.9 "Event of Default" shall have the meaning set forth in
Section 6 hereof.

                                                                               3


               1.10 "GA Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP
Entities pursuant to the Purchase and Exchange Agreement.

               1.11 "GAP Entities" shall mean General Atlantic Partners 74,
L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG.

               1.12 "Guarantor" shall have the meaning set forth in the Security
Agreement.

               1.13 "Holder" shall mean the registered holder of this Note from
time to time, and in the plural, shall mean all registered holders of Notes from
time to time issued by the Company pursuant to the Note Purchase Agreement.

               1.14 "Intercreditor Agreement" shall mean the Intercreditor
Agreement, dated the date hereof, among the GAP Entities, Permal U.S.
Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners,
L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund,
L.P.

               1.15 "Interest Amount" shall have the meaning set forth in
Section 3.1 hereof.

               1.16 "Investment" means (i) the acquisition (whether for cash,
property, services, assumption of Indebtedness, securities or otherwise) of
assets (other than equipment, inventory, supplies or other assets acquired in
the ordinary course of business of the Company), capital stock, bonds, notes,
debentures, partnership, joint venture or other ownership interests or other
securities of any Person, (ii) any deposit with, or advance, loan or other
extension of credit to, or on behalf of, any Person (other than deposits made in
connection with the purchase of equipment, inventory, services, leases, supplies
or other assets in the ordinary course of business of the Company), and (iii)
any other capital contribution to or investment in any Person, including,
without limitation, any guaranty obligation incurred for the benefit of any
Person. For the sake of clarity, Investments shall include any transfer of
property or assets by the Company to any of its Subsidiaries or by any
Subsidiary of the Company to any other Subsidiary.

               1.17 "Loan Documents" shall have the meaning set forth in the
Security Agreement.

               1.18 "Note" shall mean this note, and in the plural, shall mean
all notes issued to the Lenders pursuant to the terms of the Note Purchase
Agreement, including this Note, and all amendments, modifications and extensions
thereto.

               1.19 "Note Purchase Agreement" means that certain Convertible
Note Purchase Agreement, dated January 16, 2004, among the Company, the Holder
and the other parties thereto from time to time, and all amendments,
modifications and extensions thereto.

                                                                               4


               1.20 "Permitted Investments" means (i) Investments in cash or
cash equivalents, (ii) accounts receivable created, acquired or made in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (iii) Investments existing on the closing date, and
listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty
obligations permitted by Section 5.3 of this Agreement, (v) loans to employees,
directors or officers of the Company in connection with the award of convertible
bonds or capital stock under a stock incentive plan, stock option plan or other
equity-based compensation plan or arrangement, (vi) other advances or loans to
employees, directors, officers or agents of the Company in the ordinary course
of business not to exceed $500,000 in the aggregate at any time outstanding;
(vii) loans, advances and investments in foreign Subsidiaries (that are not
incorporated or otherwise organized under the laws of the United States of
America or any state thereof) in an amount not to exceed $1,000,000 in the
aggregate at any time outstanding; (viii) any acquisition for which the prior
written consent of the Holders of a majority of the outstanding principal amount
of all of the Notes issued by the Company pursuant to the Note Purchase
Agreement has been obtained, (ix) other loans, advances and investments of a
nature not contemplated by the foregoing sections in an amount not to exceed
$500,000 in the aggregate at any time outstanding or (x) Investments by the
Company in the Guarantor.

               1.21 "Permitted Liens" shall have the meaning set forth in
Section 5.4.

               1.22 "Person" means any individual, firm, corporation,
partnership, trust, joint venture, joint stock company, limited liability
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.

               1.23 "Price Per Share" shall have the meaning attributed to such
term in the Series E Certificate of Determination, as filed with the Secretary
of State of the State of California.

               1.24 "Purchase and Exchange Agreement" shall mean the Convertible
Note Purchase and Exchange Agreement, dated November 18, 2003, among the
Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended.

               1.25 "Qualified Asset Sale" means the sale, transfer or other
disposition of any of the assets of the Company or any of its Subsidiaries,
other than (a) sales of assets in the ordinary course of business, (b) sales of
assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the
sale, transfer or other disposition of assets of the Company where the proceeds
are applied to the purchase price or traded in for credit against the purchase
price of other assets, provided that any such purchase is made, or credit
issued, within 90 days of the sale, transfer or other disposition, and (d) one
or more sales of the Company's assets (other than sales otherwise included in
clauses (a), (b), and (c) immediately above) which collectively yield up to an
aggregate of one million dollars ($1,000,000) in gross proceeds to the Company
while this Note is outstanding.

                                                                               5


               1.26 "Restricted Payment" means (a) any dividend or other
distribution (whether in cash, securities or other property) with respect to any
shares of any class of capital stock of the Company or any of its Subsidiaries
or (b) any payment (whether in cash, securities or other property), including
any sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any shares of any class
of capital stock of the Company or any Subsidiary or any option, warrant or
other right to acquire any such shares of capital stock of the Company or any
Subsidiary.

               1.27 "Security Agreement" means that certain Guaranty and
Security Agreement, of even date herewith between the Company, Compass Holding
Corp., the Lenders and the other parties thereto from time to time, and all
amendments, modifications and extensions thereto.

               1.28 "Series E Conversion Price" shall have the meaning set forth
in the Series E Certificate of Determination.

               1.29 "Series E Preferred Stock" means the Series E Preferred
Stock, par value $0.001, of the Company.

               1.30 "Subordination Agreement" shall have the meaning set forth
in Section 5.3.

               1.31 "Subsequent Closing Date" shall have the meaning set forth
in Section 2.4(e) of the Note Purchase Agreement.

               1.32 "SVB" means Silicon Valley Bank, a California chartered
bank, or any Affiliates thereof.

               1.33 "Ten Percent Holder" means, with respect to a class of
equity securities of the Company, a Person (together with such Person's
Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such
class of equity securities of the Company, as defined by Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

               1.34 "UCC" shall have the meaning set forth in Section 5.4.

          2. Interest. Simple interest shall accrue at the rate of ten percent
(10%) per annum (or such lesser amount as shall equal the highest rate of
interest allowable under applicable law) (the "Interest Rate"), on the
outstanding principal of this Note from the date of this Note until the Maturity
Date or the date this Note is otherwise repaid. The Company shall not be
obligated to make any payments of interest which shall have accrued under this
Note prior to the Maturity Date. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. In the event that the
principal amount of this Note, any interest, or any amount payable hereunder is
not paid in full when such amount becomes due and payable, or upon the
occurrence of an Event of Default, interest shall accrue at the lesser of (a)
the initial Interest Rate plus five percent (5%) per annum or (b) the highest
rate of interest allowable under applicable law,

                                                                               6


on the balance of all amounts outstanding until such overdue amounts are paid or
the Event of Default is cured, and such interest shall be payable on demand.

          3. Conversion.

               3.1 Conversion.

                    (a) On the Conversion Date, the principal amount of this
Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall
be automatically converted into the number of fully paid and nonassessable
shares of Series E Preferred Stock equal to the quotient obtained by dividing
(a) the entire principal amount of this Note plus the Interest Amount by (b) the
Price Per Share.

                    (b) In the event that the Conversion Date has not occurred
on or prior to April 30, 2004 (the "Common Conversion Date"), then, following
the Common Conversion Date, the principal amount of this Note plus the Interest
Amount shall be convertible, at the option of Holder and from time to time, into
Common Stock at a conversion price per share equal to $1.65, as adjusted for any
stock dividends, stock splits or similar consolidations or subdivisions,
following the date hereof; provided, however, that Holder shall not be permitted
to convert any portion of the principal of this Note or the Interest Amount into
Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion,
the conversion would cause Holder to be a Ten Percent Holder.

               3.2 Notice of Conversion. Upon conversion of this Note as
provided in Section 3.1, Holder shall surrender this Note to the Company and
shall state the name or names in which the certificate or certificates for such
shares of Series E Preferred Stock or Common Stock, as the case may be, are to
be issued. The Person or Persons entitled to receive the shares of Series E
Preferred Stock or Common Stock, as the case may be, issuable upon such
conversion shall be treated for all purposes as the record holder or holders (a)
of such shares of Series E Preferred Stock as of the Conversion Date and (b) of
such shares of Common Stock as of the date of any conversion pursuant to Section
3.1(b).

               3.3 Delivery of Stock Certificates. Upon conversion of this Note
as provided in Section 3.1, the Company at its expense will issue and deliver to
Holder of this Note a certificate or certificates (bearing such legends as are
required by applicable state and federal securities laws in the opinion of
counsel to the Company) for the number of full shares of Series E Preferred
Stock or Common Stock, as the case may be, issuable upon such conversion.

               3.4 Mechanics and Effect of Conversion. No fractional shares of
Series E Preferred Stock or Common Stock, as the case may be, shall be issued
upon conversion of this Note. In lieu of the Company issuing any fractional
shares to Holder upon the conversion of this Note, the Company shall pay to
Holder the amount of outstanding principal and interest that is not so
converted. Upon conversion of all amounts due under this Note, the Company shall
be released from all of its obligations under this Note.

                                                                               7


          4. Adjustments. The number of shares of Series E Preferred Stock or
Common Stock convertible hereunder are subject to adjustment from time to time
as follows:

               4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at
any time while this Note remains outstanding and unexpired there shall be (a) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (b) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise or (c) a sale or
transfer of the Company's stock, properties or assets as, or substantially as,
an entirety to any other Person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that Holder
shall thereafter be entitled to receive by converting this Note the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon conversion of this Note would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Note had been converted immediately before such reorganization,
merger, consolidation, sale or transfer (notwithstanding that the Stockholder
Approval may not yet have been obtained), all subject to further adjustment as
provided in this Section 4. The foregoing provisions of this Section 4.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation. If the
per share consideration payable to Holder hereof for shares in connection with
any such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
Company's Board of Directors based on the amount the Holder would have otherwise
been entitled to receive had the transaction or transactions not occurred. In
all events, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions of this
Note with respect to the rights and interests of Holder after the transaction,
to the end that the provisions of this Note shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon conversion of this Note. The Company shall be
obligated to retain and set aside, or otherwise make fair provision for exercise
of the right of the Holder to receive, the shares of stock and/or other
securities, cash or other property provided for in this Section 4.1.

               4.2 Election of Holder upon Merger or Sale of Assets.
Notwithstanding anything to the contrary contained herein, if an event shall
occur as provided in Section 4.1 hereof that would otherwise result in the
occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first
paragraph of this Note, then the Holder may, in its sole discretion, by written
notice to the Company elect to convert the principal amount of this Note plus
the Interest Amount into the number of shares of stock or other securities or
property described in Section 4.1, in lieu of receiving payment in full of all
amounts outstanding under this Note. The number of shares of stock or other

                                                                               8


securities or property to be issued upon such conversion shall be determined in
accordance with Section 4.1 hereof, taking into account the occurrence of such
event.

               4.3 Reclassification, Etc. If the Company shall, at any time
while this Note, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, change any of the securities as to
which conversion rights under this Note exist into the same or a different
number of securities of any other class or classes, this Note shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable with respect to the securities that were subject to the conversion
rights under this Note immediately prior to such reclassification or other
change, and the Price Per Share shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 4.

               4.4 Split, Subdivision or Combination of Shares. If the Company
at any time while this Note, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the shares of Series E Preferred
Stock or Common Stock into a different number of securities of the same class,
the Price Per Share or conversion price, as the case may be, shall be
proportionately adjusted.

               4.5 Series E Adjustments. The initial Series E Conversion Price
of the shares of Series E Preferred Stock issued upon conversion of this Note
pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on
the Conversion Date, subject to the adjustment of such Series E Conversion Price
from time to time thereafter as provided in the Series E Certificate of
Determination.

               4.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 4, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.

               4.7 No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of Holder against impairment.

          5. Covenants. The Company covenants and agrees that until the earlier
of (i) the date on which all Obligations (as defined in the Security Agreement)
have been paid in full or (ii) the date on which all amounts outstanding under
the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b):

               5.1 Financial Statements and Other Information. The Company shall
deliver to the Holder of this Note the financial statements and other
information required to be delivered under Section 8.1 of the Note Purchase
Agreement.

                                                                               9


               5.2 Financial Covenants. The Company shall at all times comply
with the financial and other covenants set forth in Schedule 8.5 to the Note
Purchase Agreement as if such covenants were set forth herein.

               5.3 Indebtedness. The Company shall not, and shall not permit any
Subsidiary to, issue, incur, assume, create or have outstanding any
Indebtedness, provided, however, that the foregoing shall not restrict nor
operate to prevent:

                    (a) Indebtedness in favor of the Holders under the Loan

Documents;

                    (b) Indebtedness existing on the date hereof, as set forth
on Schedule 3.22 to the Note Purchase Agreement;

                    (c) Indebtedness for accounts payable incurred in the
ordinary course of business by the Company;

                    (d) Indebtedness incurred solely for the purpose of
financing the acquisition of any equipment, machinery, software, improvements or
any other similar property, or extensions, renewals or replacements of any of
the foregoing for the same or a lesser amount; provided, that the aggregate
outstanding principal amount of all Indebtedness permitted pursuant to this
clause (d) outstanding for more than sixty (60) days after the incurrence of
such Indebtedness shall not at any time exceed $500,000;

                    (e) Indebtedness of the Company evidenced by Capitalized
Lease Obligations, provided, that in no event shall the aggregate principal
amount of Capitalized Lease Obligations permitted by this clause (e) exceed
$500,000 at any time outstanding; and

                    (f) Any extension, renewal, refinancing, refunding, or
replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and
(e) above, on such terms and conditions as are, on the whole, not materially
more onerous to the Company than the terms and conditions of such original
Indebtedness on the date of such refinancing (including that the principal
amount of such refinancing Indebtedness does not exceed the principal amount of,
plus the amount of accrued and unpaid interest on, the Indebtedness so
refinanced (plus the amount of reasonable premium and fees and expenses incurred
in connection therewith)), provided that, in the case of a refinancing of
Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall
only apply to the extent consistent with the Subordination Agreement, dated as
of the date hereof, by and among SVB, the Holders and the Company (the
"Subordination Agreement").

               5.4 Liens. The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
the Company or any of its Subsidiaries, whether now owned or hereafter acquired,
or sell any such property or

                                                                              10


assets subject to an understanding or agreement, contingent or otherwise, to
repurchase such property or assets (including sales of accounts receivable), or
assign any right to receive income or permit the filing of any financing
statement under the Uniform Commercial Code, as from time to time in effect in
the relevant jurisdiction (the "UCC"), or any other similar notice of Lien under
any similar recording or notice statute; provided, that the provisions of this
Section 5.4 shall not prevent the creation, incurrence, assumption or existence
of the following:

                    (a) Liens arising in the ordinary course of business by
statute in connection with worker's compensation, unemployment insurance, old
age benefits, social security obligations, statutory obligations or other
similar charges (other then Liens arising under ERISA), good faith cash deposits
in connection with tenders, contracts or leases to which the Company or any
Subsidiary is a party or other cash deposits required to be made in the ordinary
course of business, provided, that such Liens do not have a material adverse
effect on the ability of the Company to repay amounts due under the Notes;

                    (b) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due or Liens for taxes, assessments or governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP;

                    (c) Liens in respect of property or assets of the Company or
its Subsidiaries imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as carriers',
warehousemen's, materialmen's and mechanics' liens and other similar Liens
arising in the ordinary course of business, and (i) which do not in the
aggregate materially detract from the value of the Company's and its
Subsidiaries' property or assets taken as a whole or result in a material
adverse effect on the Condition of the Company or (ii) which are being contested
in good faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to any such
Lien;

                    (d) the pledge of assets for the purpose of securing an
appeal, stay or discharge in the course of any legal proceeding, provided that
the aggregate amount of liabilities of the Company and its Subsidiaries secured
by a pledge of assets permitted under this subsection, including interest and
penalties thereon, if any, shall not be in excess of $500,000 at any one time
outstanding;

                    (e) any interest or title of a lessor under any operating
lease;

                    (f) easements, rights-of-way, restrictions and other similar
encumbrances against real property incurred in the ordinary course of business;

                                                                              11


                    (g) the Liens existing on the date hereof identified on
Schedule 3.22 to the Note Purchase Agreement;

                    (h) Liens on cash deposited with account debtors to secure
performance by the Company or any Subsidiary in the ordinary course of business
subject to customary and reasonable terms;

                    (i) Liens upon assets of the Company or its Subsidiaries
subject to Capitalized Lease Obligations, provided, that (A) such Liens only
serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising
under such Capitalized Lease Obligation and (B) the Lien encumbering the asset
giving rise to the Capitalized Lease Obligation does not encumber any other
asset of the Company or its Subsidiaries;

                    (j) Liens placed upon equipment, machinery, software,
improvements or any other similar property, used in the ordinary course of
business of the Company or any of its Subsidiaries at the time of the
acquisition thereof by the Company or any of its Subsidiaries or within ninety
(90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above;
provided, that the Liens encumbering the equipment, machinery software,
improvements or any other similar property so acquired do not encumber any other
asset of the Company or its Subsidiaries;

                    (k) set-off rights of depository institutions; and

                    (l) Liens created by the Security Agreement (collectively
with clauses (a) through (k) hereof, the "Permitted Liens").

               5.5 Fundamental Changes. The Company will not, and will not
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (in one transaction or a series of transactions)
all or substantially all of its assets, or all or substantially all of the stock
of any of its Subsidiaries (in each case, whether now owned or hereafter
acquired), or liquidate or dissolve, except that, if at the time and immediately
after giving effect thereto no Event of Default shall have occurred and be
continuing (i) the Company or any of its Subsidiaries may, with the prior
written consent of the Holders, merge with or into any other Person; (ii) any
wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with
or into the Company or any other wholly-owned Subsidiary of the Company; (iii)
any Subsidiary (other than the Guarantor, and except as otherwise prohibited by
this Note) may sell, transfer, lease or otherwise dispose of its assets to the
Company or to another wholly-owned Subsidiary of the Company; and (iv) any
Subsidiary may liquidate or dissolve if the board of directors of the Company
determine in good faith that such liquidation or dissolution is in its best
interests and is not disadvantageous to the Holders.

               5.6 Restricted Payments. The Company will not, and the Company
will not permit any Subsidiary to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except that (i) any Subsidiary
may make a

                                                                              12


Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and
(ii) the Company or any of its Subsidiaries may make any Restricted Payment
required by the terms of the Note Purchase Agreement and the other documents
executed in connection therewith.

               5.7 Transactions with Affiliates. The Company will not, and the
Company will not permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions that are at prices and on terms and
conditions not less favorable to the Company or such Subsidiary than could be
obtained on an arm's length basis from unrelated third parties, (b) transactions
exclusively between the Company and the Guarantor and (c) transactions under the
agreements listed on Schedule 3.17 to the Note Purchase Agreement.

               5.8 Investments. The Company will not, and the Company will not
permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment
in any Person, except for Permitted Investments.

               5.9 Nature of Business. The Company will not, and the Company
will not permit any Subsidiary to, engage in any business other than that
conducted on the date hereof and any businesses reasonably related thereto.

               5.10 Property of Existing Domestic Subsidiaries. The Company will
not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise
organized under the laws of the United States of America or any state thereof (a
"Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease,
license, purchase or otherwise acquire any personal or real property (excluding
any material intellectual property) in excess of $50,000 for all property held
by such Subsidiary, or $250,000 in the aggregate for all property held by all
Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own
or otherwise hold any rights to any material intellectual property or (iv)
otherwise conduct any business or maintain operations.

               5.11 Formation of Subsidiaries. The Company will not, and will
not cause or permit any of its Subsidiaries to, form, acquire or permit the
existence of any new domestic Subsidiary, without causing such domestic
Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes
and related security document, in form and substance satisfactory to the
Holders.

               5.12 Books and Records. The Company shall keep proper books of
record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company and its
Subsidiaries in accordance with GAAP consistently applied.

               5.13 Inspection. The Company shall, and shall cause each of its
Subsidiaries to, permit representatives of the Holders to visit and inspect any
of its properties, to examine its corporate, financial and operating records and
make copies

                                                                              13


thereof or abstracts therefrom, and to discuss its affairs, finances and
accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested upon notice to the Company.

               5.14 Maintenance of Business. The Company shall, and shall cause
each Subsidiary to, preserve and maintain its existence. The Company shall, and
shall cause each Subsidiary to, preserve and keep in force and effect all
licenses, permits, franchises, approvals, patents, trademarks, trade names,
trade styles, copyrights, and other property rights necessary to the proper
conduct of its business, except where the failure to do so could not reasonably
be expected to have a material adverse effect on the Condition of the Company or
on the prospects of repayment of the Notes.

               5.15 Maintenance of Properties. The Company shall, and shall
cause each Subsidiary to, maintain, preserve and keep its property and equipment
in good repair, working order and condition (ordinary wear and tear excepted)
and shall from time to time make all needful and proper repairs, renewals,
replacements, additions and betterments thereto so that at all times the
efficiency thereof shall by fully preserved and maintained, except in each case
to the extent that, in the reasonable business judgment of such Person, any such
property or equipment is no longer necessary for the proper conduct of the
business of such Person.

          6. The occurrence of any one or more of the following events shall
constitute an "Event of Default":

               6.1 Failure To Pay. (i) The failure of the Company to pay any
principal due under any of the Notes when due and payable (whether by
acceleration, declaration, extension or otherwise), or (ii) the failure of the
Company to pay any other amounts due under any of the Notes when due and payable
if such failure is not cured within five (5) days of Company's receipt of notice
thereof from any of the Holders.

               6.2 Financial Covenants. The failure of Company or any of its
Subsidiaries to perform, observe or comply with any of the Financial Covenants
set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by
reference in this Note in Section 5.2.

               6.3 Other Covenants and Agreements. The failure of Company or any
of its Subsidiaries to perform, observe or comply with any of the covenants of
this Note, the Security Agreement or any of the other Loan Documents (other than
the Financial Covenants set forth on Schedule 8.5 to the Note Purchase
Agreement, and incorporated by reference in this Note in Section 5.2), if such
failure is not cured within sixty (60) days.

               6.4 Representations and Warranties. If any representation or
warranty made by the Company or any of its Subsidiaries in the Loan Documents is
not true and correct in all material respects on the Initial Closing Date.

                                                                              14


               6.5 Default on Other Obligations. The occurrence of any condition
or default under any other indebtedness for borrowed money of the Company or any
of its Subsidiaries with a principal amount of at least five hundred thousand
dollars ($500,000) that results in the acceleration of such indebtedness which
is not cured within sixty (60) days.

               6.6 Involuntary Bankruptcy. There shall be filed against the
Company or any of its Subsidiaries an involuntary petition or other pleading
seeking the entry of a decree or order for relief under the United States
Bankruptcy Code or any similar federal or state insolvency or similar laws
ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a
reorganization of the Company or any of its Subsidiaries or the business and
affairs of the Company or any of its Subsidiaries or (c) the appointment of a
receiver, liquidator, assignee, custodian, trustee or similar official for the
Company or any of its Subsidiaries of the property of the Company or any of its
Subsidiaries.

               6.7 Voluntary Bankruptcy. The commencement by the Company or any
of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any
federal or state insolvency or similar laws or the consent by the Company or any
of its Subsidiaries to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or similar official for the Company or
any of its Subsidiaries of any of the property of the Company or any of its
Subsidiaries or the making by the Company or any of its Subsidiaries of an
assignment for the benefit of creditors, or the failure by Company or any of its
Subsidiaries generally to pay its debts as the debts become due.

               6.8 Judgments, Awards. Any judgment or order for the payment of
money is rendered against the Company or any of its Subsidiaries in an amount in
excess of five hundred thousand dollars ($500,000) individually or in the
aggregate and either (i) enforcement proceedings are commenced by any creditor
upon such judgment or order and not stayed, or (ii) there is any period of sixty
(60) consecutive days during which such judgment has not been paid in full or a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, is not in effect.

               6.9 Attachment by Lenders. Any assets of the Company or any of
its Subsidiaries shall be attached, levied upon, seized or repossessed, or come
into the possession of a trustee, receiver or other custodian and a
determination by any Holder, in good faith but in its sole discretion, that the
same could have a material adverse effect on the prospect for the Holders to
fully and punctually realize the full benefits conferred on the Holders by the
Loan Documents.

               6.10 Adverse Change in Financial Condition. Any event having a
material adverse effect on the business, operations, assets, properties or
condition of the Company and its Subsidiaries taken as a whole shall have
occurred and be continuing or a material adverse effect on the validity or
enforceability of this or any of the other Loan Documents or the rights or
remedies of the Holders hereunder or thereunder.

                                                                              15


          7. Remedies. Upon and after the occurrence of an Event of Default, the
Holder shall be entitled to the exercise the rights and remedies set forth in
the Security Agreement, the other Loan Documents and under applicable law, all
such rights and remedies being cumulative and enforceable alternatively,
successively or concurrently.

          8. Prepayment. The Company may not prepay this Note prior to the
Maturity Date without the prior written consent of the Holders.

          9. Seniority.

                    (a) Except as set forth in the Subordination Agreement, the
Notes will rank senior in right of payment to all other indebtedness of the
Company, other than the GA Notes, with respect to which the Notes will be pari
passu in right of payment in accordance with the Intercreditor Agreement.

                    (b) Notwithstanding anything to the contrary contained in
the Notes, this Note and the other Notes, and the terms and the conditions
hereof and thereof, are subject to the Intercreditor Agreement.

          10. Assignment. Subject to the restrictions on transfer described in
Section 12 below, the rights and obligations of the Company and Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties. The Company shall not be permitted to assign this
Note without the prior written consent of the Holders.

          11. Waiver of Notice. The Company hereby waives notice, presentment,
demand, protest and notice of dishonor.

          12. Transfer of This Note. With respect to any offer, sale or other
disposition of this Note, Holder will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such Holder's counsel, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any
federal or state law then in effect); provided, that no opinion shall be
required for any transfer to an Affiliate or if the transfer is made in
compliance with the Securities Act, so long as the transferee can make the same
representations and warranties at the time of transfer as set forth in Sections
4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly
upon delivering such written notice and opinion, if so required, Holder may sell
or otherwise dispose of this Note, all in accordance with the terms of the
notice delivered to the Company. Each Note thus transferred shall bear a legend
as to the applicable restrictions on transferability in order to ensure
compliance with the Securities Act, unless in the opinion of counsel for the
Company such legend is not required in order to ensure compliance with the
Securities Act. The Company may issue stop transfer instructions to its transfer
agent in connection with such restrictions. Notwithstanding the foregoing, the
Holder shall not be permitted to transfer this Note to any Person who is not an
Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii)
the receipt of written notice from the

                                                                              16


Company that Stockholder Approval cannot be obtained, or the occurrence of an
actual vote of the Company's shareholders entitled to vote (whether by written
consent or at a meeting specially called for such purpose), the result of which
is a decision by a majority of the Company's shareholders entitled to vote to
decline to grant Stockholder Approval, (iii) six (6) months from the date hereof
and (iv) the occurrence of an Event of Default.

          13. Treatment of Note. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.

          14. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by nationally recognized courier
service or mailed by registered or certified mail, postage prepaid, to the
respective addresses of the parties as set forth on the signature pages hereto
or if sent by facsimile to the respective facsimile numbers of the parties set
forth on the signature pages hereto. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively be
deemed to have been given and received when personally delivered or three (3)
business days after deposited in the mail or one business day after sent by
courier or upon confirmation of facsimile delivery in the manner set forth
above.

          15. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon Holder or any other Person the right to vote or to
consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company.

          16. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, excluding that body of law
relating to conflict of laws.

          17. Amendments and Waivers. No amendments or waivers of any provision
of this Note, and no consent by the Holder to any departure by the Company,
shall in any event be effective unless the same shall be in writing, and signed
by the Holders of a majority of the outstanding principal amount of all of the
Notes issued by the Company pursuant to the Note Purchase Agreement, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given.

          18. Severability. Any provision of this Note that is prohibited or
unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

          19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY
(A) COVENANTS AND AGREES NOT TO

                                                                              17


ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES
TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND THE HOLDER
MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO
THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES,
COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING
IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD
AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS
AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST
PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS
SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND
THE HOLDER, AND THE COMPANY AND THE HOLDER HEREBY AGREE THAT NO REPRESENTATIONS
OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF
TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE COMPANY AND THE
HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING
JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO
SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF
THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED
IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT
LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

          20. Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except as otherwise indicated, all references herein to Sections refer to
Sections hereof.

              [the remainder of this page intentionally left blank]

                                                                              18


          IN WITNESS WHEREOF, the Company has caused this Note to be issued this
16th day of January, 2004.

                                    COMPANY:

                                    CRITICAL PATH, INC.,
                                    a California corporation

                                    By: /s/ William E. McGlashan, Jr.
                                        ----------------------------------------
                                        Name:  William E. McGlashan, Jr.
                                        Title: Chairman, Chief Executive Officer

                                        Critical Path, Inc.
                                        350 The Embarcadero
                                        San Francisco, CA 94105-1204
                                        Telecopy: (415) 541-2300
                                        Attention: Chief Financial Officer

                                        With a copy to:

                                        Pillsbury Winthrop LLP
                                        50 Fremont Street
                                        San Francisco, CA 94105
                                        Telecopy: (415) 983-1200
                                        Attention: Gregg Vignos, Esq.

Name of Holder: PASSPORT MASTER FUND, L.P.

Address:        One Sansome Street, 39th Floor
                San Francisco, CA 94104
                Attention: John Burbank

Telephone:      (415)399-7600

Facsimile:      (415)399-7650

EX-4.32

                                                                    EXHIBIT 4.32

     THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
     SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN
     REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
     SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
     TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER
     OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.

                               CRITICAL PATH, INC.

                    CONVERTIBLE SUBORDINATED PROMISSORY NOTE

$1,325,000                                             San Francisco, California
                                                       March 9, 2004

          Critical Path, Inc., a California corporation (the "Company"), the
principal office of which is located in San Francisco, California, for value
received hereby promises to pay to the order of Permal U.S. Opportunities
Limited, or its registered assigns ("Holder"), the sum of one million three
hundred twenty-five thousand dollars ($1,325,000), or such lesser amount as
shall then equal the outstanding principal amount hereof on the terms and
conditions set forth hereinafter. The outstanding principal amount hereof and
all accrued and unpaid interest hereon, as set forth below, shall be due and
payable on the earlier to occur of (i) March 9, 2008, (ii) when declared due and
payable by Holder upon the occurrence of an Event of Default (as defined below),
(iii) consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v)
any sale of capital stock or Stock Equivalents by the Company, any cash capital
contribution from any third person or any other debt or equity financing
consummated by the Company after the date of issuance of this Note which, in the
case of (v), individually or in the aggregate raises proceeds of at least forty
million dollars ($40,000,000) in cash or cash equivalents (the earliest of the
events set forth in items (i)-(v) immediately above, the "Maturity Date").

          The following is a statement of the rights of the Holder of this Note
and the conditions to which this Note is subject, and to which the Holder
hereof, by the acceptance of this Note, agrees:

          1. Definitions. Except as otherwise defined herein, each capitalized
term used herein shall have the meaning assigned to it in the Note Purchase
Agreement, as in effect on the date hereof, and without regard to any subsequent
termination of the Note Purchase Agreement. All other references to the Note
Purchase Agreement in this Note refer to the Note Purchase Agreement as in
effect on the date hereof, and without regard to any subsequent termination of
the Note Purchase Agreement. As used in this



Note, the following terms, unless the context otherwise requires, have the
following meanings:

               1.1 "Affiliate" means any Person who is an "affiliate" as defined
in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange
Act of 1934, as amended.

               1.2 "Capitalized Lease Obligations" means, with respect to any
Person, all rental obligations of such Person which, under GAAP, are or will be
required to be capitalized on the books of such Person, in each case taken at
the amount thereof accounted for as indebtedness in accordance with such
principles.

               1.3 "Change of Control" shall mean (i) any merger, consolidation
or other business combination transaction (or series of related transactions) in
which the stockholders owning a majority of the voting securities of the Company
prior to such transaction do not own a majority of the voting securities of the
surviving entity, (ii) any tender offer, exchange offer or other transaction
whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as amended) (other than
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell
Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and
the Affiliates of the foregoing, provided that Affiliates shall be deemed not to
include any portfolio companies of any of the foregoing) obtains a majority of
the outstanding shares of capital stock entitled to vote in the election of
directors, (iii) any proxy contest in which a majority of the Board of Directors
of the Company (or persons appointed by such Board of Directors) prior to such
contest do not constitute a majority of the Company's Board of Directors after
such contest or (iv) any other transaction described in any stockholder rights
agreement or "poison pill," if any, to which the Company is party, which may
permit the holders of any rights or similar certificates to exercise the rights
evidenced thereby.

               1.4 "Company" shall have the meaning set forth in the recitals
hereto, and includes any corporation that shall succeed to or assume the
obligations of the Company under this Note.

               1.5 "Common Conversion Date" shall have the meaning set forth in
Section 3.1(b) hereof.

               1.6 "Common Stock" means the common stock, par value $0.001 per
share, of the Company.

               1.7 "Conversion Date" shall mean the Subsequent Closing Date.

               1.8 "Domestic Subsidiary" shall have the meaning set forth in
Section 5.10 hereof.


                                       2



               1.9 "Event of Default" shall have the meaning set forth in
Section 6 hereof.

               1.10 "GA Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP
Entities pursuant to the Purchase and Exchange Agreement.

               1.11 "GAP Entities" shall mean General Atlantic Partners 74,
L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG.

               1.12 "Guarantor" shall have the meaning set forth in the Security
Agreement.

               1.13 "Holder" shall mean the registered holder of this Note from
time to time, and in the plural, shall mean all registered holders of Notes from
time to time issued by the Company pursuant to the Note Purchase Agreement.

               1.14 "Intercreditor Agreement" shall mean the Intercreditor
Agreement, dated the date hereof, among the GAP Entities, the January Lenders,
Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore
Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital
Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures
International.

               1.15 "Interest Amount" shall have the meaning set forth in
Section 3.1 hereof.

               1.16 "Investment" means (i) the acquisition (whether for cash,
property, services, assumption of Indebtedness, securities or otherwise) of
assets (other than equipment, inventory, supplies or other assets acquired in
the ordinary course of business of the Company), capital stock, bonds, notes,
debentures, partnership, joint venture or other ownership interests or other
securities of any Person, (ii) any deposit with, or advance, loan or other
extension of credit to, or on behalf of, any Person (other than deposits made in
connection with the purchase of equipment, inventory, services, leases, supplies
or other assets in the ordinary course of business of the Company), and (iii)
any other capital contribution to or investment in any Person, including,
without limitation, any guaranty obligation incurred for the benefit of any
Person. For the sake of clarity, Investments shall include any transfer of
property or assets by the Company to any of its Subsidiaries or by any
Subsidiary of the Company to any other Subsidiary.

               1.17 "January Lenders" shall mean Permal U.S. Opportunities
Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis
Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P.

               1.18 "January Note Agreement" shall mean the Convertible Note
Purchase Agreement, dated January 16, 2004, among the January Lenders and the
Company.


                                       3



               1.19 "January 2004 Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated January 16, 2003, issued by the Company to the
January Lenders pursuant to the January Note Agreement.

               1.20 "Loan Documents" shall have the meaning set forth in the
Security Agreement.

               1.21 "Note" shall mean this note, and in the plural, shall mean
all notes issued to the Lenders pursuant to the terms of the Note Purchase
Agreement, including this Note, and all amendments, modifications and extensions
thereto.

               1.22 "Note Purchase Agreement" means that certain Convertible
Note Purchase Agreement, dated March 9, 2004, among the Company, the Holder and
the other parties thereto from time to time, and all amendments, modifications
and extensions thereto.

               1.23 "Permitted Investments" means (i) Investments in cash or
cash equivalents, (ii) accounts receivable created, acquired or made in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (iii) Investments existing on the closing date, and
listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty
obligations permitted by Section 5.3 of this Agreement, (v) loans to employees,
directors or officers of the Company in connection with the award of convertible
bonds or capital stock under a stock incentive plan, stock option plan or other
equity-based compensation plan or arrangement, (vi) other advances or loans to
employees, directors, officers or agents of the Company in the ordinary course
of business not to exceed $500,000 in the aggregate at any time outstanding;
(vii) loans, advances and investments in foreign Subsidiaries (that are not
incorporated or otherwise organized under the laws of the United States of
America or any state thereof) in an amount not to exceed $1,000,000 in the
aggregate at any time outstanding; (viii) any acquisition for which the prior
written consent of the Holders of a majority of the outstanding principal amount
of all of the Notes issued by the Company pursuant to the Note Purchase
Agreement has been obtained, (ix) other loans, advances and investments of a
nature not contemplated by the foregoing sections in an amount not to exceed
$500,000 in the aggregate at any time outstanding or (x) Investments by the
Company in the Guarantor.

               1.24 "Permitted Liens" shall have the meaning set forth in
Section 5.4.

               1.25 "Person" means any individual, firm, corporation,
partnership, trust, joint venture, joint stock company, limited liability
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.

               1.26 "Price Per Share" shall have the meaning attributed to such
term in the Series E Certificate of Determination, as filed with the Secretary
of State of the State of California.


                                       4



               1.27 "Purchase and Exchange Agreement" shall mean the Convertible
Note Purchase and Exchange Agreement, dated November 18, 2003, among the
Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended.

               1.28 "Qualified Asset Sale" means the sale, transfer or other
disposition of any of the assets of the Company or any of its Subsidiaries,
other than (a) sales of assets in the ordinary course of business, (b) sales of
assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the
sale, transfer or other disposition of assets of the Company where the proceeds
are applied to the purchase price or traded in for credit against the purchase
price of other assets, provided that any such purchase is made, or credit
issued, within 90 days of the sale, transfer or other disposition, and (d) one
or more sales of the Company's assets (other than sales otherwise included in
clauses (a), (b), and (c) immediately above) which collectively yield up to an
aggregate of one million dollars ($1,000,000) in gross proceeds to the Company
while this Note is outstanding.

               1.29 "Restricted Payment" means (a) any dividend or other
distribution (whether in cash, securities or other property) with respect to any
shares of any class of capital stock of the Company or any of its Subsidiaries
or (b) any payment (whether in cash, securities or other property), including
any sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any shares of any class
of capital stock of the Company or any Subsidiary or any option, warrant or
other right to acquire any such shares of capital stock of the Company or any
Subsidiary.

               1.30 "Security Agreement" means that certain Guaranty and
Security Agreement, of even date herewith between the Company, Compass Holding
Corp., the Lenders and the other parties thereto from time to time, and all
amendments, modifications and extensions thereto.

               1.31 "Series E Conversion Price" shall have the meaning set forth
in the Series E Certificate of Determination.

               1.32 "Series E Preferred Stock" means the Series E Preferred
Stock, par value $0.001, of the Company.

               1.33 "Subordination Agreement" shall have the meaning set forth
in Section 5.3.

               1.34 "Subsequent Closing Date" shall have the meaning set forth
in Section 2.4(e) of the Note Purchase Agreement.

               1.35 "SVB" means Silicon Valley Bank, a California chartered
bank, or any Affiliates thereof.

               1.36 "Ten Percent Holder" means, with respect to a class of
equity securities of the Company, a Person (together with such Person's
Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such
class of equity securities of


                                       5



the Company, as defined by Section 13(d) of the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.

               1.37 "UCC" shall have the meaning set forth in Section 5.4.

          2. Interest. Simple interest shall accrue at the rate of ten percent
(10%) per annum (or such lesser amount as shall equal the highest rate of
interest allowable under applicable law) (the "Interest Rate"), on the
outstanding principal of this Note from the date of this Note until the Maturity
Date or the date this Note is otherwise repaid. The Company shall not be
obligated to make any payments of interest which shall have accrued under this
Note prior to the Maturity Date. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. In the event that the
principal amount of this Note, any interest, or any amount payable hereunder is
not paid in full when such amount becomes due and payable, or upon the
occurrence of an Event of Default, interest shall accrue at the lesser of (a)
the initial Interest Rate plus five percent (5%) per annum or (b) the highest
rate of interest allowable under applicable law, on the balance of all amounts
outstanding until such overdue amounts are paid or the Event of Default is
cured, and such interest shall be payable on demand.

          3. Conversion.

               3.1 Conversion.

                    (a) On the Conversion Date, the principal amount of this
Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall
be automatically converted into the number of fully paid and nonassessable
shares of Series E Preferred Stock equal to the quotient obtained by dividing
(a) the entire principal amount of this Note plus the Interest Amount by (b) the
Price Per Share.

                    (b) In the event that the Conversion Date has not occurred
on or prior to August 15, 2004 (the "Common Conversion Date"), then, following
the Common Conversion Date, the principal amount of this Note plus the Interest
Amount shall be convertible, at the option of Holder and from time to time, only
into Common Stock at a conversion price per share equal to $2.18, as adjusted
for any stock dividends, stock splits or similar consolidations or subdivisions,
following the date hereof; provided, however, that Holder shall not be permitted
to convert any portion of the principal of this Note or the Interest Amount into
Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion,
the conversion would cause Holder to be a Ten Percent Holder.

               3.2 Notice of Conversion. Upon conversion of this Note as
provided in Section 3.1, Holder shall surrender this Note to the Company and
shall state the name or names in which the certificate or certificates for such
shares of Series E Preferred Stock or Common Stock, as the case may be, are to
be issued. The Person or Persons entitled to receive the shares of Series E
Preferred Stock or Common Stock, as the case may be, issuable upon such
conversion shall be treated for all purposes as the record holder or holders (a)
of such shares of Series E Preferred Stock as of the


                                       6



Conversion Date and (b) of such shares of Common Stock as of the date of any
conversion pursuant to Section 3.1(b).

               3.3 Delivery of Stock Certificates. Upon conversion of this Note
as provided in Section 3.1, the Company at its expense will issue and deliver to
Holder of this Note a certificate or certificates (bearing such legends as are
required by applicable state and federal securities laws in the opinion of
counsel to the Company) for the number of full shares of Series E Preferred
Stock or Common Stock, as the case may be, issuable upon such conversion.

               3.4 Mechanics and Effect of Conversion. No fractional shares of
Series E Preferred Stock or Common Stock, as the case may be, shall be issued
upon conversion of this Note. In lieu of the Company issuing any fractional
shares to Holder upon the conversion of this Note, the Company shall pay to
Holder the amount of outstanding principal and interest that is not so
converted. Upon conversion of all amounts due under this Note, the Company shall
be released from all of its obligations under this Note.

          4. Adjustments. The number of shares of Series E Preferred Stock or
Common Stock convertible hereunder are subject to adjustment from time to time
as follows:

               4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at
any time while this Note remains outstanding and unexpired there shall be (a) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (b) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise or (c) a sale or
transfer of the Company's stock, properties or assets as, or substantially as,
an entirety to any other Person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that Holder
shall thereafter be entitled to receive by converting this Note the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon conversion of this Note would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Note had been converted immediately before such reorganization,
merger, consolidation, sale or transfer (notwithstanding that the Stockholder
Approval may not yet have been obtained), all subject to further adjustment as
provided in this Section 4. The foregoing provisions of this Section 4.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation. If the
per share consideration payable to Holder hereof for shares in connection with
any such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
Company's Board of Directors based on the amount the Holder would have otherwise
been entitled to receive had the transaction or transactions not occurred.


                                       7



In all events, appropriate adjustment (as determined in good faith by the
Company's Board of Directors) shall be made in the application of the provisions
of this Note with respect to the rights and interests of Holder after the
transaction, to the end that the provisions of this Note shall be applicable
after that event, as near as reasonably may be, in relation to any shares or
other property deliverable after that event upon conversion of this Note. The
Company shall be obligated to retain and set aside, or otherwise make fair
provision for exercise of the right of the Holder to receive, the shares of
stock and/or other securities, cash or other property provided for in this
Section 4.1.

               4.2 Election of Holder upon Merger or Sale of Assets.
Notwithstanding anything to the contrary contained herein, if an event shall
occur as provided in Section 4.1 hereof that would otherwise result in the
occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first
paragraph of this Note, then the Holder may, in its sole discretion, by written
notice to the Company elect to convert the principal amount of this Note plus
the Interest Amount into the number of shares of stock or other securities or
property described in Section 4.1, in lieu of receiving payment in full of all
amounts outstanding under this Note. The number of shares of stock or other
securities or property to be issued upon such conversion shall be determined in
accordance with Section 4.1 hereof, taking into account the occurrence of such
event.

               4.3 Reclassification, Etc. If the Company shall, at any time
while this Note, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, change any of the securities as to
which conversion rights under this Note exist into the same or a different
number of securities of any other class or classes, this Note shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable with respect to the securities that were subject to the conversion
rights under this Note immediately prior to such reclassification or other
change, and the Price Per Share shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 4.

               4.4 Split, Subdivision or Combination of Shares. If the Company
at any time while this Note, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the shares of Series E Preferred
Stock or Common Stock into a different number of securities of the same class,
the Price Per Share or conversion price, as the case may be, shall be
proportionately adjusted.

               4.5 Series E Adjustments. The initial Series E Conversion Price
of the shares of Series E Preferred Stock issued upon conversion of this Note
pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on
the Conversion Date, subject to the adjustment of such Series E Conversion Price
from time to time thereafter as provided in the Series E Certificate of
Determination.

               4.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 4, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.


                                       8



               4.7 No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of Holder against impairment.

          5. Covenants. The Company covenants and agrees that until the earlier
of (i) the date on which all Obligations (as defined in the Security Agreement)
have been paid in full or (ii) the date on which all amounts outstanding under
the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b):

               5.1 Financial Statements and Other Information. The Company shall
deliver to the Holder of this Note the financial statements and other
information required to be delivered under Section 8.1 of the Note Purchase
Agreement.

               5.2 Financial Covenants. The Company shall at all times comply
with the financial and other covenants set forth in Schedule 8.5 to the Note
Purchase Agreement as if such covenants were set forth herein.

               5.3 Indebtedness. The Company shall not, and shall not permit any
Subsidiary to, issue, incur, assume, create or have outstanding any
Indebtedness, provided, however, that the foregoing shall not restrict nor
operate to prevent:

                    (a) Indebtedness in favor of the Holders under the Loan
Documents;

                    (b) Indebtedness existing on the date hereof, as set forth
on Schedule 3.22 to the Note Purchase Agreement;

                    (c) Indebtedness for accounts payable incurred in the
ordinary course of business by the Company;

                    (d) Indebtedness incurred solely for the purpose of
financing the acquisition of any equipment, machinery, software, improvements or
any other similar property, or extensions, renewals or replacements of any of
the foregoing for the same or a lesser amount; provided, that the aggregate
outstanding principal amount of all Indebtedness permitted pursuant to this
clause (d) outstanding for more than sixty (60) days after the incurrence of
such Indebtedness shall not at any time exceed $500,000;

                    (e) Indebtedness of the Company evidenced by Capitalized
Lease Obligations, provided, that in no event shall the aggregate principal
amount of Capitalized Lease Obligations permitted by this clause (e) exceed
$500,000 at any time outstanding; and


                                       9



                    (f) Any extension, renewal, refinancing, refunding, or
replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and
(e) above, on such terms and conditions as are, on the whole, not materially
more onerous to the Company than the terms and conditions of such original
Indebtedness on the date of such refinancing (including that the principal
amount of such refinancing Indebtedness does not exceed the principal amount of,
plus the amount of accrued and unpaid interest on, the Indebtedness so
refinanced (plus the amount of reasonable premium and fees and expenses incurred
in connection therewith)), provided that, in the case of a refinancing of
Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall
only apply to the extent consistent with the Subordination Agreement, dated as
of the date hereof, by and among SVB, the Holders and the Company (the
"Subordination Agreement").

               5.4 Liens. The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
the Company or any of its Subsidiaries, whether now owned or hereafter acquired,
or sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable), or assign any right to receive income or permit the
filing of any financing statement under the Uniform Commercial Code, as from
time to time in effect in the relevant jurisdiction (the "UCC"), or any other
similar notice of Lien under any similar recording or notice statute; provided,
that the provisions of this Section 5.4 shall not prevent the creation,
incurrence, assumption or existence of the following:

                    (a) Liens arising in the ordinary course of business by
statute in connection with worker's compensation, unemployment insurance, old
age benefits, social security obligations, statutory obligations or other
similar charges (other then Liens arising under ERISA), good faith cash deposits
in connection with tenders, contracts or leases to which the Company or any
Subsidiary is a party or other cash deposits required to be made in the ordinary
course of business, provided, that such Liens do not have a material adverse
effect on the ability of the Company to repay amounts due under the Notes;

                    (b) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due or Liens for taxes, assessments or governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP;

                    (c) Liens in respect of property or assets of the Company or
its Subsidiaries imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as carriers',
warehousemen's, materialmen's and mechanics' liens and other similar Liens
arising in the ordinary course of business, and (i) which do not in the
aggregate materially detract from the value of the Company's and its
Subsidiaries' property or assets taken as a whole or result in a material
adverse effect on the Condition of the Company or (ii) which are


                                       10



being contested in good faith by appropriate proceedings, which proceedings have
the effect of preventing the forfeiture or sale of the property or assets
subject to any such Lien;

                    (d) the pledge of assets for the purpose of securing an
appeal, stay or discharge in the course of any legal proceeding, provided that
the aggregate amount of liabilities of the Company and its Subsidiaries secured
by a pledge of assets permitted under this subsection, including interest and
penalties thereon, if any, shall not be in excess of $500,000 at any one time
outstanding;

                    (e) any interest or title of a lessor under any operating
lease;

                    (f) easements, rights-of-way, restrictions and other similar
encumbrances against real property incurred in the ordinary course of business;

                    (g) the Liens existing on the date hereof identified on
Schedule 3.22 to the Note Purchase Agreement;

                    (h) Liens on cash deposited with account debtors to secure
performance by the Company or any Subsidiary in the ordinary course of business
subject to customary and reasonable terms;

                    (i) Liens upon assets of the Company or its Subsidiaries
subject to Capitalized Lease Obligations, provided, that (A) such Liens only
serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising
under such Capitalized Lease Obligation and (B) the Lien encumbering the asset
giving rise to the Capitalized Lease Obligation does not encumber any other
asset of the Company or its Subsidiaries;

                    (j) Liens placed upon equipment, machinery, software,
improvements or any other similar property, used in the ordinary course of
business of the Company or any of its Subsidiaries at the time of the
acquisition thereof by the Company or any of its Subsidiaries or within ninety
(90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above;
provided, that the Liens encumbering the equipment, machinery software,
improvements or any other similar property so acquired do not encumber any other
asset of the Company or its Subsidiaries;

                    (k) set-off rights of depository institutions; and

                    (l) Liens created by the Security Agreement (collectively
with clauses (a) through (k) hereof, the "Permitted Liens").

               5.5 Fundamental Changes. The Company will not, and will not
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (in one transaction or a series of transactions)
all or substantially all of its


                                       11



assets, or all or substantially all of the stock of any of its Subsidiaries (in
each case, whether now owned or hereafter acquired), or liquidate or dissolve,
except that, if at the time and immediately after giving effect thereto no Event
of Default shall have occurred and be continuing (i) the Company or any of its
Subsidiaries may, with the prior written consent of the Holders, merge with or
into any other Person; (ii) any wholly-owned Subsidiary of the Company (other
than the Guarantor) may merge with or into the Company or any other wholly-owned
Subsidiary of the Company; (iii) any Subsidiary (other than the Guarantor, and
except as otherwise prohibited by this Note) may sell, transfer, lease or
otherwise dispose of its assets to the Company or to another wholly-owned
Subsidiary of the Company; and (iv) any Subsidiary may liquidate or dissolve if
the board of directors of the Company determine in good faith that such
liquidation or dissolution is in its best interests and is not disadvantageous
to the Holders.

               5.6 Restricted Payments. The Company will not, and the Company
will not permit any Subsidiary to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except that (i) any Subsidiary
may make a Restricted Payment to the Company or any of its wholly-owned
Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any
Restricted Payment required by the terms of the Note Purchase Agreement and the
other documents executed in connection therewith.

               5.7 Transactions with Affiliates. The Company will not, and the
Company will not permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions that are at prices and on terms and
conditions not less favorable to the Company or such Subsidiary than could be
obtained on an arm's length basis from unrelated third parties, (b) transactions
exclusively between the Company and the Guarantor and (c) transactions under the
agreements listed on Schedule 3.17 to the Note Purchase Agreement.

               5.8 Investments. The Company will not, and the Company will not
permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment
in any Person, except for Permitted Investments.

               5.9 Nature of Business. The Company will not, and the Company
will not permit any Subsidiary to, engage in any business other than that
conducted on the date hereof and any businesses reasonably related thereto.

               5.10 Property of Existing Domestic Subsidiaries. The Company will
not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise
organized under the laws of the United States of America or any state thereof (a
"Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease,
license, purchase or otherwise acquire any personal or real property (excluding
any material intellectual property) in excess of $50,000 for all property held
by such Subsidiary, or $250,000 in the aggregate for all property held by all
Domestic Subsidiaries (ii) maintain


                                       12



any deposit account in its name, (iii) own or otherwise hold any rights to any
material intellectual property or (iv) otherwise conduct any business or
maintain operations.

               5.11 Formation of Subsidiaries. The Company will not, and will
not cause or permit any of its Subsidiaries to, form, acquire or permit the
existence of any new domestic Subsidiary, without causing such domestic
Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes
and related security document, in form and substance satisfactory to the
Holders.

               5.12 Books and Records. The Company shall keep proper books of
record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company and its
Subsidiaries in accordance with GAAP consistently applied.

               5.13 Inspection. The Company shall, and shall cause each of its
Subsidiaries to, permit representatives of the Holders to visit and inspect any
of its properties, to examine its corporate, financial and operating records and
make copies thereof or abstracts therefrom, and to discuss its affairs, finances
and accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested upon notice to the Company.

               5.14 Maintenance of Business. The Company shall, and shall cause
each Subsidiary to, preserve and maintain its existence. The Company shall, and
shall cause each Subsidiary to, preserve and keep in force and effect all
licenses, permits, franchises, approvals, patents, trademarks, trade names,
trade styles, copyrights, and other property rights necessary to the proper
conduct of its business, except where the failure to do so could not reasonably
be expected to have a material adverse effect on the Condition of the Company or
on the prospects of repayment of the Notes.

               5.15 Maintenance of Properties. The Company shall, and shall
cause each Subsidiary to, maintain, preserve and keep its property and equipment
in good repair, working order and condition (ordinary wear and tear excepted)
and shall from time to time make all needful and proper repairs, renewals,
replacements, additions and betterments thereto so that at all times the
efficiency thereof shall by fully preserved and maintained, except in each case
to the extent that, in the reasonable business judgment of such Person, any such
property or equipment is no longer necessary for the proper conduct of the
business of such Person.

          6. The occurrence of any one or more of the following events shall
constitute an "Event of Default":

               6.1 Failure To Pay. (i) The failure of the Company to pay any
principal due under any of the Notes when due and payable (whether by
acceleration, declaration, extension or otherwise), or (ii) the failure of the
Company to pay any other amounts due under any of the Notes when due and payable
if such failure is not cured within five (5) days of Company's receipt of notice
thereof from any of the Holders.


                                       13



               6.2 Financial Covenants. The failure of Company or any of its
Subsidiaries to perform, observe or comply with any of the Financial Covenants
set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by
reference in this Note in Section 5.2.

               6.3 Other Covenants and Agreements. The failure of Company or any
of its Subsidiaries to perform, observe or comply with any of the covenants of
this Note, the Security Agreement or any of the other Loan Documents (other than
the Financial Covenants set forth on Schedule 8.5 to the Note Purchase
Agreement, and incorporated by reference in this Note in Section 5.2), if such
failure is not cured within sixty (60) days.

               6.4 Representations and Warranties. If any representation or
warranty made by the Company or any of its Subsidiaries in the Loan Documents is
not true and correct in all material respects on the Initial Closing Date.

               6.5 Default on Other Obligations. The occurrence of any condition
or default under any other indebtedness for borrowed money of the Company or any
of its Subsidiaries with a principal amount of at least five hundred thousand
dollars ($500,000) that results in the acceleration of such indebtedness which
is not cured within sixty (60) days.

               6.6 Involuntary Bankruptcy. There shall be filed against the
Company or any of its Subsidiaries an involuntary petition or other pleading
seeking the entry of a decree or order for relief under the United States
Bankruptcy Code or any similar federal or state insolvency or similar laws
ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a
reorganization of the Company or any of its Subsidiaries or the business and
affairs of the Company or any of its Subsidiaries or (c) the appointment of a
receiver, liquidator, assignee, custodian, trustee or similar official for the
Company or any of its Subsidiaries of the property of the Company or any of its
Subsidiaries.

               6.7 Voluntary Bankruptcy. The commencement by the Company or any
of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any
federal or state insolvency or similar laws or the consent by the Company or any
of its Subsidiaries to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or similar official for the Company or
any of its Subsidiaries of any of the property of the Company or any of its
Subsidiaries or the making by the Company or any of its Subsidiaries of an
assignment for the benefit of creditors, or the failure by Company or any of its
Subsidiaries generally to pay its debts as the debts become due.

               6.8 Judgments, Awards. Any judgment or order for the payment of
money is rendered against the Company or any of its Subsidiaries in an amount in
excess of five hundred thousand dollars ($500,000) individually or in the
aggregate and either (i) enforcement proceedings are commenced by any creditor
upon such judgment or order and not stayed, or (ii) there is any period of sixty
(60) consecutive


                                       14



days during which such judgment has not been paid in full or a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, is not in effect.

               6.9 Attachment by Lenders. Any assets of the Company or any of
its Subsidiaries shall be attached, levied upon, seized or repossessed, or come
into the possession of a trustee, receiver or other custodian and a
determination by any Holder, in good faith but in its sole discretion, that the
same could have a material adverse effect on the prospect for the Holders to
fully and punctually realize the full benefits conferred on the Holders by the
Loan Documents.

               6.10 Adverse Change in Financial Condition. Any event having a
material adverse effect on the business, operations, assets, properties or
condition of the Company and its Subsidiaries taken as a whole shall have
occurred and be continuing or a material adverse effect on the validity or
enforceability of this or any of the other Loan Documents or the rights or
remedies of the Holders hereunder or thereunder.

          7. Remedies. Upon and after the occurrence of an Event of Default, the
Holder shall be entitled to the exercise the rights and remedies set forth in
the Security Agreement, the other Loan Documents and under applicable law, all
such rights and remedies being cumulative and enforceable alternatively,
successively or concurrently.

          8. Prepayment. The Company may not prepay this Note prior to the
Maturity Date without the prior written consent of the Holders.

          9. Seniority.

                    (a) Except as set forth in the Subordination Agreement, the
Notes will rank senior in right of payment to all other indebtedness of the
Company, other than the GA Notes and the January 2004 Notes, with respect to
which the Notes will be pari passu in right of payment in accordance with the
Intercreditor Agreement.

                    (b) Notwithstanding anything to the contrary contained in
the Notes, this Note and the other Notes, and the terms and the conditions
hereof and thereof, are subject to the Intercreditor Agreement.

          10. Assignment. Subject to the restrictions on transfer described in
Section 12 below, the rights and obligations of the Company and Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties. The Company shall not be permitted to assign this
Note without the prior written consent of the Holders.

          11. Waiver of Notice. The Company hereby waives notice, presentment,
demand, protest and notice of dishonor.

          12. Transfer of This Note. With respect to any offer, sale or other
disposition of this Note, Holder will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such Holder's


                                       15



counsel, to the effect that such offer, sale or other distribution may be
effected without registration or qualification (under any federal or state law
then in effect); provided, that no opinion shall be required for any transfer to
an Affiliate or if the transfer is made in compliance with the Securities Act,
so long as the transferee can make the same representations and warranties at
the time of transfer as set forth in Sections 4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and
4.11 of the Note Purchase Agreement. Promptly upon delivering such written
notice and opinion, if so required, Holder may sell or otherwise dispose of this
Note, all in accordance with the terms of the notice delivered to the Company.
Each Note thus transferred shall bear a legend as to the applicable restrictions
on transferability in order to ensure compliance with the Securities Act, unless
in the opinion of counsel for the Company such legend is not required in order
to ensure compliance with the Securities Act. The Company may issue stop
transfer instructions to its transfer agent in connection with such
restrictions. Notwithstanding the foregoing, the Holder shall not be permitted
to transfer this Note to any Person who is not an Affiliate until the earlier of
(i) the obtaining of Stockholder Approval, (ii) the receipt of written notice
from the Company that Stockholder Approval cannot be obtained, or the occurrence
of an actual vote of the Company's shareholders entitled to vote (whether by
written consent or at a meeting specially called for such purpose), the result
of which is a decision by a majority of the Company's shareholders entitled to
vote to decline to grant Stockholder Approval, (iii) six (6) months from the
date hereof and (iv) the occurrence of an Event of Default. This Note is
registered as to both principal and stated interest with the Company (or its
agent) within the meaning of section 1.871-14(c)(1)(i) of the Income Tax
Regulations. Accordingly, notwithstanding anything to the contrary in this
paragraph, this Note, together with any interest thereon, may be transferred
only (i) upon surrender of the Note by the transferor to the Company (or its
agent) and the reissuance of the Note (or the issuance of a new Note) to the
transferee, or (ii) by transfer of the right to principal and interest through a
book-entry system meeting the requirements of section 1.871-14(c)(1)(i)(B) of
the Income Tax Regulations that is maintained by the Company (or its agent). In
the case of a Holder that is not a "United States person" within the meaning of
section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the
"Code"), so long as an exception under section 871(h) or section 881(c) of the
Code does not apply, the Company (or its agent) shall not withhold any U.S.
federal income tax with respect to such Holder provided that the Holder timely
provides the Company (or its agent) with a statement that meets the requirements
of section 871(h)(5) of the Code.

          13. Treatment of Note. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.

          14. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by nationally recognized courier
service or mailed by registered or certified mail, postage prepaid, to the
respective addresses of the parties as set forth on the signature pages hereto
or if sent by facsimile to the respective facsimile numbers of the parties set
forth on the signature pages hereto. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively


                                       16



be deemed to have been given and received when personally delivered or three (3)
business days after deposited in the mail or one business day after sent by
courier or upon confirmation of facsimile delivery in the manner set forth
above.

          15. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon Holder or any other Person the right to vote or to
consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company.

          16. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, excluding that body of law
relating to conflict of laws.

          17. Amendments and Waivers. No amendments or waivers of any provision
of this Note, and no consent by the Holder to any departure by the Company,
shall in any event be effective unless the same shall be in writing, and signed
by the Holders of a majority of the outstanding principal amount of all of the
Notes issued by the Company pursuant to the Note Purchase Agreement, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given.

          18. Severability. Any provision of this Note that is prohibited or
unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

          19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY
(A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF
RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION
WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY
TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY
OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN
THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER
OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE.
THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND
VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER
HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY
INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT. THE COMPANY AND THE


                                       17



HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING
JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO
SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF
THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED
IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT
LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

          20. Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except as otherwise indicated, all references herein to Sections refer to
Sections hereof.

              [the remainder of this page intentionally left blank]


                                       18



          IN WITNESS WHEREOF, the Company has caused this Note to be issued this
9th day of March, 2004.

                                      COMPANY:

                                      CRITICAL PATH, INC.,
                                      a California corporation

                                      By: /s/ William E. McGlashan, Jr.
                                          --------------------------------------
                                          Name: William E. McGlashan, Jr.
                                          Title: Chairman, Chief Executive
                                          Officer

                                          Critical Path, Inc.
                                          350 The Embarcadero
                                          San Francisco, CA 94105-1204
                                          Telecopy: (415) 541-2300
                                          Attention: Chief Financial Officer

                                          With a copy to:

                                          Pillsbury Winthrop LLP
                                          50 Fremont Street
                                          San Francisco, CA 94105
                                          Telecopy: (415) 983-1200
                                          Attention: Gregg Vignos, Esq.

Name of Holder: PERMAL U.S. OPPORTUNITIES LIMITED

Address:   c/o Apex Capital, LLC
           25 Orinda Way, Suite 300
           Orinda, CA 94563
           Attention: Adam Fiore, General Counsel

Telephone: (925) 253-6125

Facsimile: (925) 253-1809

EX-4.33

                                                                    EXHIBIT 4.33

     THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
     SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN
     REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
     SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
     TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER
     OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.

                               CRITICAL PATH, INC.

                    CONVERTIBLE SUBORDINATED PROMISSORY NOTE

$220,000                                               San Francisco, California
                                                       March 9, 2004

          Critical Path, Inc., a California corporation (the "Company"), the
principal office of which is located in San Francisco, California, for value
received hereby promises to pay to the order of Zaxis Equity Neutral, L.P., or
its registered assigns ("Holder"), the sum of two hundred twenty thousand
dollars ($220,000), or such lesser amount as shall then equal the outstanding
principal amount hereof on the terms and conditions set forth hereinafter. The
outstanding principal amount hereof and all accrued and unpaid interest hereon,
as set forth below, shall be due and payable on the earlier to occur of (i)
March 9, 2008, (ii) when declared due and payable by Holder upon the occurrence
of an Event of Default (as defined below), (iii) consummation of a Qualified
Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock or Stock
Equivalents by the Company, any cash capital contribution from any third person
or any other debt or equity financing consummated by the Company after the date
of issuance of this Note which, in the case of (v), individually or in the
aggregate raises proceeds of at least forty million dollars ($40,000,000) in
cash or cash equivalents (the earliest of the events set forth in items (i)-(v)
immediately above, the "Maturity Date").

          The following is a statement of the rights of the Holder of this Note
and the conditions to which this Note is subject, and to which the Holder
hereof, by the acceptance of this Note, agrees:

          1. Definitions. Except as otherwise defined herein, each capitalized
term used herein shall have the meaning assigned to it in the Note Purchase
Agreement, as in effect on the date hereof, and without regard to any subsequent
termination of the Note Purchase Agreement. All other references to the Note
Purchase Agreement in this Note refer to the Note Purchase Agreement as in
effect on the date hereof, and without regard to any subsequent termination of
the Note Purchase Agreement. As used in this Note, the following terms, unless
the context otherwise requires, have the following



meanings:

               1.1 "Affiliate" means any Person who is an "affiliate" as defined
in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange
Act of 1934, as amended.

               1.2 "Capitalized Lease Obligations" means, with respect to any
Person, all rental obligations of such Person which, under GAAP, are or will be
required to be capitalized on the books of such Person, in each case taken at
the amount thereof accounted for as indebtedness in accordance with such
principles.

               1.3 "Change of Control" shall mean (i) any merger, consolidation
or other business combination transaction (or series of related transactions) in
which the stockholders owning a majority of the voting securities of the Company
prior to such transaction do not own a majority of the voting securities of the
surviving entity, (ii) any tender offer, exchange offer or other transaction
whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as amended) (other than
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell
Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and
the Affiliates of the foregoing, provided that Affiliates shall be deemed not to
include any portfolio companies of any of the foregoing) obtains a majority of
the outstanding shares of capital stock entitled to vote in the election of
directors, (iii) any proxy contest in which a majority of the Board of Directors
of the Company (or persons appointed by such Board of Directors) prior to such
contest do not constitute a majority of the Company's Board of Directors after
such contest or (iv) any other transaction described in any stockholder rights
agreement or "poison pill," if any, to which the Company is party, which may
permit the holders of any rights or similar certificates to exercise the rights
evidenced thereby.

               1.4 "Company" shall have the meaning set forth in the recitals
hereto, and includes any corporation that shall succeed to or assume the
obligations of the Company under this Note.

               1.5 "Common Conversion Date" shall have the meaning set forth in
Section 3.1(b) hereof.

               1.6 "Common Stock" means the common stock, par value $0.001 per
share, of the Company.

               1.7 "Conversion Date" shall mean the Subsequent Closing Date.

               1.8 "Domestic Subsidiary" shall have the meaning set forth in
Section 5.10 hereof.

               1.9 "Event of Default" shall have the meaning set forth in
Section 6 hereof.


                                       2



               1.10 "GA Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP
Entities pursuant to the Purchase and Exchange Agreement.

               1.11 "GAP Entities" shall mean General Atlantic Partners 74,
L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG.

               1.12 "Guarantor" shall have the meaning set forth in the Security
Agreement.

               1.13 "Holder" shall mean the registered holder of this Note from
time to time, and in the plural, shall mean all registered holders of Notes from
time to time issued by the Company pursuant to the Note Purchase Agreement.

               1.14 "Intercreditor Agreement" shall mean the Intercreditor
Agreement, dated the date hereof, among the GAP Entities, the January Lenders,
Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore
Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital
Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures
International.

               1.15 "Interest Amount" shall have the meaning set forth in
Section 3.1 hereof.

               1.16 "Investment" means (i) the acquisition (whether for cash,
property, services, assumption of Indebtedness, securities or otherwise) of
assets (other than equipment, inventory, supplies or other assets acquired in
the ordinary course of business of the Company), capital stock, bonds, notes,
debentures, partnership, joint venture or other ownership interests or other
securities of any Person, (ii) any deposit with, or advance, loan or other
extension of credit to, or on behalf of, any Person (other than deposits made in
connection with the purchase of equipment, inventory, services, leases, supplies
or other assets in the ordinary course of business of the Company), and (iii)
any other capital contribution to or investment in any Person, including,
without limitation, any guaranty obligation incurred for the benefit of any
Person. For the sake of clarity, Investments shall include any transfer of
property or assets by the Company to any of its Subsidiaries or by any
Subsidiary of the Company to any other Subsidiary.

               1.17 "January Lenders" shall mean Permal U.S. Opportunities
Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis
Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P.

               1.18 "January Note Agreement" shall mean the Convertible Note
Purchase Agreement, dated January 16, 2004, among the January Lenders and the
Company.

               1.19 "January 2004 Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated January 16, 2003, issued by the Company to the
January Lenders pursuant to the January Note Agreement.


                                       3



               1.20 "Loan Documents" shall have the meaning set forth in the
Security Agreement.

               1.21 "Note" shall mean this note, and in the plural, shall mean
all notes issued to the Lenders pursuant to the terms of the Note Purchase
Agreement, including this Note, and all amendments, modifications and extensions
thereto.

               1.22 "Note Purchase Agreement" means that certain Convertible
Note Purchase Agreement, dated March 9, 2004, among the Company, the Holder and
the other parties thereto from time to time, and all amendments, modifications
and extensions thereto.

               1.23 "Permitted Investments" means (i) Investments in cash or
cash equivalents, (ii) accounts receivable created, acquired or made in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (iii) Investments existing on the closing date, and
listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty
obligations permitted by Section 5.3 of this Agreement, (v) loans to employees,
directors or officers of the Company in connection with the award of convertible
bonds or capital stock under a stock incentive plan, stock option plan or other
equity-based compensation plan or arrangement, (vi) other advances or loans to
employees, directors, officers or agents of the Company in the ordinary course
of business not to exceed $500,000 in the aggregate at any time outstanding;
(vii) loans, advances and investments in foreign Subsidiaries (that are not
incorporated or otherwise organized under the laws of the United States of
America or any state thereof) in an amount not to exceed $1,000,000 in the
aggregate at any time outstanding; (viii) any acquisition for which the prior
written consent of the Holders of a majority of the outstanding principal amount
of all of the Notes issued by the Company pursuant to the Note Purchase
Agreement has been obtained, (ix) other loans, advances and investments of a
nature not contemplated by the foregoing sections in an amount not to exceed
$500,000 in the aggregate at any time outstanding or (x) Investments by the
Company in the Guarantor.

               1.24 "Permitted Liens" shall have the meaning set forth in
Section 5.4.

               1.25 "Person" means any individual, firm, corporation,
partnership, trust, joint venture, joint stock company, limited liability
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.

               1.26 "Price Per Share" shall have the meaning attributed to such
term in the Series E Certificate of Determination, as filed with the Secretary
of State of the State of California.

               1.27 "Purchase and Exchange Agreement" shall mean the Convertible
Note Purchase and Exchange Agreement, dated November 18, 2003, among the
Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended.


                                       4



               1.28 "Qualified Asset Sale" means the sale, transfer or other
disposition of any of the assets of the Company or any of its Subsidiaries,
other than (a) sales of assets in the ordinary course of business, (b) sales of
assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the
sale, transfer or other disposition of assets of the Company where the proceeds
are applied to the purchase price or traded in for credit against the purchase
price of other assets, provided that any such purchase is made, or credit
issued, within 90 days of the sale, transfer or other disposition, and (d) one
or more sales of the Company's assets (other than sales otherwise included in
clauses (a), (b), and (c) immediately above) which collectively yield up to an
aggregate of one million dollars ($1,000,000) in gross proceeds to the Company
while this Note is outstanding.

               1.29 "Restricted Payment" means (a) any dividend or other
distribution (whether in cash, securities or other property) with respect to any
shares of any class of capital stock of the Company or any of its Subsidiaries
or (b) any payment (whether in cash, securities or other property), including
any sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any shares of any class
of capital stock of the Company or any Subsidiary or any option, warrant or
other right to acquire any such shares of capital stock of the Company or any
Subsidiary.

               1.30 "Security Agreement" means that certain Guaranty and
Security Agreement, of even date herewith between the Company, Compass Holding
Corp., the Lenders and the other parties thereto from time to time, and all
amendments, modifications and extensions thereto.

               1.31 "Series E Conversion Price" shall have the meaning set forth
in the Series E Certificate of Determination.

               1.32 "Series E Preferred Stock" means the Series E Preferred
Stock, par value $0.001, of the Company.

               1.33 "Subordination Agreement" shall have the meaning set forth
in Section 5.3.

               1.34 "Subsequent Closing Date" shall have the meaning set forth
in Section 2.4(e) of the Note Purchase Agreement.

               1.35 "SVB" means Silicon Valley Bank, a California chartered
bank, or any Affiliates thereof.

               1.36 "Ten Percent Holder" means, with respect to a class of
equity securities of the Company, a Person (together with such Person's
Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such
class of equity securities of the Company, as defined by Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

               1.37 "UCC" shall have the meaning set forth in Section 5.4.


                                       5



          2. Interest. Simple interest shall accrue at the rate of ten percent
(10%) per annum (or such lesser amount as shall equal the highest rate of
interest allowable under applicable law) (the "Interest Rate"), on the
outstanding principal of this Note from the date of this Note until the Maturity
Date or the date this Note is otherwise repaid. The Company shall not be
obligated to make any payments of interest which shall have accrued under this
Note prior to the Maturity Date. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. In the event that the
principal amount of this Note, any interest, or any amount payable hereunder is
not paid in full when such amount becomes due and payable, or upon the
occurrence of an Event of Default, interest shall accrue at the lesser of (a)
the initial Interest Rate plus five percent (5%) per annum or (b) the highest
rate of interest allowable under applicable law, on the balance of all amounts
outstanding until such overdue amounts are paid or the Event of Default is
cured, and such interest shall be payable on demand.

          3. Conversion.

               3.1  Conversion.

                    (a) On the Conversion Date, the principal amount of this
Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall
be automatically converted into the number of fully paid and nonassessable
shares of Series E Preferred Stock equal to the quotient obtained by dividing
(a) the entire principal amount of this Note plus the Interest Amount by (b) the
Price Per Share.

                    (b) In the event that the Conversion Date has not occurred
on or prior to August 15, 2004 (the "Common Conversion Date"), then, following
the Common Conversion Date, the principal amount of this Note plus the Interest
Amount shall be convertible, at the option of Holder and from time to time, only
into Common Stock at a conversion price per share equal to $2.18, as adjusted
for any stock dividends, stock splits or similar consolidations or subdivisions,
following the date hereof; provided, however, that Holder shall not be permitted
to convert any portion of the principal of this Note or the Interest Amount into
Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion,
the conversion would cause Holder to be a Ten Percent Holder.

               3.2 Notice of Conversion. Upon conversion of this Note as
provided in Section 3.1, Holder shall surrender this Note to the Company and
shall state the name or names in which the certificate or certificates for such
shares of Series E Preferred Stock or Common Stock, as the case may be, are to
be issued. The Person or Persons entitled to receive the shares of Series E
Preferred Stock or Common Stock, as the case may be, issuable upon such
conversion shall be treated for all purposes as the record holder or holders (a)
of such shares of Series E Preferred Stock as of the Conversion Date and (b) of
such shares of Common Stock as of the date of any conversion pursuant to Section
3.1(b).

               3.3 Delivery of Stock Certificates. Upon conversion of this Note
as provided in Section 3.1, the Company at its expense will issue and deliver to


                                       6



Holder of this Note a certificate or certificates (bearing such legends as are
required by applicable state and federal securities laws in the opinion of
counsel to the Company) for the number of full shares of Series E Preferred
Stock or Common Stock, as the case may be, issuable upon such conversion.

               3.4 Mechanics and Effect of Conversion. No fractional shares of
Series E Preferred Stock or Common Stock, as the case may be, shall be issued
upon conversion of this Note. In lieu of the Company issuing any fractional
shares to Holder upon the conversion of this Note, the Company shall pay to
Holder the amount of outstanding principal and interest that is not so
converted. Upon conversion of all amounts due under this Note, the Company shall
be released from all of its obligations under this Note.

          4. Adjustments. The number of shares of Series E Preferred Stock or
Common Stock convertible hereunder are subject to adjustment from time to time
as follows:

               4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at
any time while this Note remains outstanding and unexpired there shall be (a) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (b) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise or (c) a sale or
transfer of the Company's stock, properties or assets as, or substantially as,
an entirety to any other Person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that Holder
shall thereafter be entitled to receive by converting this Note the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon conversion of this Note would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Note had been converted immediately before such reorganization,
merger, consolidation, sale or transfer (notwithstanding that the Stockholder
Approval may not yet have been obtained), all subject to further adjustment as
provided in this Section 4. The foregoing provisions of this Section 4.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation. If the
per share consideration payable to Holder hereof for shares in connection with
any such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
Company's Board of Directors based on the amount the Holder would have otherwise
been entitled to receive had the transaction or transactions not occurred. In
all events, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions of this
Note with respect to the rights and interests of Holder after the transaction,
to the end that the provisions of this Note shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon conversion of


                                       7



this Note. The Company shall be obligated to retain and set aside, or otherwise
make fair provision for exercise of the right of the Holder to receive, the
shares of stock and/or other securities, cash or other property provided for in
this Section 4.1.

               4.2 Election of Holder upon Merger or Sale of Assets.
Notwithstanding anything to the contrary contained herein, if an event shall
occur as provided in Section 4.1 hereof that would otherwise result in the
occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first
paragraph of this Note, then the Holder may, in its sole discretion, by written
notice to the Company elect to convert the principal amount of this Note plus
the Interest Amount into the number of shares of stock or other securities or
property described in Section 4.1, in lieu of receiving payment in full of all
amounts outstanding under this Note. The number of shares of stock or other
securities or property to be issued upon such conversion shall be determined in
accordance with Section 4.1 hereof, taking into account the occurrence of such
event.

               4.3 Reclassification, Etc. If the Company shall, at any time
while this Note, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, change any of the securities as to
which conversion rights under this Note exist into the same or a different
number of securities of any other class or classes, this Note shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable with respect to the securities that were subject to the conversion
rights under this Note immediately prior to such reclassification or other
change, and the Price Per Share shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 4.

               4.4 Split, Subdivision or Combination of Shares. If the Company
at any time while this Note, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the shares of Series E Preferred
Stock or Common Stock into a different number of securities of the same class,
the Price Per Share or conversion price, as the case may be, shall be
proportionately adjusted.

               4.5 Series E Adjustments. The initial Series E Conversion Price
of the shares of Series E Preferred Stock issued upon conversion of this Note
pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on
the Conversion Date, subject to the adjustment of such Series E Conversion Price
from time to time thereafter as provided in the Series E Certificate of
Determination.

               4.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 4, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.

               4.7 No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all


                                       8



such action as may be necessary or appropriate in order to protect the rights of
Holder against impairment.

          5. Covenants. The Company covenants and agrees that until the earlier
of (i) the date on which all Obligations (as defined in the Security Agreement)
have been paid in full or (ii) the date on which all amounts outstanding under
the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b):

               5.1 Financial Statements and Other Information. The Company shall
deliver to the Holder of this Note the financial statements and other
information required to be delivered under Section 8.1 of the Note Purchase
Agreement.

               5.2 Financial Covenants. The Company shall at all times comply
with the financial and other covenants set forth in Schedule 8.5 to the Note
Purchase Agreement as if such covenants were set forth herein.

               5.3 Indebtedness. The Company shall not, and shall not permit any
Subsidiary to, issue, incur, assume, create or have outstanding any
Indebtedness, provided, however, that the foregoing shall not restrict nor
operate to prevent:

                    (a) Indebtedness in favor of the Holders under the Loan
Documents;

                    (b) Indebtedness existing on the date hereof, as set forth
on Schedule 3.22 to the Note Purchase Agreement;

                    (c) Indebtedness for accounts payable incurred in the
ordinary course of business by the Company;

                    (d) Indebtedness incurred solely for the purpose of
financing the acquisition of any equipment, machinery, software, improvements or
any other similar property, or extensions, renewals or replacements of any of
the foregoing for the same or a lesser amount; provided, that the aggregate
outstanding principal amount of all Indebtedness permitted pursuant to this
clause (d) outstanding for more than sixty (60) days after the incurrence of
such Indebtedness shall not at any time exceed $500,000;

                    (e) Indebtedness of the Company evidenced by Capitalized
Lease Obligations, provided, that in no event shall the aggregate principal
amount of Capitalized Lease Obligations permitted by this clause (e) exceed
$500,000 at any time outstanding; and

                    (f) Any extension, renewal, refinancing, refunding, or
replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and
(e) above, on such terms and conditions as are, on the whole, not materially
more onerous to the Company than the terms and conditions of such original
Indebtedness on the date of such refinancing (including that the principal
amount of such refinancing Indebtedness


                                       9



does not exceed the principal amount of, plus the amount of accrued and unpaid
interest on, the Indebtedness so refinanced (plus the amount of reasonable
premium and fees and expenses incurred in connection therewith)), provided that,
in the case of a refinancing of Indebtedness owed by the Company or any
Subsidiary to SVB, this clause (f) shall only apply to the extent consistent
with the Subordination Agreement, dated as of the date hereof, by and among SVB,
the Holders and the Company (the "Subordination Agreement").

               5.4 Liens. The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
the Company or any of its Subsidiaries, whether now owned or hereafter acquired,
or sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable), or assign any right to receive income or permit the
filing of any financing statement under the Uniform Commercial Code, as from
time to time in effect in the relevant jurisdiction (the "UCC"), or any other
similar notice of Lien under any similar recording or notice statute; provided,
that the provisions of this Section 5.4 shall not prevent the creation,
incurrence, assumption or existence of the following:

                    (a) Liens arising in the ordinary course of business by
statute in connection with worker's compensation, unemployment insurance, old
age benefits, social security obligations, statutory obligations or other
similar charges (other then Liens arising under ERISA), good faith cash deposits
in connection with tenders, contracts or leases to which the Company or any
Subsidiary is a party or other cash deposits required to be made in the ordinary
course of business, provided, that such Liens do not have a material adverse
effect on the ability of the Company to repay amounts due under the Notes;

                    (b) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due or Liens for taxes, assessments or governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP;

                    (c) Liens in respect of property or assets of the Company or
its Subsidiaries imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as carriers',
warehousemen's, materialmen's and mechanics' liens and other similar Liens
arising in the ordinary course of business, and (i) which do not in the
aggregate materially detract from the value of the Company's and its
Subsidiaries' property or assets taken as a whole or result in a material
adverse effect on the Condition of the Company or (ii) which are being contested
in good faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to any such
Lien;


                                       10



                    (d) the pledge of assets for the purpose of securing an
appeal, stay or discharge in the course of any legal proceeding, provided that
the aggregate amount of liabilities of the Company and its Subsidiaries secured
by a pledge of assets permitted under this subsection, including interest and
penalties thereon, if any, shall not be in excess of $500,000 at any one time
outstanding;

                    (e) any interest or title of a lessor under any operating
lease;

                    (f) easements, rights-of-way, restrictions and other similar
encumbrances against real property incurred in the ordinary course of business;

                    (g) the Liens existing on the date hereof identified on
Schedule 3.22 to the Note Purchase Agreement;

                    (h) Liens on cash deposited with account debtors to secure
performance by the Company or any Subsidiary in the ordinary course of business
subject to customary and reasonable terms;

                    (i) Liens upon assets of the Company or its Subsidiaries
subject to Capitalized Lease Obligations, provided, that (A) such Liens only
serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising
under such Capitalized Lease Obligation and (B) the Lien encumbering the asset
giving rise to the Capitalized Lease Obligation does not encumber any other
asset of the Company or its Subsidiaries;

                    (j) Liens placed upon equipment, machinery, software,
improvements or any other similar property, used in the ordinary course of
business of the Company or any of its Subsidiaries at the time of the
acquisition thereof by the Company or any of its Subsidiaries or within ninety
(90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above;
provided, that the Liens encumbering the equipment, machinery software,
improvements or any other similar property so acquired do not encumber any other
asset of the Company or its Subsidiaries;

                    (k) set-off rights of depository institutions; and

                    (l) Liens created by the Security Agreement (collectively
with clauses (a) through (k) hereof, the "Permitted Liens").

               5.5 Fundamental Changes. The Company will not, and will not
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (in one transaction or a series of transactions)
all or substantially all of its assets, or all or substantially all of the stock
of any of its Subsidiaries (in each case, whether now owned or hereafter
acquired), or liquidate or dissolve, except that, if at the time and immediately
after giving effect thereto no Event of Default shall have occurred and be
continuing (i) the Company or any of its Subsidiaries may, with the prior
written


                                       11



consent of the Holders, merge with or into any other Person; (ii) any
wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with
or into the Company or any other wholly-owned Subsidiary of the Company; (iii)
any Subsidiary (other than the Guarantor, and except as otherwise prohibited by
this Note) may sell, transfer, lease or otherwise dispose of its assets to the
Company or to another wholly-owned Subsidiary of the Company; and (iv) any
Subsidiary may liquidate or dissolve if the board of directors of the Company
determine in good faith that such liquidation or dissolution is in its best
interests and is not disadvantageous to the Holders.

               5.6 Restricted Payments. The Company will not, and the Company
will not permit any Subsidiary to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except that (i) any Subsidiary
may make a Restricted Payment to the Company or any of its wholly-owned
Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any
Restricted Payment required by the terms of the Note Purchase Agreement and the
other documents executed in connection therewith.

               5.7 Transactions with Affiliates. The Company will not, and the
Company will not permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions that are at prices and on terms and
conditions not less favorable to the Company or such Subsidiary than could be
obtained on an arm's length basis from unrelated third parties, (b) transactions
exclusively between the Company and the Guarantor and (c) transactions under the
agreements listed on Schedule 3.17 to the Note Purchase Agreement.

               5.8 Investments. The Company will not, and the Company will not
permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment
in any Person, except for Permitted Investments.

               5.9 Nature of Business. The Company will not, and the Company
will not permit any Subsidiary to, engage in any business other than that
conducted on the date hereof and any businesses reasonably related thereto.

               5.10 Property of Existing Domestic Subsidiaries. The Company will
not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise
organized under the laws of the United States of America or any state thereof (a
"Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease,
license, purchase or otherwise acquire any personal or real property (excluding
any material intellectual property) in excess of $50,000 for all property held
by such Subsidiary, or $250,000 in the aggregate for all property held by all
Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own
or otherwise hold any rights to any material intellectual property or (iv)
otherwise conduct any business or maintain operations.

               5.11 Formation of Subsidiaries. The Company will not, and will
not cause or permit any of its Subsidiaries to, form, acquire or permit the
existence of any


                                       12



new domestic Subsidiary, without causing such domestic Subsidiary to execute and
deliver to the Holders a secured guaranty of the Notes and related security
document, in form and substance satisfactory to the Holders.

               5.12 Books and Records. The Company shall keep proper books of
record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company and its
Subsidiaries in accordance with GAAP consistently applied.

               5.13 Inspection. The Company shall, and shall cause each of its
Subsidiaries to, permit representatives of the Holders to visit and inspect any
of its properties, to examine its corporate, financial and operating records and
make copies thereof or abstracts therefrom, and to discuss its affairs, finances
and accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested upon notice to the Company.

               5.14 Maintenance of Business. The Company shall, and shall cause
each Subsidiary to, preserve and maintain its existence. The Company shall, and
shall cause each Subsidiary to, preserve and keep in force and effect all
licenses, permits, franchises, approvals, patents, trademarks, trade names,
trade styles, copyrights, and other property rights necessary to the proper
conduct of its business, except where the failure to do so could not reasonably
be expected to have a material adverse effect on the Condition of the Company or
on the prospects of repayment of the Notes.

               5.15 Maintenance of Properties. The Company shall, and shall
cause each Subsidiary to, maintain, preserve and keep its property and equipment
in good repair, working order and condition (ordinary wear and tear excepted)
and shall from time to time make all needful and proper repairs, renewals,
replacements, additions and betterments thereto so that at all times the
efficiency thereof shall by fully preserved and maintained, except in each case
to the extent that, in the reasonable business judgment of such Person, any such
property or equipment is no longer necessary for the proper conduct of the
business of such Person.

          6. The occurrence of any one or more of the following events shall
constitute an "Event of Default":

               6.1 Failure To Pay. (i) The failure of the Company to pay any
principal due under any of the Notes when due and payable (whether by
acceleration, declaration, extension or otherwise), or (ii) the failure of the
Company to pay any other amounts due under any of the Notes when due and payable
if such failure is not cured within five (5) days of Company's receipt of notice
thereof from any of the Holders.

               6.2 Financial Covenants. The failure of Company or any of its
Subsidiaries to perform, observe or comply with any of the Financial Covenants
set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by
reference in this Note in Section 5.2.


                                       13



               6.3 Other Covenants and Agreements. The failure of Company or any
of its Subsidiaries to perform, observe or comply with any of the covenants of
this Note, the Security Agreement or any of the other Loan Documents (other than
the Financial Covenants set forth on Schedule 8.5 to the Note Purchase
Agreement, and incorporated by reference in this Note in Section 5.2), if such
failure is not cured within sixty (60) days.

               6.4 Representations and Warranties. If any representation or
warranty made by the Company or any of its Subsidiaries in the Loan Documents is
not true and correct in all material respects on the Initial Closing Date.

               6.5 Default on Other Obligations. The occurrence of any condition
or default under any other indebtedness for borrowed money of the Company or any
of its Subsidiaries with a principal amount of at least five hundred thousand
dollars ($500,000) that results in the acceleration of such indebtedness which
is not cured within sixty (60) days.

               6.6 Involuntary Bankruptcy. There shall be filed against the
Company or any of its Subsidiaries an involuntary petition or other pleading
seeking the entry of a decree or order for relief under the United States
Bankruptcy Code or any similar federal or state insolvency or similar laws
ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a
reorganization of the Company or any of its Subsidiaries or the business and
affairs of the Company or any of its Subsidiaries or (c) the appointment of a
receiver, liquidator, assignee, custodian, trustee or similar official for the
Company or any of its Subsidiaries of the property of the Company or any of its
Subsidiaries.

               6.7 Voluntary Bankruptcy. The commencement by the Company or any
of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any
federal or state insolvency or similar laws or the consent by the Company or any
of its Subsidiaries to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or similar official for the Company or
any of its Subsidiaries of any of the property of the Company or any of its
Subsidiaries or the making by the Company or any of its Subsidiaries of an
assignment for the benefit of creditors, or the failure by Company or any of its
Subsidiaries generally to pay its debts as the debts become due.

               6.8 Judgments, Awards. Any judgment or order for the payment of
money is rendered against the Company or any of its Subsidiaries in an amount in
excess of five hundred thousand dollars ($500,000) individually or in the
aggregate and either (i) enforcement proceedings are commenced by any creditor
upon such judgment or order and not stayed, or (ii) there is any period of sixty
(60) consecutive days during which such judgment has not been paid in full or a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, is not in effect.

               6.9 Attachment by Lenders. Any assets of the Company or any of
its Subsidiaries shall be attached, levied upon, seized or repossessed, or come
into the


                                       14



possession of a trustee, receiver or other custodian and a determination by any
Holder, in good faith but in its sole discretion, that the same could have a
material adverse effect on the prospect for the Holders to fully and punctually
realize the full benefits conferred on the Holders by the Loan Documents.

               6.10 Adverse Change in Financial Condition. Any event having a
material adverse effect on the business, operations, assets, properties or
condition of the Company and its Subsidiaries taken as a whole shall have
occurred and be continuing or a material adverse effect on the validity or
enforceability of this or any of the other Loan Documents or the rights or
remedies of the Holders hereunder or thereunder.

          7. Remedies. Upon and after the occurrence of an Event of Default, the
Holder shall be entitled to the exercise the rights and remedies set forth in
the Security Agreement, the other Loan Documents and under applicable law, all
such rights and remedies being cumulative and enforceable alternatively,
successively or concurrently.

          8. Prepayment. The Company may not prepay this Note prior to the
Maturity Date without the prior written consent of the Holders.

          9. Seniority.

                    (a) Except as set forth in the Subordination Agreement, the
Notes will rank senior in right of payment to all other indebtedness of the
Company, other than the GA Notes and the January 2004 Notes, with respect to
which the Notes will be pari passu in right of payment in accordance with the
Intercreditor Agreement.

                    (b) Notwithstanding anything to the contrary contained in
the Notes, this Note and the other Notes, and the terms and the conditions
hereof and thereof, are subject to the Intercreditor Agreement.

          10. Assignment. Subject to the restrictions on transfer described in
Section 12 below, the rights and obligations of the Company and Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties. The Company shall not be permitted to assign this
Note without the prior written consent of the Holders.

          11. Waiver of Notice. The Company hereby waives notice, presentment,
demand, protest and notice of dishonor.

          12. Transfer of This Note. With respect to any offer, sale or other
disposition of this Note, Holder will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such Holder's counsel, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any
federal or state law then in effect); provided, that no opinion shall be
required for any transfer to an Affiliate or if the transfer is made in
compliance with the Securities Act, so long as the transferee can make the same
representations and warranties at the time of transfer as set forth in Sections
4.5, 4.6, 4.7,


                                       15



4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly upon delivering
such written notice and opinion, if so required, Holder may sell or otherwise
dispose of this Note, all in accordance with the terms of the notice delivered
to the Company. Each Note thus transferred shall bear a legend as to the
applicable restrictions on transferability in order to ensure compliance with
the Securities Act, unless in the opinion of counsel for the Company such legend
is not required in order to ensure compliance with the Securities Act. The
Company may issue stop transfer instructions to its transfer agent in connection
with such restrictions. Notwithstanding the foregoing, the Holder shall not be
permitted to transfer this Note to any Person who is not an Affiliate until the
earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of
written notice from the Company that Stockholder Approval cannot be obtained, or
the occurrence of an actual vote of the Company's shareholders entitled to vote
(whether by written consent or at a meeting specially called for such purpose),
the result of which is a decision by a majority of the Company's shareholders
entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months
from the date hereof and (iv) the occurrence of an Event of Default. This Note
is registered as to both principal and stated interest with the Company (or its
agent) within the meaning of section 1.871-14(c)(1)(i) of the Income Tax
Regulations. Accordingly, notwithstanding anything to the contrary in this
paragraph, this Note, together with any interest thereon, may be transferred
only (i) upon surrender of the Note by the transferor to the Company (or its
agent) and the reissuance of the Note (or the issuance of a new Note) to the
transferee, or (ii) by transfer of the right to principal and interest through a
book-entry system meeting the requirements of section 1.871-14(c)(1)(i)(B) of
the Income Tax Regulations that is maintained by the Company (or its agent). In
the case of a Holder that is not a "United States person" within the meaning of
section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the
"Code"), so long as an exception under section 871(h) or section 881(c) of the
Code does not apply, the Company (or its agent) shall not withhold any U.S.
federal income tax with respect to such Holder provided that the Holder timely
provides the Company (or its agent) with a statement that meets the requirements
of section 871(h)(5) of the Code.

          13. Treatment of Note. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.

          14. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by nationally recognized courier
service or mailed by registered or certified mail, postage prepaid, to the
respective addresses of the parties as set forth on the signature pages hereto
or if sent by facsimile to the respective facsimile numbers of the parties set
forth on the signature pages hereto. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively be
deemed to have been given and received when personally delivered or three (3)
business days after deposited in the mail or one business day after sent by
courier or upon confirmation of facsimile delivery in the manner set forth
above.


                                       16



          15. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon Holder or any other Person the right to vote or to
consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company.

          16. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, excluding that body of law
relating to conflict of laws.

          17. Amendments and Waivers. No amendments or waivers of any provision
of this Note, and no consent by the Holder to any departure by the Company,
shall in any event be effective unless the same shall be in writing, and signed
by the Holders of a majority of the outstanding principal amount of all of the
Notes issued by the Company pursuant to the Note Purchase Agreement, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given.

          18. Severability. Any provision of this Note that is prohibited or
unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

          19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY
(A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF
RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION
WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY
TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY
OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN
THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER
OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE.
THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND
VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER
HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY
INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT
THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE
COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF
RIGHT TO TRIAL BY JURY. EACH OF


                                       17



THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED
IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT
LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

          20. Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except as otherwise indicated, all references herein to Sections refer to
Sections hereof.

              [the remainder of this page intentionally left blank]


                                       18



          IN WITNESS WHEREOF, the Company has caused this Note to be issued this
9th day of March, 2004.

                                   COMPANY:

                                   CRITICAL PATH, INC.,
                                   a California corporation

                                   By: /s/ William E. McGlashan, Jr.
                                       -----------------------------------------
                                       Name: William E. McGlashan, Jr.
                                       Title: Chairman, Chief Executive Officer

                                       Critical Path, Inc.
                                       350 The Embarcadero
                                       San Francisco, CA 94105-1204
                                       Telecopy: (415) 541-2300
                                       Attention: Chief Financial Officer

                                       With a copy to:

                                       Pillsbury Winthrop LLP
                                       50 Fremont Street
                                       San Francisco, CA 94105
                                       Telecopy: (415) 983-1200
                                       Attention: Gregg Vignos, Esq.

Name of Holder: ZAXIS EQUITY NEUTRAL, L.P.

Address:   c/o Apex Capital, LLC
           25 Orinda Way, Suite 300
           Orinda, CA 94563
           Attention: Adam Fiore, General Counsel

Telephone: (925) 253-6125

Facsimile: (925) 253-1809

EX-4.34

                                                                    EXHIBIT 4.34

     THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
     SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN
     REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
     SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
     TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER
     OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.

                               CRITICAL PATH, INC.

                    CONVERTIBLE SUBORDINATED PROMISSORY NOTE

$370,000                                               San Francisco, California
                                                       March 9, 2004

          Critical Path, Inc., a California corporation (the "Company"), the
principal office of which is located in San Francisco, California, for value
received hereby promises to pay to the order of Zaxis Institutional Partners,
L.P., or its registered assigns ("Holder"), the sum of three hundred seventy
thousand dollars ($370,000), or such lesser amount as shall then equal the
outstanding principal amount hereof on the terms and conditions set forth
hereinafter. The outstanding principal amount hereof and all accrued and unpaid
interest hereon, as set forth below, shall be due and payable on the earlier to
occur of (i) March 9, 2008, (ii) when declared due and payable by Holder upon
the occurrence of an Event of Default (as defined below), (iii) consummation of
a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital
stock or Stock Equivalents by the Company, any cash capital contribution from
any third person or any other debt or equity financing consummated by the
Company after the date of issuance of this Note which, in the case of (v),
individually or in the aggregate raises proceeds of at least forty million
dollars ($40,000,000) in cash or cash equivalents (the earliest of the events
set forth in items (i)-(v) immediately above, the "Maturity Date").

          The following is a statement of the rights of the Holder of this Note
and the conditions to which this Note is subject, and to which the Holder
hereof, by the acceptance of this Note, agrees:

          1. Definitions. Except as otherwise defined herein, each capitalized
term used herein shall have the meaning assigned to it in the Note Purchase
Agreement, as in effect on the date hereof, and without regard to any subsequent
termination of the Note Purchase Agreement. All other references to the Note
Purchase Agreement in this Note refer to the Note Purchase Agreement as in
effect on the date hereof, and without regard to any subsequent termination of
the Note Purchase Agreement. As used in this Note, the following terms, unless
the context otherwise requires, have the following



meanings:

               1.1 "Affiliate" means any Person who is an "affiliate" as defined
in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange
Act of 1934, as amended.

               1.2 "Capitalized Lease Obligations" means, with respect to any
Person, all rental obligations of such Person which, under GAAP, are or will be
required to be capitalized on the books of such Person, in each case taken at
the amount thereof accounted for as indebtedness in accordance with such
principles.

               1.3 "Change of Control" shall mean (i) any merger, consolidation
or other business combination transaction (or series of related transactions) in
which the stockholders owning a majority of the voting securities of the Company
prior to such transaction do not own a majority of the voting securities of the
surviving entity, (ii) any tender offer, exchange offer or other transaction
whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as amended) (other than
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell
Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and
the Affiliates of the foregoing, provided that Affiliates shall be deemed not to
include any portfolio companies of any of the foregoing) obtains a majority of
the outstanding shares of capital stock entitled to vote in the election of
directors, (iii) any proxy contest in which a majority of the Board of Directors
of the Company (or persons appointed by such Board of Directors) prior to such
contest do not constitute a majority of the Company's Board of Directors after
such contest or (iv) any other transaction described in any stockholder rights
agreement or "poison pill," if any, to which the Company is party, which may
permit the holders of any rights or similar certificates to exercise the rights
evidenced thereby.

               1.4 "Company" shall have the meaning set forth in the recitals
hereto, and includes any corporation that shall succeed to or assume the
obligations of the Company under this Note.

               1.5 "Common Conversion Date" shall have the meaning set forth in
Section 3.1(b) hereof.

               1.6 "Common Stock" means the common stock, par value $0.001 per
share, of the Company.

               1.7 "Conversion Date" shall mean the Subsequent Closing Date.

               1.8 "Domestic Subsidiary" shall have the meaning set forth in
Section 5.10 hereof.

               1.9 "Event of Default" shall have the meaning set forth in
Section 6 hereof.


                                       2



               1.10 "GA Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP
Entities pursuant to the Purchase and Exchange Agreement.

               1.11 "GAP Entities" shall mean General Atlantic Partners 74,
L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG.

               1.12 "Guarantor" shall have the meaning set forth in the Security
Agreement.

               1.13 "Holder" shall mean the registered holder of this Note from
time to time, and in the plural, shall mean all registered holders of Notes from
time to time issued by the Company pursuant to the Note Purchase Agreement.

               1.14 "Intercreditor Agreement" shall mean the Intercreditor
Agreement, dated the date hereof, among the GAP Entities, the January Lenders,
Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore
Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital
Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures
International.

               1.15 "Interest Amount" shall have the meaning set forth in
Section 3.1 hereof.

               1.16 "Investment" means (i) the acquisition (whether for cash,
property, services, assumption of Indebtedness, securities or otherwise) of
assets (other than equipment, inventory, supplies or other assets acquired in
the ordinary course of business of the Company), capital stock, bonds, notes,
debentures, partnership, joint venture or other ownership interests or other
securities of any Person, (ii) any deposit with, or advance, loan or other
extension of credit to, or on behalf of, any Person (other than deposits made in
connection with the purchase of equipment, inventory, services, leases, supplies
or other assets in the ordinary course of business of the Company), and (iii)
any other capital contribution to or investment in any Person, including,
without limitation, any guaranty obligation incurred for the benefit of any
Person. For the sake of clarity, Investments shall include any transfer of
property or assets by the Company to any of its Subsidiaries or by any
Subsidiary of the Company to any other Subsidiary.

               1.17 "January Lenders" shall mean Permal U.S. Opportunities
Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis
Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P.

               1.18 "January Note Agreement" shall mean the Convertible Note
Purchase Agreement, dated January 16, 2004, among the January Lenders and the
Company.

               1.19 "January 2004 Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated January 16, 2003, issued by the Company to the
January Lenders pursuant to the January Note Agreement.


                                       3



               1.20 "Loan Documents" shall have the meaning set forth in the
Security Agreement.

               1.21 "Note" shall mean this note, and in the plural, shall mean
all notes issued to the Lenders pursuant to the terms of the Note Purchase
Agreement, including this Note, and all amendments, modifications and extensions
thereto.

               1.22 "Note Purchase Agreement" means that certain Convertible
Note Purchase Agreement, dated March 9, 2004, among the Company, the Holder and
the other parties thereto from time to time, and all amendments, modifications
and extensions thereto.

               1.23 "Permitted Investments" means (i) Investments in cash or
cash equivalents, (ii) accounts receivable created, acquired or made in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (iii) Investments existing on the closing date, and
listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty
obligations permitted by Section 5.3 of this Agreement, (v) loans to employees,
directors or officers of the Company in connection with the award of convertible
bonds or capital stock under a stock incentive plan, stock option plan or other
equity-based compensation plan or arrangement, (vi) other advances or loans to
employees, directors, officers or agents of the Company in the ordinary course
of business not to exceed $500,000 in the aggregate at any time outstanding;
(vii) loans, advances and investments in foreign Subsidiaries (that are not
incorporated or otherwise organized under the laws of the United States of
America or any state thereof) in an amount not to exceed $1,000,000 in the
aggregate at any time outstanding; (viii) any acquisition for which the prior
written consent of the Holders of a majority of the outstanding principal amount
of all of the Notes issued by the Company pursuant to the Note Purchase
Agreement has been obtained, (ix) other loans, advances and investments of a
nature not contemplated by the foregoing sections in an amount not to exceed
$500,000 in the aggregate at any time outstanding or (x) Investments by the
Company in the Guarantor.

               1.24 "Permitted Liens" shall have the meaning set forth in
Section 5.4.

               1.25 "Person" means any individual, firm, corporation,
partnership, trust, joint venture, joint stock company, limited liability
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.

               1.26 "Price Per Share" shall have the meaning attributed to such
term in the Series E Certificate of Determination, as filed with the Secretary
of State of the State of California.

               1.27 "Purchase and Exchange Agreement" shall mean the Convertible
Note Purchase and Exchange Agreement, dated November 18, 2003, among the
Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended.


                                       4



               1.28 "Qualified Asset Sale" means the sale, transfer or other
disposition of any of the assets of the Company or any of its Subsidiaries,
other than (a) sales of assets in the ordinary course of business, (b) sales of
assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the
sale, transfer or other disposition of assets of the Company where the proceeds
are applied to the purchase price or traded in for credit against the purchase
price of other assets, provided that any such purchase is made, or credit
issued, within 90 days of the sale, transfer or other disposition, and (d) one
or more sales of the Company's assets (other than sales otherwise included in
clauses (a), (b), and (c) immediately above) which collectively yield up to an
aggregate of one million dollars ($1,000,000) in gross proceeds to the Company
while this Note is outstanding.

               1.29 "Restricted Payment" means (a) any dividend or other
distribution (whether in cash, securities or other property) with respect to any
shares of any class of capital stock of the Company or any of its Subsidiaries
or (b) any payment (whether in cash, securities or other property), including
any sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any shares of any class
of capital stock of the Company or any Subsidiary or any option, warrant or
other right to acquire any such shares of capital stock of the Company or any
Subsidiary.

               1.30 "Security Agreement" means that certain Guaranty and
Security Agreement, of even date herewith between the Company, Compass Holding
Corp., the Lenders and the other parties thereto from time to time, and all
amendments, modifications and extensions thereto.

               1.31 "Series E Conversion Price" shall have the meaning set forth
in the Series E Certificate of Determination.

               1.32 "Series E Preferred Stock" means the Series E Preferred
Stock, par value $0.001, of the Company.

               1.33 "Subordination Agreement" shall have the meaning set forth
in Section 5.3.

               1.34 "Subsequent Closing Date" shall have the meaning set forth
in Section 2.4(e) of the Note Purchase Agreement.

               1.35 "SVB" means Silicon Valley Bank, a California chartered
bank, or any Affiliates thereof.

               1.36 "Ten Percent Holder" means, with respect to a class of
equity securities of the Company, a Person (together with such Person's
Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such
class of equity securities of the Company, as defined by Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

               1.37 "UCC" shall have the meaning set forth in Section 5.4.


                                       5



          2. Interest. Simple interest shall accrue at the rate of ten percent
(10%) per annum (or such lesser amount as shall equal the highest rate of
interest allowable under applicable law) (the "Interest Rate"), on the
outstanding principal of this Note from the date of this Note until the Maturity
Date or the date this Note is otherwise repaid. The Company shall not be
obligated to make any payments of interest which shall have accrued under this
Note prior to the Maturity Date. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. In the event that the
principal amount of this Note, any interest, or any amount payable hereunder is
not paid in full when such amount becomes due and payable, or upon the
occurrence of an Event of Default, interest shall accrue at the lesser of (a)
the initial Interest Rate plus five percent (5%) per annum or (b) the highest
rate of interest allowable under applicable law, on the balance of all amounts
outstanding until such overdue amounts are paid or the Event of Default is
cured, and such interest shall be payable on demand.

          3. Conversion.

               3.1 Conversion.

                    (a) On the Conversion Date, the principal amount of this
Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall
be automatically converted into the number of fully paid and nonassessable
shares of Series E Preferred Stock equal to the quotient obtained by dividing
(a) the entire principal amount of this Note plus the Interest Amount by (b) the
Price Per Share.

                    (b) In the event that the Conversion Date has not occurred
on or prior to August 15, 2004 (the "Common Conversion Date"), then, following
the Common Conversion Date, the principal amount of this Note plus the Interest
Amount shall be convertible, at the option of Holder and from time to time, only
into Common Stock at a conversion price per share equal to $2.18, as adjusted
for any stock dividends, stock splits or similar consolidations or subdivisions,
following the date hereof; provided, however, that Holder shall not be permitted
to convert any portion of the principal of this Note or the Interest Amount into
Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion,
the conversion would cause Holder to be a Ten Percent Holder.

               3.2 Notice of Conversion. Upon conversion of this Note as
provided in Section 3.1, Holder shall surrender this Note to the Company and
shall state the name or names in which the certificate or certificates for such
shares of Series E Preferred Stock or Common Stock, as the case may be, are to
be issued. The Person or Persons entitled to receive the shares of Series E
Preferred Stock or Common Stock, as the case may be, issuable upon such
conversion shall be treated for all purposes as the record holder or holders (a)
of such shares of Series E Preferred Stock as of the Conversion Date and (b) of
such shares of Common Stock as of the date of any conversion pursuant to Section
3.1(b).

               3.3 Delivery of Stock Certificates. Upon conversion of this Note
as provided in Section 3.1, the Company at its expense will issue and deliver to


                                       6



Holder of this Note a certificate or certificates (bearing such legends as are
required by applicable state and federal securities laws in the opinion of
counsel to the Company) for the number of full shares of Series E Preferred
Stock or Common Stock, as the case may be, issuable upon such conversion.

               3.4 Mechanics and Effect of Conversion. No fractional shares of
Series E Preferred Stock or Common Stock, as the case may be, shall be issued
upon conversion of this Note. In lieu of the Company issuing any fractional
shares to Holder upon the conversion of this Note, the Company shall pay to
Holder the amount of outstanding principal and interest that is not so
converted. Upon conversion of all amounts due under this Note, the Company shall
be released from all of its obligations under this Note.

          4. Adjustments. The number of shares of Series E Preferred Stock or
Common Stock convertible hereunder are subject to adjustment from time to time
as follows:

               4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at
any time while this Note remains outstanding and unexpired there shall be (a) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (b) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise or (c) a sale or
transfer of the Company's stock, properties or assets as, or substantially as,
an entirety to any other Person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that Holder
shall thereafter be entitled to receive by converting this Note the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon conversion of this Note would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Note had been converted immediately before such reorganization,
merger, consolidation, sale or transfer (notwithstanding that the Stockholder
Approval may not yet have been obtained), all subject to further adjustment as
provided in this Section 4. The foregoing provisions of this Section 4.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation. If the
per share consideration payable to Holder hereof for shares in connection with
any such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
Company's Board of Directors based on the amount the Holder would have otherwise
been entitled to receive had the transaction or transactions not occurred. In
all events, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions of this
Note with respect to the rights and interests of Holder after the transaction,
to the end that the provisions of this Note shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon conversion of


                                       7



this Note. The Company shall be obligated to retain and set aside, or otherwise
make fair provision for exercise of the right of the Holder to receive, the
shares of stock and/or other securities, cash or other property provided for in
this Section 4.1.

               4.2 Election of Holder upon Merger or Sale of Assets.
Notwithstanding anything to the contrary contained herein, if an event shall
occur as provided in Section 4.1 hereof that would otherwise result in the
occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first
paragraph of this Note, then the Holder may, in its sole discretion, by written
notice to the Company elect to convert the principal amount of this Note plus
the Interest Amount into the number of shares of stock or other securities or
property described in Section 4.1, in lieu of receiving payment in full of all
amounts outstanding under this Note. The number of shares of stock or other
securities or property to be issued upon such conversion shall be determined in
accordance with Section 4.1 hereof, taking into account the occurrence of such
event.

               4.3 Reclassification, Etc. If the Company shall, at any time
while this Note, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, change any of the securities as to
which conversion rights under this Note exist into the same or a different
number of securities of any other class or classes, this Note shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable with respect to the securities that were subject to the conversion
rights under this Note immediately prior to such reclassification or other
change, and the Price Per Share shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 4.

               4.4 Split, Subdivision or Combination of Shares. If the Company
at any time while this Note, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the shares of Series E Preferred
Stock or Common Stock into a different number of securities of the same class,
the Price Per Share or conversion price, as the case may be, shall be
proportionately adjusted.

               4.5 Series E Adjustments. The initial Series E Conversion Price
of the shares of Series E Preferred Stock issued upon conversion of this Note
pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on
the Conversion Date, subject to the adjustment of such Series E Conversion Price
from time to time thereafter as provided in the Series E Certificate of
Determination.

               4.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 4, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.

               4.7 No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all


                                       8



such action as may be necessary or appropriate in order to protect the rights of
Holder against impairment.

          5. Covenants. The Company covenants and agrees that until the earlier
of (i) the date on which all Obligations (as defined in the Security Agreement)
have been paid in full or (ii) the date on which all amounts outstanding under
the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b):

               5.1 Financial Statements and Other Information. The Company shall
deliver to the Holder of this Note the financial statements and other
information required to be delivered under Section 8.1 of the Note Purchase
Agreement.

               5.2 Financial Covenants. The Company shall at all times comply
with the financial and other covenants set forth in Schedule 8.5 to the Note
Purchase Agreement as if such covenants were set forth herein.

               5.3 Indebtedness. The Company shall not, and shall not permit any
Subsidiary to, issue, incur, assume, create or have outstanding any
Indebtedness, provided, however, that the foregoing shall not restrict nor
operate to prevent:

                    (a) Indebtedness in favor of the Holders under the Loan
Documents;

                    (b) Indebtedness existing on the date hereof, as set forth
on Schedule 3.22 to the Note Purchase Agreement;

                    (c) Indebtedness for accounts payable incurred in the
ordinary course of business by the Company;

                    (d) Indebtedness incurred solely for the purpose of
financing the acquisition of any equipment, machinery, software, improvements or
any other similar property, or extensions, renewals or replacements of any of
the foregoing for the same or a lesser amount; provided, that the aggregate
outstanding principal amount of all Indebtedness permitted pursuant to this
clause (d) outstanding for more than sixty (60) days after the incurrence of
such Indebtedness shall not at any time exceed $500,000;

                    (e) Indebtedness of the Company evidenced by Capitalized
Lease Obligations, provided, that in no event shall the aggregate principal
amount of Capitalized Lease Obligations permitted by this clause (e) exceed
$500,000 at any time outstanding; and

                    (f) Any extension, renewal, refinancing, refunding, or
replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and
(e) above, on such terms and conditions as are, on the whole, not materially
more onerous to the Company than the terms and conditions of such original
Indebtedness on the date of such refinancing (including that the principal
amount of such refinancing Indebtedness


                                       9



does not exceed the principal amount of, plus the amount of accrued and unpaid
interest on, the Indebtedness so refinanced (plus the amount of reasonable
premium and fees and expenses incurred in connection therewith)), provided that,
in the case of a refinancing of Indebtedness owed by the Company or any
Subsidiary to SVB, this clause (f) shall only apply to the extent consistent
with the Subordination Agreement, dated as of the date hereof, by and among SVB,
the Holders and the Company (the "Subordination Agreement").

               5.4 Liens. The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
the Company or any of its Subsidiaries, whether now owned or hereafter acquired,
or sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable), or assign any right to receive income or permit the
filing of any financing statement under the Uniform Commercial Code, as from
time to time in effect in the relevant jurisdiction (the "UCC"), or any other
similar notice of Lien under any similar recording or notice statute; provided,
that the provisions of this Section 5.4 shall not prevent the creation,
incurrence, assumption or existence of the following:

                    (a) Liens arising in the ordinary course of business by
statute in connection with worker's compensation, unemployment insurance, old
age benefits, social security obligations, statutory obligations or other
similar charges (other then Liens arising under ERISA), good faith cash deposits
in connection with tenders, contracts or leases to which the Company or any
Subsidiary is a party or other cash deposits required to be made in the ordinary
course of business, provided, that such Liens do not have a material adverse
effect on the ability of the Company to repay amounts due under the Notes;

                    (b) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due or Liens for taxes, assessments or governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP;

                    (c) Liens in respect of property or assets of the Company or
its Subsidiaries imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as carriers',
warehousemen's, materialmen's and mechanics' liens and other similar Liens
arising in the ordinary course of business, and (i) which do not in the
aggregate materially detract from the value of the Company's and its
Subsidiaries' property or assets taken as a whole or result in a material
adverse effect on the Condition of the Company or (ii) which are being contested
in good faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to any such
Lien;


                                       10



                    (d) the pledge of assets for the purpose of securing an
appeal, stay or discharge in the course of any legal proceeding, provided that
the aggregate amount of liabilities of the Company and its Subsidiaries secured
by a pledge of assets permitted under this subsection, including interest and
penalties thereon, if any, shall not be in excess of $500,000 at any one time
outstanding;

                    (e) any interest or title of a lessor under any operating
lease;

                    (f) easements, rights-of-way, restrictions and other similar
encumbrances against real property incurred in the ordinary course of business;

                    (g) the Liens existing on the date hereof identified on
Schedule 3.22 to the Note Purchase Agreement;

                    (h) Liens on cash deposited with account debtors to secure
performance by the Company or any Subsidiary in the ordinary course of business
subject to customary and reasonable terms;

                    (i) Liens upon assets of the Company or its Subsidiaries
subject to Capitalized Lease Obligations, provided, that (A) such Liens only
serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising
under such Capitalized Lease Obligation and (B) the Lien encumbering the asset
giving rise to the Capitalized Lease Obligation does not encumber any other
asset of the Company or its Subsidiaries;

                    (j) Liens placed upon equipment, machinery, software,
improvements or any other similar property, used in the ordinary course of
business of the Company or any of its Subsidiaries at the time of the
acquisition thereof by the Company or any of its Subsidiaries or within ninety
(90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above;
provided, that the Liens encumbering the equipment, machinery software,
improvements or any other similar property so acquired do not encumber any other
asset of the Company or its Subsidiaries;

                    (k) set-off rights of depository institutions; and

                    (l) Liens created by the Security Agreement (collectively
with clauses (a) through (k) hereof, the "Permitted Liens").

               5.5 Fundamental Changes. The Company will not, and will not
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (in one transaction or a series of transactions)
all or substantially all of its assets, or all or substantially all of the stock
of any of its Subsidiaries (in each case, whether now owned or hereafter
acquired), or liquidate or dissolve, except that, if at the time and immediately
after giving effect thereto no Event of Default shall have occurred and be
continuing (i) the Company or any of its Subsidiaries may, with the prior
written


                                       11



consent of the Holders, merge with or into any other Person; (ii) any
wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with
or into the Company or any other wholly-owned Subsidiary of the Company; (iii)
any Subsidiary (other than the Guarantor, and except as otherwise prohibited by
this Note) may sell, transfer, lease or otherwise dispose of its assets to the
Company or to another wholly-owned Subsidiary of the Company; and (iv) any
Subsidiary may liquidate or dissolve if the board of directors of the Company
determine in good faith that such liquidation or dissolution is in its best
interests and is not disadvantageous to the Holders.

               5.6 Restricted Payments. The Company will not, and the Company
will not permit any Subsidiary to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except that (i) any Subsidiary
may make a Restricted Payment to the Company or any of its wholly-owned
Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any
Restricted Payment required by the terms of the Note Purchase Agreement and the
other documents executed in connection therewith.

               5.7 Transactions with Affiliates. The Company will not, and the
Company will not permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions that are at prices and on terms and
conditions not less favorable to the Company or such Subsidiary than could be
obtained on an arm's length basis from unrelated third parties, (b) transactions
exclusively between the Company and the Guarantor and (c) transactions under the
agreements listed on Schedule 3.17 to the Note Purchase Agreement.

               5.8 Investments. The Company will not, and the Company will not
permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment
in any Person, except for Permitted Investments.

               5.9 Nature of Business. The Company will not, and the Company
will not permit any Subsidiary to, engage in any business other than that
conducted on the date hereof and any businesses reasonably related thereto.

               5.10 Property of Existing Domestic Subsidiaries. The Company will
not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise
organized under the laws of the United States of America or any state thereof (a
"Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease,
license, purchase or otherwise acquire any personal or real property (excluding
any material intellectual property) in excess of $50,000 for all property held
by such Subsidiary, or $250,000 in the aggregate for all property held by all
Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own
or otherwise hold any rights to any material intellectual property or (iv)
otherwise conduct any business or maintain operations.

               5.11 Formation of Subsidiaries. The Company will not, and will
not cause or permit any of its Subsidiaries to, form, acquire or permit the
existence of any


                                       12



new domestic Subsidiary, without causing such domestic Subsidiary to execute and
deliver to the Holders a secured guaranty of the Notes and related security
document, in form and substance satisfactory to the Holders.

               5.12 Books and Records. The Company shall keep proper books of
record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company and its
Subsidiaries in accordance with GAAP consistently applied.

               5.13 Inspection. The Company shall, and shall cause each of its
Subsidiaries to, permit representatives of the Holders to visit and inspect any
of its properties, to examine its corporate, financial and operating records and
make copies thereof or abstracts therefrom, and to discuss its affairs, finances
and accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested upon notice to the Company.

               5.14 Maintenance of Business. The Company shall, and shall cause
each Subsidiary to, preserve and maintain its existence. The Company shall, and
shall cause each Subsidiary to, preserve and keep in force and effect all
licenses, permits, franchises, approvals, patents, trademarks, trade names,
trade styles, copyrights, and other property rights necessary to the proper
conduct of its business, except where the failure to do so could not reasonably
be expected to have a material adverse effect on the Condition of the Company or
on the prospects of repayment of the Notes.

               5.15 Maintenance of Properties. The Company shall, and shall
cause each Subsidiary to, maintain, preserve and keep its property and equipment
in good repair, working order and condition (ordinary wear and tear excepted)
and shall from time to time make all needful and proper repairs, renewals,
replacements, additions and betterments thereto so that at all times the
efficiency thereof shall by fully preserved and maintained, except in each case
to the extent that, in the reasonable business judgment of such Person, any such
property or equipment is no longer necessary for the proper conduct of the
business of such Person.

          6. The occurrence of any one or more of the following events shall
constitute an "Event of Default":

               6.1 Failure To Pay. (i) The failure of the Company to pay any
principal due under any of the Notes when due and payable (whether by
acceleration, declaration, extension or otherwise), or (ii) the failure of the
Company to pay any other amounts due under any of the Notes when due and payable
if such failure is not cured within five (5) days of Company's receipt of notice
thereof from any of the Holders.

               6.2 Financial Covenants. The failure of Company or any of its
Subsidiaries to perform, observe or comply with any of the Financial Covenants
set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by
reference in this Note in Section 5.2.


                                       13



               6.3 Other Covenants and Agreements. The failure of Company or any
of its Subsidiaries to perform, observe or comply with any of the covenants of
this Note, the Security Agreement or any of the other Loan Documents (other than
the Financial Covenants set forth on Schedule 8.5 to the Note Purchase
Agreement, and incorporated by reference in this Note in Section 5.2), if such
failure is not cured within sixty (60) days.

               6.4 Representations and Warranties. If any representation or
warranty made by the Company or any of its Subsidiaries in the Loan Documents is
not true and correct in all material respects on the Initial Closing Date.

               6.5 Default on Other Obligations. The occurrence of any condition
or default under any other indebtedness for borrowed money of the Company or any
of its Subsidiaries with a principal amount of at least five hundred thousand
dollars ($500,000) that results in the acceleration of such indebtedness which
is not cured within sixty (60) days.

               6.6 Involuntary Bankruptcy. There shall be filed against the
Company or any of its Subsidiaries an involuntary petition or other pleading
seeking the entry of a decree or order for relief under the United States
Bankruptcy Code or any similar federal or state insolvency or similar laws
ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a
reorganization of the Company or any of its Subsidiaries or the business and
affairs of the Company or any of its Subsidiaries or (c) the appointment of a
receiver, liquidator, assignee, custodian, trustee or similar official for the
Company or any of its Subsidiaries of the property of the Company or any of its
Subsidiaries.

               6.7 Voluntary Bankruptcy. The commencement by the Company or any
of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any
federal or state insolvency or similar laws or the consent by the Company or any
of its Subsidiaries to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or similar official for the Company or
any of its Subsidiaries of any of the property of the Company or any of its
Subsidiaries or the making by the Company or any of its Subsidiaries of an
assignment for the benefit of creditors, or the failure by Company or any of its
Subsidiaries generally to pay its debts as the debts become due.

               6.8 Judgments, Awards. Any judgment or order for the payment of
money is rendered against the Company or any of its Subsidiaries in an amount in
excess of five hundred thousand dollars ($500,000) individually or in the
aggregate and either (i) enforcement proceedings are commenced by any creditor
upon such judgment or order and not stayed, or (ii) there is any period of sixty
(60) consecutive days during which such judgment has not been paid in full or a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, is not in effect.

               6.9 Attachment by Lenders. Any assets of the Company or any of
its Subsidiaries shall be attached, levied upon, seized or repossessed, or come
into the


                                       14



possession of a trustee, receiver or other custodian and a determination by any
Holder, in good faith but in its sole discretion, that the same could have a
material adverse effect on the prospect for the Holders to fully and punctually
realize the full benefits conferred on the Holders by the Loan Documents.

               6.10 Adverse Change in Financial Condition. Any event having a
material adverse effect on the business, operations, assets, properties or
condition of the Company and its Subsidiaries taken as a whole shall have
occurred and be continuing or a material adverse effect on the validity or
enforceability of this or any of the other Loan Documents or the rights or
remedies of the Holders hereunder or thereunder.

          7. Remedies. Upon and after the occurrence of an Event of Default, the
Holder shall be entitled to the exercise the rights and remedies set forth in
the Security Agreement, the other Loan Documents and under applicable law, all
such rights and remedies being cumulative and enforceable alternatively,
successively or concurrently.

          8. Prepayment. The Company may not prepay this Note prior to the
Maturity Date without the prior written consent of the Holders.

          9. Seniority.

                    (a) Except as set forth in the Subordination Agreement, the
Notes will rank senior in right of payment to all other indebtedness of the
Company, other than the GA Notes and the January 2004 Notes, with respect to
which the Notes will be pari passu in right of payment in accordance with the
Intercreditor Agreement.

                    (b) Notwithstanding anything to the contrary contained in
the Notes, this Note and the other Notes, and the terms and the conditions
hereof and thereof, are subject to the Intercreditor Agreement.

          10. Assignment. Subject to the restrictions on transfer described in
Section 12 below, the rights and obligations of the Company and Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties. The Company shall not be permitted to assign this
Note without the prior written consent of the Holders.

          11. Waiver of Notice. The Company hereby waives notice, presentment,
demand, protest and notice of dishonor.

          12. Transfer of This Note. With respect to any offer, sale or other
disposition of this Note, Holder will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such Holder's counsel, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any
federal or state law then in effect); provided, that no opinion shall be
required for any transfer to an Affiliate or if the transfer is made in
compliance with the Securities Act, so long as the transferee can make the same
representations and warranties at the time of transfer as set forth in Sections
4.5, 4.6, 4.7,


                                       15



4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly upon delivering
such written notice and opinion, if so required, Holder may sell or otherwise
dispose of this Note, all in accordance with the terms of the notice delivered
to the Company. Each Note thus transferred shall bear a legend as to the
applicable restrictions on transferability in order to ensure compliance with
the Securities Act, unless in the opinion of counsel for the Company such legend
is not required in order to ensure compliance with the Securities Act. The
Company may issue stop transfer instructions to its transfer agent in connection
with such restrictions. Notwithstanding the foregoing, the Holder shall not be
permitted to transfer this Note to any Person who is not an Affiliate until the
earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of
written notice from the Company that Stockholder Approval cannot be obtained, or
the occurrence of an actual vote of the Company's shareholders entitled to vote
(whether by written consent or at a meeting specially called for such purpose),
the result of which is a decision by a majority of the Company's shareholders
entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months
from the date hereof and (iv) the occurrence of an Event of Default. This Note
is registered as to both principal and stated interest with the Company (or its
agent) within the meaning of section 1.871-14(c)(1)(i) of the Income Tax
Regulations. Accordingly, notwithstanding anything to the contrary in this
paragraph, this Note, together with any interest thereon, may be transferred
only (i) upon surrender of the Note by the transferor to the Company (or its
agent) and the reissuance of the Note (or the issuance of a new Note) to the
transferee, or (ii) by transfer of the right to principal and interest through a
book-entry system meeting the requirements of section 1.871-14(c)(1)(i)(B) of
the Income Tax Regulations that is maintained by the Company (or its agent). In
the case of a Holder that is not a "United States person" within the meaning of
section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the
"Code"), so long as an exception under section 871(h) or section 881(c) of the
Code does not apply, the Company (or its agent) shall not withhold any U.S.
federal income tax with respect to such Holder provided that the Holder timely
provides the Company (or its agent) with a statement that meets the requirements
of section 871(h)(5) of the Code.

          13. Treatment of Note. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.

          14. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by nationally recognized courier
service or mailed by registered or certified mail, postage prepaid, to the
respective addresses of the parties as set forth on the signature pages hereto
or if sent by facsimile to the respective facsimile numbers of the parties set
forth on the signature pages hereto. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively be
deemed to have been given and received when personally delivered or three (3)
business days after deposited in the mail or one business day after sent by
courier or upon confirmation of facsimile delivery in the manner set forth
above.


                                       16



          15. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon Holder or any other Person the right to vote or to
consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company.

          16. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, excluding that body of law
relating to conflict of laws.

          17. Amendments and Waivers. No amendments or waivers of any provision
of this Note, and no consent by the Holder to any departure by the Company,
shall in any event be effective unless the same shall be in writing, and signed
by the Holders of a majority of the outstanding principal amount of all of the
Notes issued by the Company pursuant to the Note Purchase Agreement, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given.

          18. Severability. Any provision of this Note that is prohibited or
unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

          19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY
(A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF
RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION
WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY
TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY
OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN
THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER
OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE.
THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND
VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER
HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY
INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT
THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE
COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF
RIGHT TO TRIAL BY JURY. EACH OF


                                       17



THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED
IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT
LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

          20. Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except as otherwise indicated, all references herein to Sections refer to
Sections hereof.

              [the remainder of this page intentionally left blank]


                                       18



          IN WITNESS WHEREOF, the Company has caused this Note to be issued this
9th day of March, 2004.

                                          COMPANY:

                                          CRITICAL PATH, INC.,
                                          a California corporation

                                          By: /s/ William E. McGlashan, Jr.
                                              ----------------------------------
                                              Name: William E. McGlashan, Jr.
                                              Title: Chairman, Chief Executive
                                              Officer

                                              Critical Path, Inc.
                                              350 The Embarcadero
                                              San Francisco, CA 94105-1204
                                              Telecopy: (415) 541-2300
                                              Attention: Chief Financial Officer

                                              With a copy to:

                                              Pillsbury Winthrop LLP
                                              50 Fremont Street
                                              San Francisco, CA 94105
                                              Telecopy: (415) 983-1200
                                              Attention: Gregg Vignos, Esq.

Name of Holder: ZAXIS INSTITUTIONAL PARTNERS, L.P.

Address:   c/o Apex Capital, LLC
           25 Orinda Way, Suite 300
           Orinda, CA 94563
           Attention: Adam Fiore, General Counsel

Telephone: (925) 253-6125

Facsimile: (925) 253-1809

EX-4.35

                                                                    EXHIBIT 4.35

     THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
     SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN
     REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
     SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
     TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER
     OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.

                               CRITICAL PATH, INC.

                    CONVERTIBLE SUBORDINATED PROMISSORY NOTE

$1,765,000                                          San Francisco, California
                                                    March 9, 2004

          Critical Path, Inc., a California corporation (the "Company"), the
principal office of which is located in San Francisco, California, for value
received hereby promises to pay to the order of Zaxis Offshore Limited, or its
registered assigns ("Holder"), the sum of one million seven hundred sixty-five
thousand dollars ($1,765,000), or such lesser amount as shall then equal the
outstanding principal amount hereof on the terms and conditions set forth
hereinafter. The outstanding principal amount hereof and all accrued and unpaid
interest hereon, as set forth below, shall be due and payable on the earlier to
occur of (i) March 9, 2008, (ii) when declared due and payable by Holder upon
the occurrence of an Event of Default (as defined below), (iii) consummation of
a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital
stock or Stock Equivalents by the Company, any cash capital contribution from
any third person or any other debt or equity financing consummated by the
Company after the date of issuance of this Note which, in the case of (v),
individually or in the aggregate raises proceeds of at least forty million
dollars ($40,000,000) in cash or cash equivalents (the earliest of the events
set forth in items (i)-(v) immediately above, the "Maturity Date").

          The following is a statement of the rights of the Holder of this Note
and the conditions to which this Note is subject, and to which the Holder
hereof, by the acceptance of this Note, agrees:

          1. Definitions. Except as otherwise defined herein, each capitalized
term used herein shall have the meaning assigned to it in the Note Purchase
Agreement, as in effect on the date hereof, and without regard to any subsequent
termination of the Note Purchase Agreement. All other references to the Note
Purchase Agreement in this Note refer to the Note Purchase Agreement as in
effect on the date hereof, and without regard to any subsequent termination of
the Note Purchase Agreement. As used in this



Note, the following terms, unless the context otherwise requires, have the
following meanings:

               1.1 "Affiliate" means any Person who is an "affiliate" as defined
in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange
Act of 1934, as amended.

               1.2 "Capitalized Lease Obligations" means, with respect to any
Person, all rental obligations of such Person which, under GAAP, are or will be
required to be capitalized on the books of such Person, in each case taken at
the amount thereof accounted for as indebtedness in accordance with such
principles.

               1.3 "Change of Control" shall mean (i) any merger, consolidation
or other business combination transaction (or series of related transactions) in
which the stockholders owning a majority of the voting securities of the Company
prior to such transaction do not own a majority of the voting securities of the
surviving entity, (ii) any tender offer, exchange offer or other transaction
whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as amended) (other than
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell
Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and
the Affiliates of the foregoing, provided that Affiliates shall be deemed not to
include any portfolio companies of any of the foregoing) obtains a majority of
the outstanding shares of capital stock entitled to vote in the election of
directors, (iii) any proxy contest in which a majority of the Board of Directors
of the Company (or persons appointed by such Board of Directors) prior to such
contest do not constitute a majority of the Company's Board of Directors after
such contest or (iv) any other transaction described in any stockholder rights
agreement or "poison pill," if any, to which the Company is party, which may
permit the holders of any rights or similar certificates to exercise the rights
evidenced thereby.

               1.4 "Company" shall have the meaning set forth in the recitals
hereto, and includes any corporation that shall succeed to or assume the
obligations of the Company under this Note.

               1.5 "Common Conversion Date" shall have the meaning set forth in
Section 3.1(b) hereof.

               1.6 "Common Stock" means the common stock, par value $0.001 per
share, of the Company.

               1.7 "Conversion Date" shall mean the Subsequent Closing Date.

               1.8 "Domestic Subsidiary" shall have the meaning set forth in
Section 5.10 hereof.


                                       2



               1.9 "Event of Default" shall have the meaning set forth in
Section 6 hereof.

               1.10 "GA Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP
Entities pursuant to the Purchase and Exchange Agreement.

               1.11 "GAP Entities" shall mean General Atlantic Partners 74,
L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG.

               1.12 "Guarantor" shall have the meaning set forth in the Security
Agreement.

               1.13 "Holder" shall mean the registered holder of this Note from
time to time, and in the plural, shall mean all registered holders of Notes from
time to time issued by the Company pursuant to the Note Purchase Agreement.

               1.14 "Intercreditor Agreement" shall mean the Intercreditor
Agreement, dated the date hereof, among the GAP Entities, the January Lenders,
Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore
Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital
Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures
International.

               1.15 "Interest Amount" shall have the meaning set forth in
Section 3.1 hereof.

               1.16 "Investment" means (i) the acquisition (whether for cash,
property, services, assumption of Indebtedness, securities or otherwise) of
assets (other than equipment, inventory, supplies or other assets acquired in
the ordinary course of business of the Company), capital stock, bonds, notes,
debentures, partnership, joint venture or other ownership interests or other
securities of any Person, (ii) any deposit with, or advance, loan or other
extension of credit to, or on behalf of, any Person (other than deposits made in
connection with the purchase of equipment, inventory, services, leases, supplies
or other assets in the ordinary course of business of the Company), and (iii)
any other capital contribution to or investment in any Person, including,
without limitation, any guaranty obligation incurred for the benefit of any
Person. For the sake of clarity, Investments shall include any transfer of
property or assets by the Company to any of its Subsidiaries or by any
Subsidiary of the Company to any other Subsidiary.

               1.17 "January Lenders" shall mean Permal U.S. Opportunities
Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis
Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P.

               1.18 "January Note Agreement" shall mean the Convertible Note
Purchase Agreement, dated January 16, 2004, among the January Lenders and the
Company.


                                       3



               1.19 "January 2004 Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated January 16, 2003, issued by the Company to the
January Lenders pursuant to the January Note Agreement.

               1.20 "Loan Documents" shall have the meaning set forth in the
Security Agreement.

               1.21 "Note" shall mean this note, and in the plural, shall mean
all notes issued to the Lenders pursuant to the terms of the Note Purchase
Agreement, including this Note, and all amendments, modifications and extensions
thereto.

               1.22 "Note Purchase Agreement" means that certain Convertible
Note Purchase Agreement, dated March 9, 2004, among the Company, the Holder and
the other parties thereto from time to time, and all amendments, modifications
and extensions thereto.

               1.23 "Permitted Investments" means (i) Investments in cash or
cash equivalents, (ii) accounts receivable created, acquired or made in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (iii) Investments existing on the closing date, and
listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty
obligations permitted by Section 5.3 of this Agreement, (v) loans to employees,
directors or officers of the Company in connection with the award of convertible
bonds or capital stock under a stock incentive plan, stock option plan or other
equity-based compensation plan or arrangement, (vi) other advances or loans to
employees, directors, officers or agents of the Company in the ordinary course
of business not to exceed $500,000 in the aggregate at any time outstanding;
(vii) loans, advances and investments in foreign Subsidiaries (that are not
incorporated or otherwise organized under the laws of the United States of
America or any state thereof) in an amount not to exceed $1,000,000 in the
aggregate at any time outstanding; (viii) any acquisition for which the prior
written consent of the Holders of a majority of the outstanding principal amount
of all of the Notes issued by the Company pursuant to the Note Purchase
Agreement has been obtained, (ix) other loans, advances and investments of a
nature not contemplated by the foregoing sections in an amount not to exceed
$500,000 in the aggregate at any time outstanding or (x) Investments by the
Company in the Guarantor.

               1.24 "Permitted Liens" shall have the meaning set forth in
Section 5.4.

               1.25 "Person" means any individual, firm, corporation,
partnership, trust, joint venture, joint stock company, limited liability
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.

               1.26 "Price Per Share" shall have the meaning attributed to such
term in the Series E Certificate of Determination, as filed with the Secretary
of State of the State of California.


                                       4



               1.27 "Purchase and Exchange Agreement" shall mean the Convertible
Note Purchase and Exchange Agreement, dated November 18, 2003, among the
Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended.

               1.28 "Qualified Asset Sale" means the sale, transfer or other
disposition of any of the assets of the Company or any of its Subsidiaries,
other than (a) sales of assets in the ordinary course of business, (b) sales of
assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the
sale, transfer or other disposition of assets of the Company where the proceeds
are applied to the purchase price or traded in for credit against the purchase
price of other assets, provided that any such purchase is made, or credit
issued, within 90 days of the sale, transfer or other disposition, and (d) one
or more sales of the Company's assets (other than sales otherwise included in
clauses (a), (b), and (c) immediately above) which collectively yield up to an
aggregate of one million dollars ($1,000,000) in gross proceeds to the Company
while this Note is outstanding.

               1.29 "Restricted Payment" means (a) any dividend or other
distribution (whether in cash, securities or other property) with respect to any
shares of any class of capital stock of the Company or any of its Subsidiaries
or (b) any payment (whether in cash, securities or other property), including
any sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any shares of any class
of capital stock of the Company or any Subsidiary or any option, warrant or
other right to acquire any such shares of capital stock of the Company or any
Subsidiary.

               1.30 "Security Agreement" means that certain Guaranty and
Security Agreement, of even date herewith between the Company, Compass Holding
Corp., the Lenders and the other parties thereto from time to time, and all
amendments, modifications and extensions thereto.

               1.31 "Series E Conversion Price" shall have the meaning set forth
in the Series E Certificate of Determination.

               1.32 "Series E Preferred Stock" means the Series E Preferred
Stock, par value $0.001, of the Company.

               1.33 "Subordination Agreement" shall have the meaning set forth
in Section 5.3.

               1.34 "Subsequent Closing Date" shall have the meaning set forth
in Section 2.4(e) of the Note Purchase Agreement.

               1.35 "SVB" means Silicon Valley Bank, a California chartered
bank, or any Affiliates thereof.

               1.36 "Ten Percent Holder" means, with respect to a class of
equity securities of the Company, a Person (together with such Person's
Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such
class of equity securities of


                                       5



the Company, as defined by Section 13(d) of the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.

               1.37 "UCC" shall have the meaning set forth in Section 5.4.

          2. Interest. Simple interest shall accrue at the rate of ten percent
(10%) per annum (or such lesser amount as shall equal the highest rate of
interest allowable under applicable law) (the "Interest Rate"), on the
outstanding principal of this Note from the date of this Note until the Maturity
Date or the date this Note is otherwise repaid. The Company shall not be
obligated to make any payments of interest which shall have accrued under this
Note prior to the Maturity Date. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. In the event that the
principal amount of this Note, any interest, or any amount payable hereunder is
not paid in full when such amount becomes due and payable, or upon the
occurrence of an Event of Default, interest shall accrue at the lesser of (a)
the initial Interest Rate plus five percent (5%) per annum or (b) the highest
rate of interest allowable under applicable law, on the balance of all amounts
outstanding until such overdue amounts are paid or the Event of Default is
cured, and such interest shall be payable on demand.

          3. Conversion.

               3.1 Conversion.

                    (a) On the Conversion Date, the principal amount of this
Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall
be automatically converted into the number of fully paid and nonassessable
shares of Series E Preferred Stock equal to the quotient obtained by dividing
(a) the entire principal amount of this Note plus the Interest Amount by (b) the
Price Per Share.

                    (b) In the event that the Conversion Date has not occurred
on or prior to August 15, 2004 (the "Common Conversion Date"), then, following
the Common Conversion Date, the principal amount of this Note plus the Interest
Amount shall be convertible, at the option of Holder and from time to time, only
into Common Stock at a conversion price per share equal to $2.18, as adjusted
for any stock dividends, stock splits or similar consolidations or subdivisions,
following the date hereof; provided, however, that Holder shall not be permitted
to convert any portion of the principal of this Note or the Interest Amount into
Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion,
the conversion would cause Holder to be a Ten Percent Holder.

               3.2 Notice of Conversion. Upon conversion of this Note as
provided in Section 3.1, Holder shall surrender this Note to the Company and
shall state the name or names in which the certificate or certificates for such
shares of Series E Preferred Stock or Common Stock, as the case may be, are to
be issued. The Person or Persons entitled to receive the shares of Series E
Preferred Stock or Common Stock, as the case may be, issuable upon such
conversion shall be treated for all purposes as the record holder or holders (a)
of such shares of Series E Preferred Stock as of the


                                       6



Conversion Date and (b) of such shares of Common Stock as of the date of any
conversion pursuant to Section 3.1(b).

               3.3 Delivery of Stock Certificates. Upon conversion of this Note
as provided in Section 3.1, the Company at its expense will issue and deliver to
Holder of this Note a certificate or certificates (bearing such legends as are
required by applicable state and federal securities laws in the opinion of
counsel to the Company) for the number of full shares of Series E Preferred
Stock or Common Stock, as the case may be, issuable upon such conversion.

               3.4 Mechanics and Effect of Conversion. No fractional shares of
Series E Preferred Stock or Common Stock, as the case may be, shall be issued
upon conversion of this Note. In lieu of the Company issuing any fractional
shares to Holder upon the conversion of this Note, the Company shall pay to
Holder the amount of outstanding principal and interest that is not so
converted. Upon conversion of all amounts due under this Note, the Company shall
be released from all of its obligations under this Note.

          4. Adjustments. The number of shares of Series E Preferred Stock or
Common Stock convertible hereunder are subject to adjustment from time to time
as follows:

               4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at
any time while this Note remains outstanding and unexpired there shall be (a) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (b) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise or (c) a sale or
transfer of the Company's stock, properties or assets as, or substantially as,
an entirety to any other Person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that Holder
shall thereafter be entitled to receive by converting this Note the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon conversion of this Note would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Note had been converted immediately before such reorganization,
merger, consolidation, sale or transfer (notwithstanding that the Stockholder
Approval may not yet have been obtained), all subject to further adjustment as
provided in this Section 4. The foregoing provisions of this Section 4.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation. If the
per share consideration payable to Holder hereof for shares in connection with
any such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
Company's Board of Directors based on the amount the Holder would have otherwise
been entitled to receive had the transaction or transactions not occurred.


                                       7



In all events, appropriate adjustment (as determined in good faith by the
Company's Board of Directors) shall be made in the application of the provisions
of this Note with respect to the rights and interests of Holder after the
transaction, to the end that the provisions of this Note shall be applicable
after that event, as near as reasonably may be, in relation to any shares or
other property deliverable after that event upon conversion of this Note. The
Company shall be obligated to retain and set aside, or otherwise make fair
provision for exercise of the right of the Holder to receive, the shares of
stock and/or other securities, cash or other property provided for in this
Section 4.1.

               4.2 Election of Holder upon Merger or Sale of Assets.
Notwithstanding anything to the contrary contained herein, if an event shall
occur as provided in Section 4.1 hereof that would otherwise result in the
occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first
paragraph of this Note, then the Holder may, in its sole discretion, by written
notice to the Company elect to convert the principal amount of this Note plus
the Interest Amount into the number of shares of stock or other securities or
property described in Section 4.1, in lieu of receiving payment in full of all
amounts outstanding under this Note. The number of shares of stock or other
securities or property to be issued upon such conversion shall be determined in
accordance with Section 4.1 hereof, taking into account the occurrence of such
event.

               4.3 Reclassification, Etc. If the Company shall, at any time
while this Note, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, change any of the securities as to
which conversion rights under this Note exist into the same or a different
number of securities of any other class or classes, this Note shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable with respect to the securities that were subject to the conversion
rights under this Note immediately prior to such reclassification or other
change, and the Price Per Share shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 4.

               4.4 Split, Subdivision or Combination of Shares. If the Company
at any time while this Note, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the shares of Series E Preferred
Stock or Common Stock into a different number of securities of the same class,
the Price Per Share or conversion price, as the case may be, shall be
proportionately adjusted.

               4.5 Series E Adjustments. The initial Series E Conversion Price
of the shares of Series E Preferred Stock issued upon conversion of this Note
pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on
the Conversion Date, subject to the adjustment of such Series E Conversion Price
from time to time thereafter as provided in the Series E Certificate of
Determination.

               4.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 4, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.


                                       8



               4.7 No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of Holder against impairment.

          5. Covenants. The Company covenants and agrees that until the earlier
of (i) the date on which all Obligations (as defined in the Security Agreement)
have been paid in full or (ii) the date on which all amounts outstanding under
the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b):

               5.1 Financial Statements and Other Information. The Company shall
deliver to the Holder of this Note the financial statements and other
information required to be delivered under Section 8.1 of the Note Purchase
Agreement.

               5.2 Financial Covenants. The Company shall at all times comply
with the financial and other covenants set forth in Schedule 8.5 to the Note
Purchase Agreement as if such covenants were set forth herein.

               5.3 Indebtedness. The Company shall not, and shall not permit any
Subsidiary to, issue, incur, assume, create or have outstanding any
Indebtedness, provided, however, that the foregoing shall not restrict nor
operate to prevent:

                    (a) Indebtedness in favor of the Holders under the Loan
Documents;

                    (b) Indebtedness existing on the date hereof, as set forth
on Schedule 3.22 to the Note Purchase Agreement;

                    (c) Indebtedness for accounts payable incurred in the
ordinary course of business by the Company;

                    (d) Indebtedness incurred solely for the purpose of
financing the acquisition of any equipment, machinery, software, improvements or
any other similar property, or extensions, renewals or replacements of any of
the foregoing for the same or a lesser amount; provided, that the aggregate
outstanding principal amount of all Indebtedness permitted pursuant to this
clause (d) outstanding for more than sixty (60) days after the incurrence of
such Indebtedness shall not at any time exceed $500,000;

                    (e) Indebtedness of the Company evidenced by Capitalized
Lease Obligations, provided, that in no event shall the aggregate principal
amount of Capitalized Lease Obligations permitted by this clause (e) exceed
$500,000 at any time outstanding; and


                                       9



                    (f) Any extension, renewal, refinancing, refunding, or
replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and
(e) above, on such terms and conditions as are, on the whole, not materially
more onerous to the Company than the terms and conditions of such original
Indebtedness on the date of such refinancing (including that the principal
amount of such refinancing Indebtedness does not exceed the principal amount of,
plus the amount of accrued and unpaid interest on, the Indebtedness so
refinanced (plus the amount of reasonable premium and fees and expenses incurred
in connection therewith)), provided that, in the case of a refinancing of
Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall
only apply to the extent consistent with the Subordination Agreement, dated as
of the date hereof, by and among SVB, the Holders and the Company (the
"Subordination Agreement").

               5.4 Liens. The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
the Company or any of its Subsidiaries, whether now owned or hereafter acquired,
or sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable), or assign any right to receive income or permit the
filing of any financing statement under the Uniform Commercial Code, as from
time to time in effect in the relevant jurisdiction (the "UCC"), or any other
similar notice of Lien under any similar recording or notice statute; provided,
that the provisions of this Section 5.4 shall not prevent the creation,
incurrence, assumption or existence of the following:

                    (a) Liens arising in the ordinary course of business by
statute in connection with worker's compensation, unemployment insurance, old
age benefits, social security obligations, statutory obligations or other
similar charges (other then Liens arising under ERISA), good faith cash deposits
in connection with tenders, contracts or leases to which the Company or any
Subsidiary is a party or other cash deposits required to be made in the ordinary
course of business, provided, that such Liens do not have a material adverse
effect on the ability of the Company to repay amounts due under the Notes;

                    (b) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due or Liens for taxes, assessments or governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP;

                    (c) Liens in respect of property or assets of the Company or
its Subsidiaries imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as carriers',
warehousemen's, materialmen's and mechanics' liens and other similar Liens
arising in the ordinary course of business, and (i) which do not in the
aggregate materially detract from the value of the Company's and its
Subsidiaries' property or assets taken as a whole or result in a material
adverse effect on the Condition of the Company or (ii) which are


                                       10



being contested in good faith by appropriate proceedings, which proceedings have
the effect of preventing the forfeiture or sale of the property or assets
subject to any such Lien;

                    (d) the pledge of assets for the purpose of securing an
appeal, stay or discharge in the course of any legal proceeding, provided that
the aggregate amount of liabilities of the Company and its Subsidiaries secured
by a pledge of assets permitted under this subsection, including interest and
penalties thereon, if any, shall not be in excess of $500,000 at any one time
outstanding;

                    (e) any interest or title of a lessor under any operating
lease;

                    (f) easements, rights-of-way, restrictions and other similar
encumbrances against real property incurred in the ordinary course of business;

                    (g) the Liens existing on the date hereof identified on
Schedule 3.22 to the Note Purchase Agreement;

                    (h) Liens on cash deposited with account debtors to secure
performance by the Company or any Subsidiary in the ordinary course of business
subject to customary and reasonable terms;

                    (i) Liens upon assets of the Company or its Subsidiaries
subject to Capitalized Lease Obligations, provided, that (A) such Liens only
serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising
under such Capitalized Lease Obligation and (B) the Lien encumbering the asset
giving rise to the Capitalized Lease Obligation does not encumber any other
asset of the Company or its Subsidiaries;

                    (j) Liens placed upon equipment, machinery, software,
improvements or any other similar property, used in the ordinary course of
business of the Company or any of its Subsidiaries at the time of the
acquisition thereof by the Company or any of its Subsidiaries or within ninety
(90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above;
provided, that the Liens encumbering the equipment, machinery software,
improvements or any other similar property so acquired do not encumber any other
asset of the Company or its Subsidiaries;

                    (k) set-off rights of depository institutions; and

                    (l) Liens created by the Security Agreement (collectively
with clauses (a) through (k) hereof, the "Permitted Liens").

               5.5 Fundamental Changes. The Company will not, and will not
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (in one transaction or a series of transactions)
all or substantially all of its


                                       11



assets, or all or substantially all of the stock of any of its Subsidiaries (in
each case, whether now owned or hereafter acquired), or liquidate or dissolve,
except that, if at the time and immediately after giving effect thereto no Event
of Default shall have occurred and be continuing (i) the Company or any of its
Subsidiaries may, with the prior written consent of the Holders, merge with or
into any other Person; (ii) any wholly-owned Subsidiary of the Company (other
than the Guarantor) may merge with or into the Company or any other wholly-owned
Subsidiary of the Company; (iii) any Subsidiary (other than the Guarantor, and
except as otherwise prohibited by this Note) may sell, transfer, lease or
otherwise dispose of its assets to the Company or to another wholly-owned
Subsidiary of the Company; and (iv) any Subsidiary may liquidate or dissolve if
the board of directors of the Company determine in good faith that such
liquidation or dissolution is in its best interests and is not disadvantageous
to the Holders.

               5.6 Restricted Payments. The Company will not, and the Company
will not permit any Subsidiary to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except that (i) any Subsidiary
may make a Restricted Payment to the Company or any of its wholly-owned
Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any
Restricted Payment required by the terms of the Note Purchase Agreement and the
other documents executed in connection therewith.

               5.7 Transactions with Affiliates. The Company will not, and the
Company will not permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions that are at prices and on terms and
conditions not less favorable to the Company or such Subsidiary than could be
obtained on an arm's length basis from unrelated third parties, (b) transactions
exclusively between the Company and the Guarantor and (c) transactions under the
agreements listed on Schedule 3.17 to the Note Purchase Agreement.

               5.8 Investments. The Company will not, and the Company will not
permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment
in any Person, except for Permitted Investments.

               5.9 Nature of Business. The Company will not, and the Company
will not permit any Subsidiary to, engage in any business other than that
conducted on the date hereof and any businesses reasonably related thereto.

               5.10 Property of Existing Domestic Subsidiaries. The Company will
not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise
organized under the laws of the United States of America or any state thereof (a
"Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease,
license, purchase or otherwise acquire any personal or real property (excluding
any material intellectual property) in excess of $50,000 for all property held
by such Subsidiary, or $250,000 in the aggregate for all property held by all
Domestic Subsidiaries (ii) maintain


                                       12



any deposit account in its name, (iii) own or otherwise hold any rights to any
material intellectual property or (iv) otherwise conduct any business or
maintain operations.

               5.11 Formation of Subsidiaries. The Company will not, and will
not cause or permit any of its Subsidiaries to, form, acquire or permit the
existence of any new domestic Subsidiary, without causing such domestic
Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes
and related security document, in form and substance satisfactory to the
Holders.

               5.12 Books and Records. The Company shall keep proper books of
record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company and its
Subsidiaries in accordance with GAAP consistently applied.

               5.13 Inspection. The Company shall, and shall cause each of its
Subsidiaries to, permit representatives of the Holders to visit and inspect any
of its properties, to examine its corporate, financial and operating records and
make copies thereof or abstracts therefrom, and to discuss its affairs, finances
and accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested upon notice to the Company.

               5.14 Maintenance of Business. The Company shall, and shall cause
each Subsidiary to, preserve and maintain its existence. The Company shall, and
shall cause each Subsidiary to, preserve and keep in force and effect all
licenses, permits, franchises, approvals, patents, trademarks, trade names,
trade styles, copyrights, and other property rights necessary to the proper
conduct of its business, except where the failure to do so could not reasonably
be expected to have a material adverse effect on the Condition of the Company or
on the prospects of repayment of the Notes.

               5.15 Maintenance of Properties. The Company shall, and shall
cause each Subsidiary to, maintain, preserve and keep its property and equipment
in good repair, working order and condition (ordinary wear and tear excepted)
and shall from time to time make all needful and proper repairs, renewals,
replacements, additions and betterments thereto so that at all times the
efficiency thereof shall by fully preserved and maintained, except in each case
to the extent that, in the reasonable business judgment of such Person, any such
property or equipment is no longer necessary for the proper conduct of the
business of such Person.

          6. The occurrence of any one or more of the following events shall
constitute an "Event of Default":

               6.1 Failure To Pay. (i) The failure of the Company to pay any
principal due under any of the Notes when due and payable (whether by
acceleration, declaration, extension or otherwise), or (ii) the failure of the
Company to pay any other amounts due under any of the Notes when due and payable
if such failure is not cured within five (5) days of Company's receipt of notice
thereof from any of the Holders.


                                       13



               6.2 Financial Covenants. The failure of Company or any of its
Subsidiaries to perform, observe or comply with any of the Financial Covenants
set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by
reference in this Note in Section 5.2.

               6.3 Other Covenants and Agreements. The failure of Company or any
of its Subsidiaries to perform, observe or comply with any of the covenants of
this Note, the Security Agreement or any of the other Loan Documents (other than
the Financial Covenants set forth on Schedule 8.5 to the Note Purchase
Agreement, and incorporated by reference in this Note in Section 5.2), if such
failure is not cured within sixty (60) days.

               6.4 Representations and Warranties. If any representation or
warranty made by the Company or any of its Subsidiaries in the Loan Documents is
not true and correct in all material respects on the Initial Closing Date.

               6.5 Default on Other Obligations. The occurrence of any condition
or default under any other indebtedness for borrowed money of the Company or any
of its Subsidiaries with a principal amount of at least five hundred thousand
dollars ($500,000) that results in the acceleration of such indebtedness which
is not cured within sixty (60) days.

               6.6 Involuntary Bankruptcy. There shall be filed against the
Company or any of its Subsidiaries an involuntary petition or other pleading
seeking the entry of a decree or order for relief under the United States
Bankruptcy Code or any similar federal or state insolvency or similar laws
ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a
reorganization of the Company or any of its Subsidiaries or the business and
affairs of the Company or any of its Subsidiaries or (c) the appointment of a
receiver, liquidator, assignee, custodian, trustee or similar official for the
Company or any of its Subsidiaries of the property of the Company or any of its
Subsidiaries.

               6.7 Voluntary Bankruptcy. The commencement by the Company or any
of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any
federal or state insolvency or similar laws or the consent by the Company or any
of its Subsidiaries to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or similar official for the Company or
any of its Subsidiaries of any of the property of the Company or any of its
Subsidiaries or the making by the Company or any of its Subsidiaries of an
assignment for the benefit of creditors, or the failure by Company or any of its
Subsidiaries generally to pay its debts as the debts become due.

               6.8 Judgments, Awards. Any judgment or order for the payment of
money is rendered against the Company or any of its Subsidiaries in an amount in
excess of five hundred thousand dollars ($500,000) individually or in the
aggregate and either (i) enforcement proceedings are commenced by any creditor
upon such judgment or order and not stayed, or (ii) there is any period of sixty
(60) consecutive


                                       14



days during which such judgment has not been paid in full or a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, is not in effect.

               6.9 Attachment by Lenders. Any assets of the Company or any of
its Subsidiaries shall be attached, levied upon, seized or repossessed, or come
into the possession of a trustee, receiver or other custodian and a
determination by any Holder, in good faith but in its sole discretion, that the
same could have a material adverse effect on the prospect for the Holders to
fully and punctually realize the full benefits conferred on the Holders by the
Loan Documents.

               6.10 Adverse Change in Financial Condition. Any event having a
material adverse effect on the business, operations, assets, properties or
condition of the Company and its Subsidiaries taken as a whole shall have
occurred and be continuing or a material adverse effect on the validity or
enforceability of this or any of the other Loan Documents or the rights or
remedies of the Holders hereunder or thereunder.

          7. Remedies. Upon and after the occurrence of an Event of Default, the
Holder shall be entitled to the exercise the rights and remedies set forth in
the Security Agreement, the other Loan Documents and under applicable law, all
such rights and remedies being cumulative and enforceable alternatively,
successively or concurrently.

          8. Prepayment. The Company may not prepay this Note prior to the
Maturity Date without the prior written consent of the Holders.

          9. Seniority.

                    (a) Except as set forth in the Subordination Agreement, the
Notes will rank senior in right of payment to all other indebtedness of the
Company, other than the GA Notes and the January 2004 Notes, with respect to
which the Notes will be pari passu in right of payment in accordance with the
Intercreditor Agreement.

                    (b) Notwithstanding anything to the contrary contained in
the Notes, this Note and the other Notes, and the terms and the conditions
hereof and thereof, are subject to the Intercreditor Agreement.

          10. Assignment. Subject to the restrictions on transfer described in
Section 12 below, the rights and obligations of the Company and Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties. The Company shall not be permitted to assign this
Note without the prior written consent of the Holders.

          11. Waiver of Notice. The Company hereby waives notice, presentment,
demand, protest and notice of dishonor.

          12. Transfer of This Note. With respect to any offer, sale or other
disposition of this Note, Holder will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such Holder's


                                       15



counsel, to the effect that such offer, sale or other distribution may be
effected without registration or qualification (under any federal or state law
then in effect); provided, that no opinion shall be required for any transfer to
an Affiliate or if the transfer is made in compliance with the Securities Act,
so long as the transferee can make the same representations and warranties at
the time of transfer as set forth in Sections 4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and
4.11 of the Note Purchase Agreement. Promptly upon delivering such written
notice and opinion, if so required, Holder may sell or otherwise dispose of this
Note, all in accordance with the terms of the notice delivered to the Company.
Each Note thus transferred shall bear a legend as to the applicable restrictions
on transferability in order to ensure compliance with the Securities Act, unless
in the opinion of counsel for the Company such legend is not required in order
to ensure compliance with the Securities Act. The Company may issue stop
transfer instructions to its transfer agent in connection with such
restrictions. Notwithstanding the foregoing, the Holder shall not be permitted
to transfer this Note to any Person who is not an Affiliate until the earlier of
(i) the obtaining of Stockholder Approval, (ii) the receipt of written notice
from the Company that Stockholder Approval cannot be obtained, or the occurrence
of an actual vote of the Company's shareholders entitled to vote (whether by
written consent or at a meeting specially called for such purpose), the result
of which is a decision by a majority of the Company's shareholders entitled to
vote to decline to grant Stockholder Approval, (iii) six (6) months from the
date hereof and (iv) the occurrence of an Event of Default. This Note is
registered as to both principal and stated interest with the Company (or its
agent) within the meaning of section 1.871-14(c)(1)(i) of the Income Tax
Regulations. Accordingly, notwithstanding anything to the contrary in this
paragraph, this Note, together with any interest thereon, may be transferred
only (i) upon surrender of the Note by the transferor to the Company (or its
agent) and the reissuance of the Note (or the issuance of a new Note) to the
transferee, or (ii) by transfer of the right to principal and interest through a
book-entry system meeting the requirements of section 1.871-14(c)(1)(i)(B) of
the Income Tax Regulations that is maintained by the Company (or its agent). In
the case of a Holder that is not a "United States person" within the meaning of
section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the
"Code"), so long as an exception under section 871(h) or section 881(c) of the
Code does not apply, the Company (or its agent) shall not withhold any U.S.
federal income tax with respect to such Holder provided that the Holder timely
provides the Company (or its agent) with a statement that meets the requirements
of section 871(h)(5) of the Code.

          13. Treatment of Note. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.

          14. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by nationally recognized courier
service or mailed by registered or certified mail, postage prepaid, to the
respective addresses of the parties as set forth on the signature pages hereto
or if sent by facsimile to the respective facsimile numbers of the parties set
forth on the signature pages hereto. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively


                                       16



be deemed to have been given and received when personally delivered or three (3)
business days after deposited in the mail or one business day after sent by
courier or upon confirmation of facsimile delivery in the manner set forth
above.

          15. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon Holder or any other Person the right to vote or to
consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company.

          16. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, excluding that body of law
relating to conflict of laws.

          17. Amendments and Waivers. No amendments or waivers of any provision
of this Note, and no consent by the Holder to any departure by the Company,
shall in any event be effective unless the same shall be in writing, and signed
by the Holders of a majority of the outstanding principal amount of all of the
Notes issued by the Company pursuant to the Note Purchase Agreement, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given.

          18. Severability. Any provision of this Note that is prohibited or
unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

          19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY
(A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF
RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION
WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY
TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY
OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN
THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER
OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE.
THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND
VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER
HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY
INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT. THE COMPANY AND THE


                                       17



HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING
JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO
SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF
THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED
IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT
LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

          20. Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except as otherwise indicated, all references herein to Sections refer to
Sections hereof.

              [the remainder of this page intentionally left blank]


                                       18



          IN WITNESS WHEREOF, the Company has caused this Note to be issued this
9th day of March, 2004.

                               COMPANY:

                               CRITICAL PATH, INC.,
                               a California corporation

                               By: /s/ William E. McGlashan, Jr.
                                   ---------------------------------------------
                                   Name: William E. McGlashan, Jr.
                                   Title: Chairman, Chief Executive Officer

                                   Critical Path, Inc.
                                   350 The Embarcadero
                                   San Francisco, CA 94105-1204
                                   Telecopy: (415) 541-2300
                                   Attention: Chief Financial Officer

                                   With a copy to:

                                   Pillsbury Winthrop LLP
                                   50 Fremont Street
                                   San Francisco, CA 94105
                                   Telecopy: (415) 983-1200
                                   Attention: Gregg Vignos, Esq.

Name of Holder: ZAXIS OFFSHORE LIMITED

Address:   c/o Apex Capital, LLC
           25 Orinda Way, Suite 300
           Orinda, CA 94563
           Attention: Adam Fiore, General Counsel

Telephone: (925) 253-6125

Facsimile: (925) 253-1809

EX-4.36

                                                                    EXHIBIT 4.36

     THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
     SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN
     REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
     SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
     TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER
     OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.

                               CRITICAL PATH, INC.

                    CONVERTIBLE SUBORDINATED PROMISSORY NOTE

$645,000                                               San Francisco, California
                                                       March 9, 2004

          Critical Path, Inc., a California corporation (the "Company"), the
principal office of which is located in San Francisco, California, for value
received hereby promises to pay to the order of Zaxis Partners, L.P., or its
registered assigns ("Holder"), the sum of six hundred forty-five thousand
dollars ($645,000), or such lesser amount as shall then equal the outstanding
principal amount hereof on the terms and conditions set forth hereinafter. The
outstanding principal amount hereof and all accrued and unpaid interest hereon,
as set forth below, shall be due and payable on the earlier to occur of (i)
March 9, 2008, (ii) when declared due and payable by Holder upon the occurrence
of an Event of Default (as defined below), (iii) consummation of a Qualified
Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock or Stock
Equivalents by the Company, any cash capital contribution from any third person
or any other debt or equity financing consummated by the Company after the date
of issuance of this Note which, in the case of (v), individually or in the
aggregate raises proceeds of at least forty million dollars ($40,000,000) in
cash or cash equivalents (the earliest of the events set forth in items (i)-(v)
immediately above, the "Maturity Date").

          The following is a statement of the rights of the Holder of this Note
and the conditions to which this Note is subject, and to which the Holder
hereof, by the acceptance of this Note, agrees:

          1. Definitions. Except as otherwise defined herein, each capitalized
term used herein shall have the meaning assigned to it in the Note Purchase
Agreement, as in effect on the date hereof, and without regard to any subsequent
termination of the Note Purchase Agreement. All other references to the Note
Purchase Agreement in this Note refer to the Note Purchase Agreement as in
effect on the date hereof, and without regard to any subsequent termination of
the Note Purchase Agreement. As used in this Note, the following terms, unless
the context otherwise requires, have the following



meanings:

               1.1 "Affiliate" means any Person who is an "affiliate" as defined
in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange
Act of 1934, as amended.

               1.2 "Capitalized Lease Obligations" means, with respect to any
Person, all rental obligations of such Person which, under GAAP, are or will be
required to be capitalized on the books of such Person, in each case taken at
the amount thereof accounted for as indebtedness in accordance with such
principles.

               1.3 "Change of Control" shall mean (i) any merger, consolidation
or other business combination transaction (or series of related transactions) in
which the stockholders owning a majority of the voting securities of the Company
prior to such transaction do not own a majority of the voting securities of the
surviving entity, (ii) any tender offer, exchange offer or other transaction
whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as amended) (other than
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell
Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and
the Affiliates of the foregoing, provided that Affiliates shall be deemed not to
include any portfolio companies of any of the foregoing) obtains a majority of
the outstanding shares of capital stock entitled to vote in the election of
directors, (iii) any proxy contest in which a majority of the Board of Directors
of the Company (or persons appointed by such Board of Directors) prior to such
contest do not constitute a majority of the Company's Board of Directors after
such contest or (iv) any other transaction described in any stockholder rights
agreement or "poison pill," if any, to which the Company is party, which may
permit the holders of any rights or similar certificates to exercise the rights
evidenced thereby.

               1.4 "Company" shall have the meaning set forth in the recitals
hereto, and includes any corporation that shall succeed to or assume the
obligations of the Company under this Note.

               1.5 "Common Conversion Date" shall have the meaning set forth in
Section 3.1(b) hereof.

               1.6 "Common Stock" means the common stock, par value $0.001 per
share, of the Company.

               1.7 "Conversion Date" shall mean the Subsequent Closing Date.

               1.8 "Domestic Subsidiary" shall have the meaning set forth in
Section 5.10 hereof.

               1.9 "Event of Default" shall have the meaning set forth in
Section 6 hereof.


                                       2



               1.10 "GA Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP
Entities pursuant to the Purchase and Exchange Agreement.

               1.11 "GAP Entities" shall mean General Atlantic Partners 74,
L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG.

               1.12 "Guarantor" shall have the meaning set forth in the Security
Agreement.

               1.13 "Holder" shall mean the registered holder of this Note from
time to time, and in the plural, shall mean all registered holders of Notes from
time to time issued by the Company pursuant to the Note Purchase Agreement.

               1.14 "Intercreditor Agreement" shall mean the Intercreditor
Agreement, dated the date hereof, among the GAP Entities, the January Lenders,
Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore
Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital
Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures
International.

               1.15 "Interest Amount" shall have the meaning set forth in
Section 3.1 hereof.

               1.16 "Investment" means (i) the acquisition (whether for cash,
property, services, assumption of Indebtedness, securities or otherwise) of
assets (other than equipment, inventory, supplies or other assets acquired in
the ordinary course of business of the Company), capital stock, bonds, notes,
debentures, partnership, joint venture or other ownership interests or other
securities of any Person, (ii) any deposit with, or advance, loan or other
extension of credit to, or on behalf of, any Person (other than deposits made in
connection with the purchase of equipment, inventory, services, leases, supplies
or other assets in the ordinary course of business of the Company), and (iii)
any other capital contribution to or investment in any Person, including,
without limitation, any guaranty obligation incurred for the benefit of any
Person. For the sake of clarity, Investments shall include any transfer of
property or assets by the Company to any of its Subsidiaries or by any
Subsidiary of the Company to any other Subsidiary.

               1.17 "January Lenders" shall mean Permal U.S. Opportunities
Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis
Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P.

               1.18 "January Note Agreement" shall mean the Convertible Note
Purchase Agreement, dated January 16, 2004, among the January Lenders and the
Company.

               1.19 "January 2004 Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated January 16, 2003, issued by the Company to the
January Lenders pursuant to the January Note Agreement.


                                       3



               1.20 "Loan Documents" shall have the meaning set forth in the
Security Agreement.

               1.21 "Note" shall mean this note, and in the plural, shall mean
all notes issued to the Lenders pursuant to the terms of the Note Purchase
Agreement, including this Note, and all amendments, modifications and extensions
thereto.

               1.22 "Note Purchase Agreement" means that certain Convertible
Note Purchase Agreement, dated March 9, 2004, among the Company, the Holder and
the other parties thereto from time to time, and all amendments, modifications
and extensions thereto.

               1.23 "Permitted Investments" means (i) Investments in cash or
cash equivalents, (ii) accounts receivable created, acquired or made in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (iii) Investments existing on the closing date, and
listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty
obligations permitted by Section 5.3 of this Agreement, (v) loans to employees,
directors or officers of the Company in connection with the award of convertible
bonds or capital stock under a stock incentive plan, stock option plan or other
equity-based compensation plan or arrangement, (vi) other advances or loans to
employees, directors, officers or agents of the Company in the ordinary course
of business not to exceed $500,000 in the aggregate at any time outstanding;
(vii) loans, advances and investments in foreign Subsidiaries (that are not
incorporated or otherwise organized under the laws of the United States of
America or any state thereof) in an amount not to exceed $1,000,000 in the
aggregate at any time outstanding; (viii) any acquisition for which the prior
written consent of the Holders of a majority of the outstanding principal amount
of all of the Notes issued by the Company pursuant to the Note Purchase
Agreement has been obtained, (ix) other loans, advances and investments of a
nature not contemplated by the foregoing sections in an amount not to exceed
$500,000 in the aggregate at any time outstanding or (x) Investments by the
Company in the Guarantor.

               1.24 "Permitted Liens" shall have the meaning set forth in
Section 5.4.

               1.25 "Person" means any individual, firm, corporation,
partnership, trust, joint venture, joint stock company, limited liability
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.

               1.26 "Price Per Share" shall have the meaning attributed to such
term in the Series E Certificate of Determination, as filed with the Secretary
of State of the State of California.

               1.27 "Purchase and Exchange Agreement" shall mean the Convertible
Note Purchase and Exchange Agreement, dated November 18, 2003, among the
Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended.


                                       4



               1.28 "Qualified Asset Sale" means the sale, transfer or other
disposition of any of the assets of the Company or any of its Subsidiaries,
other than (a) sales of assets in the ordinary course of business, (b) sales of
assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the
sale, transfer or other disposition of assets of the Company where the proceeds
are applied to the purchase price or traded in for credit against the purchase
price of other assets, provided that any such purchase is made, or credit
issued, within 90 days of the sale, transfer or other disposition, and (d) one
or more sales of the Company's assets (other than sales otherwise included in
clauses (a), (b), and (c) immediately above) which collectively yield up to an
aggregate of one million dollars ($1,000,000) in gross proceeds to the Company
while this Note is outstanding.

               1.29 "Restricted Payment" means (a) any dividend or other
distribution (whether in cash, securities or other property) with respect to any
shares of any class of capital stock of the Company or any of its Subsidiaries
or (b) any payment (whether in cash, securities or other property), including
any sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any shares of any class
of capital stock of the Company or any Subsidiary or any option, warrant or
other right to acquire any such shares of capital stock of the Company or any
Subsidiary.

               1.30 "Security Agreement" means that certain Guaranty and
Security Agreement, of even date herewith between the Company, Compass Holding
Corp., the Lenders and the other parties thereto from time to time, and all
amendments, modifications and extensions thereto.

               1.31 "Series E Conversion Price" shall have the meaning set forth
in the Series E Certificate of Determination.

               1.32 "Series E Preferred Stock" means the Series E Preferred
Stock, par value $0.001, of the Company.

               1.33 "Subordination Agreement" shall have the meaning set forth
in Section 5.3.

               1.34 "Subsequent Closing Date" shall have the meaning set forth
in Section 2.4(e) of the Note Purchase Agreement.

               1.35 "SVB" means Silicon Valley Bank, a California chartered
bank, or any Affiliates thereof.

               1.36 "Ten Percent Holder" means, with respect to a class of
equity securities of the Company, a Person (together with such Person's
Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such
class of equity securities of the Company, as defined by Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

               1.37 "UCC" shall have the meaning set forth in Section 5.4.


                                       5



          2. Interest. Simple interest shall accrue at the rate of ten percent
(10%) per annum (or such lesser amount as shall equal the highest rate of
interest allowable under applicable law) (the "Interest Rate"), on the
outstanding principal of this Note from the date of this Note until the Maturity
Date or the date this Note is otherwise repaid. The Company shall not be
obligated to make any payments of interest which shall have accrued under this
Note prior to the Maturity Date. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. In the event that the
principal amount of this Note, any interest, or any amount payable hereunder is
not paid in full when such amount becomes due and payable, or upon the
occurrence of an Event of Default, interest shall accrue at the lesser of (a)
the initial Interest Rate plus five percent (5%) per annum or (b) the highest
rate of interest allowable under applicable law, on the balance of all amounts
outstanding until such overdue amounts are paid or the Event of Default is
cured, and such interest shall be payable on demand.

          3. Conversion.

               3.1 Conversion.

                    (a) On the Conversion Date, the principal amount of this
Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall
be automatically converted into the number of fully paid and nonassessable
shares of Series E Preferred Stock equal to the quotient obtained by dividing
(a) the entire principal amount of this Note plus the Interest Amount by (b) the
Price Per Share.

                    (b) In the event that the Conversion Date has not occurred
on or prior to August 15, 2004 (the "Common Conversion Date"), then, following
the Common Conversion Date, the principal amount of this Note plus the Interest
Amount shall be convertible, at the option of Holder and from time to time, only
into Common Stock at a conversion price per share equal to $2.18, as adjusted
for any stock dividends, stock splits or similar consolidations or subdivisions,
following the date hereof; provided, however, that Holder shall not be permitted
to convert any portion of the principal of this Note or the Interest Amount into
Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion,
the conversion would cause Holder to be a Ten Percent Holder.

               3.2 Notice of Conversion. Upon conversion of this Note as
provided in Section 3.1, Holder shall surrender this Note to the Company and
shall state the name or names in which the certificate or certificates for such
shares of Series E Preferred Stock or Common Stock, as the case may be, are to
be issued. The Person or Persons entitled to receive the shares of Series E
Preferred Stock or Common Stock, as the case may be, issuable upon such
conversion shall be treated for all purposes as the record holder or holders (a)
of such shares of Series E Preferred Stock as of the Conversion Date and (b) of
such shares of Common Stock as of the date of any conversion pursuant to Section
3.1(b).

               3.3 Delivery of Stock Certificates. Upon conversion of this Note
as provided in Section 3.1, the Company at its expense will issue and deliver to


                                       6



Holder of this Note a certificate or certificates (bearing such legends as are
required by applicable state and federal securities laws in the opinion of
counsel to the Company) for the number of full shares of Series E Preferred
Stock or Common Stock, as the case may be, issuable upon such conversion.

               3.4 Mechanics and Effect of Conversion. No fractional shares of
Series E Preferred Stock or Common Stock, as the case may be, shall be issued
upon conversion of this Note. In lieu of the Company issuing any fractional
shares to Holder upon the conversion of this Note, the Company shall pay to
Holder the amount of outstanding principal and interest that is not so
converted. Upon conversion of all amounts due under this Note, the Company shall
be released from all of its obligations under this Note.

          4. Adjustments. The number of shares of Series E Preferred Stock or
Common Stock convertible hereunder are subject to adjustment from time to time
as follows:

               4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at
any time while this Note remains outstanding and unexpired there shall be (a) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (b) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise or (c) a sale or
transfer of the Company's stock, properties or assets as, or substantially as,
an entirety to any other Person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that Holder
shall thereafter be entitled to receive by converting this Note the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon conversion of this Note would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Note had been converted immediately before such reorganization,
merger, consolidation, sale or transfer (notwithstanding that the Stockholder
Approval may not yet have been obtained), all subject to further adjustment as
provided in this Section 4. The foregoing provisions of this Section 4.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation. If the
per share consideration payable to Holder hereof for shares in connection with
any such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
Company's Board of Directors based on the amount the Holder would have otherwise
been entitled to receive had the transaction or transactions not occurred. In
all events, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions of this
Note with respect to the rights and interests of Holder after the transaction,
to the end that the provisions of this Note shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon conversion of


                                       7



this Note. The Company shall be obligated to retain and set aside, or otherwise
make fair provision for exercise of the right of the Holder to receive, the
shares of stock and/or other securities, cash or other property provided for in
this Section 4.1.

               4.2 Election of Holder upon Merger or Sale of Assets.
Notwithstanding anything to the contrary contained herein, if an event shall
occur as provided in Section 4.1 hereof that would otherwise result in the
occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first
paragraph of this Note, then the Holder may, in its sole discretion, by written
notice to the Company elect to convert the principal amount of this Note plus
the Interest Amount into the number of shares of stock or other securities or
property described in Section 4.1, in lieu of receiving payment in full of all
amounts outstanding under this Note. The number of shares of stock or other
securities or property to be issued upon such conversion shall be determined in
accordance with Section 4.1 hereof, taking into account the occurrence of such
event.

               4.3 Reclassification, Etc. If the Company shall, at any time
while this Note, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, change any of the securities as to
which conversion rights under this Note exist into the same or a different
number of securities of any other class or classes, this Note shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable with respect to the securities that were subject to the conversion
rights under this Note immediately prior to such reclassification or other
change, and the Price Per Share shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 4.

               4.4 Split, Subdivision or Combination of Shares. If the Company
at any time while this Note, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the shares of Series E Preferred
Stock or Common Stock into a different number of securities of the same class,
the Price Per Share or conversion price, as the case may be, shall be
proportionately adjusted.

               4.5 Series E Adjustments. The initial Series E Conversion Price
of the shares of Series E Preferred Stock issued upon conversion of this Note
pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on
the Conversion Date, subject to the adjustment of such Series E Conversion Price
from time to time thereafter as provided in the Series E Certificate of
Determination.

               4.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 4, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.

               4.7 No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all


                                       8



such action as may be necessary or appropriate in order to protect the rights of
Holder against impairment.

          5. Covenants. The Company covenants and agrees that until the earlier
of (i) the date on which all Obligations (as defined in the Security Agreement)
have been paid in full or (ii) the date on which all amounts outstanding under
the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b):

               5.1 Financial Statements and Other Information. The Company shall
deliver to the Holder of this Note the financial statements and other
information required to be delivered under Section 8.1 of the Note Purchase
Agreement.

               5.2 Financial Covenants. The Company shall at all times comply
with the financial and other covenants set forth in Schedule 8.5 to the Note
Purchase Agreement as if such covenants were set forth herein.

               5.3 Indebtedness. The Company shall not, and shall not permit any
Subsidiary to, issue, incur, assume, create or have outstanding any
Indebtedness, provided, however, that the foregoing shall not restrict nor
operate to prevent:

                    (a) Indebtedness in favor of the Holders under the Loan
Documents;

                    (b) Indebtedness existing on the date hereof, as set forth
on Schedule 3.22 to the Note Purchase Agreement;

                    (c) Indebtedness for accounts payable incurred in the
ordinary course of business by the Company;

                    (d) Indebtedness incurred solely for the purpose of
financing the acquisition of any equipment, machinery, software, improvements or
any other similar property, or extensions, renewals or replacements of any of
the foregoing for the same or a lesser amount; provided, that the aggregate
outstanding principal amount of all Indebtedness permitted pursuant to this
clause (d) outstanding for more than sixty (60) days after the incurrence of
such Indebtedness shall not at any time exceed $500,000;

                    (e) Indebtedness of the Company evidenced by Capitalized
Lease Obligations, provided, that in no event shall the aggregate principal
amount of Capitalized Lease Obligations permitted by this clause (e) exceed
$500,000 at any time outstanding; and

                    (f) Any extension, renewal, refinancing, refunding, or
replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and
(e) above, on such terms and conditions as are, on the whole, not materially
more onerous to the Company than the terms and conditions of such original
Indebtedness on the date of such refinancing (including that the principal
amount of such refinancing Indebtedness


                                       9



does not exceed the principal amount of, plus the amount of accrued and unpaid
interest on, the Indebtedness so refinanced (plus the amount of reasonable
premium and fees and expenses incurred in connection therewith)), provided that,
in the case of a refinancing of Indebtedness owed by the Company or any
Subsidiary to SVB, this clause (f) shall only apply to the extent consistent
with the Subordination Agreement, dated as of the date hereof, by and among SVB,
the Holders and the Company (the "Subordination Agreement").

               5.4 Liens. The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
the Company or any of its Subsidiaries, whether now owned or hereafter acquired,
or sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable), or assign any right to receive income or permit the
filing of any financing statement under the Uniform Commercial Code, as from
time to time in effect in the relevant jurisdiction (the "UCC"), or any other
similar notice of Lien under any similar recording or notice statute; provided,
that the provisions of this Section 5.4 shall not prevent the creation,
incurrence, assumption or existence of the following:

                    (a) Liens arising in the ordinary course of business by
statute in connection with worker's compensation, unemployment insurance, old
age benefits, social security obligations, statutory obligations or other
similar charges (other then Liens arising under ERISA), good faith cash deposits
in connection with tenders, contracts or leases to which the Company or any
Subsidiary is a party or other cash deposits required to be made in the ordinary
course of business, provided, that such Liens do not have a material adverse
effect on the ability of the Company to repay amounts due under the Notes;

                    (b) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due or Liens for taxes, assessments or governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP;

                    (c) Liens in respect of property or assets of the Company or
its Subsidiaries imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as carriers',
warehousemen's, materialmen's and mechanics' liens and other similar Liens
arising in the ordinary course of business, and (i) which do not in the
aggregate materially detract from the value of the Company's and its
Subsidiaries' property or assets taken as a whole or result in a material
adverse effect on the Condition of the Company or (ii) which are being contested
in good faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to any such
Lien;


                                       10



                    (d) the pledge of assets for the purpose of securing an
appeal, stay or discharge in the course of any legal proceeding, provided that
the aggregate amount of liabilities of the Company and its Subsidiaries secured
by a pledge of assets permitted under this subsection, including interest and
penalties thereon, if any, shall not be in excess of $500,000 at any one time
outstanding;

                    (e) any interest or title of a lessor under any operating
lease;

                    (f) easements, rights-of-way, restrictions and other similar
encumbrances against real property incurred in the ordinary course of business;

                    (g) the Liens existing on the date hereof identified on
Schedule 3.22 to the Note Purchase Agreement;

                    (h) Liens on cash deposited with account debtors to secure
performance by the Company or any Subsidiary in the ordinary course of business
subject to customary and reasonable terms;

                    (i) Liens upon assets of the Company or its Subsidiaries
subject to Capitalized Lease Obligations, provided, that (A) such Liens only
serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising
under such Capitalized Lease Obligation and (B) the Lien encumbering the asset
giving rise to the Capitalized Lease Obligation does not encumber any other
asset of the Company or its Subsidiaries;

                    (j) Liens placed upon equipment, machinery, software,
improvements or any other similar property, used in the ordinary course of
business of the Company or any of its Subsidiaries at the time of the
acquisition thereof by the Company or any of its Subsidiaries or within ninety
(90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above;
provided, that the Liens encumbering the equipment, machinery software,
improvements or any other similar property so acquired do not encumber any other
asset of the Company or its Subsidiaries;

                    (k) set-off rights of depository institutions; and

                    (l) Liens created by the Security Agreement (collectively
with clauses (a) through (k) hereof, the "Permitted Liens").


               5.5 Fundamental Changes. The Company will not, and will not
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (in one transaction or a series of transactions)
all or substantially all of its assets, or all or substantially all of the stock
of any of its Subsidiaries (in each case, whether now owned or hereafter
acquired), or liquidate or dissolve, except that, if at the time and immediately
after giving effect thereto no Event of Default shall have occurred and be
continuing (i) the Company or any of its Subsidiaries may, with the prior
written


                                       11



consent of the Holders, merge with or into any other Person; (ii) any
wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with
or into the Company or any other wholly-owned Subsidiary of the Company; (iii)
any Subsidiary (other than the Guarantor, and except as otherwise prohibited by
this Note) may sell, transfer, lease or otherwise dispose of its assets to the
Company or to another wholly-owned Subsidiary of the Company; and (iv) any
Subsidiary may liquidate or dissolve if the board of directors of the Company
determine in good faith that such liquidation or dissolution is in its best
interests and is not disadvantageous to the Holders.

               5.6 Restricted Payments. The Company will not, and the Company
will not permit any Subsidiary to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except that (i) any Subsidiary
may make a Restricted Payment to the Company or any of its wholly-owned
Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any
Restricted Payment required by the terms of the Note Purchase Agreement and the
other documents executed in connection therewith.

               5.7 Transactions with Affiliates. The Company will not, and the
Company will not permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions that are at prices and on terms and
conditions not less favorable to the Company or such Subsidiary than could be
obtained on an arm's length basis from unrelated third parties, (b) transactions
exclusively between the Company and the Guarantor and (c) transactions under the
agreements listed on Schedule 3.17 to the Note Purchase Agreement.

               5.8 Investments. The Company will not, and the Company will not
permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment
in any Person, except for Permitted Investments.

               5.9 Nature of Business. The Company will not, and the Company
will not permit any Subsidiary to, engage in any business other than that
conducted on the date hereof and any businesses reasonably related thereto.

               5.10 Property of Existing Domestic Subsidiaries. The Company will
not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise
organized under the laws of the United States of America or any state thereof (a
"Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease,
license, purchase or otherwise acquire any personal or real property (excluding
any material intellectual property) in excess of $50,000 for all property held
by such Subsidiary, or $250,000 in the aggregate for all property held by all
Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own
or otherwise hold any rights to any material intellectual property or (iv)
otherwise conduct any business or maintain operations.

               5.11 Formation of Subsidiaries. The Company will not, and will
not cause or permit any of its Subsidiaries to, form, acquire or permit the
existence of any


                                       12



new domestic Subsidiary, without causing such domestic Subsidiary to execute and
deliver to the Holders a secured guaranty of the Notes and related security
document, in form and substance satisfactory to the Holders.

               5.12 Books and Records. The Company shall keep proper books of
record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company and its
Subsidiaries in accordance with GAAP consistently applied.

               5.13 Inspection. The Company shall, and shall cause each of its
Subsidiaries to, permit representatives of the Holders to visit and inspect any
of its properties, to examine its corporate, financial and operating records and
make copies thereof or abstracts therefrom, and to discuss its affairs, finances
and accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested upon notice to the Company.

               5.14 Maintenance of Business. The Company shall, and shall cause
each Subsidiary to, preserve and maintain its existence. The Company shall, and
shall cause each Subsidiary to, preserve and keep in force and effect all
licenses, permits, franchises, approvals, patents, trademarks, trade names,
trade styles, copyrights, and other property rights necessary to the proper
conduct of its business, except where the failure to do so could not reasonably
be expected to have a material adverse effect on the Condition of the Company or
on the prospects of repayment of the Notes.

               5.15 Maintenance of Properties. The Company shall, and shall
cause each Subsidiary to, maintain, preserve and keep its property and equipment
in good repair, working order and condition (ordinary wear and tear excepted)
and shall from time to time make all needful and proper repairs, renewals,
replacements, additions and betterments thereto so that at all times the
efficiency thereof shall by fully preserved and maintained, except in each case
to the extent that, in the reasonable business judgment of such Person, any such
property or equipment is no longer necessary for the proper conduct of the
business of such Person.

          6. The occurrence of any one or more of the following events shall
constitute an "Event of Default":

               6.1 Failure To Pay. (i) The failure of the Company to pay any
principal due under any of the Notes when due and payable (whether by
acceleration, declaration, extension or otherwise), or (ii) the failure of the
Company to pay any other amounts due under any of the Notes when due and payable
if such failure is not cured within five (5) days of Company's receipt of notice
thereof from any of the Holders.

               6.2 Financial Covenants. The failure of Company or any of its
Subsidiaries to perform, observe or comply with any of the Financial Covenants
set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by
reference in this Note in Section 5.2.


                                       13



               6.3 Other Covenants and Agreements. The failure of Company or any
of its Subsidiaries to perform, observe or comply with any of the covenants of
this Note, the Security Agreement or any of the other Loan Documents (other than
the Financial Covenants set forth on Schedule 8.5 to the Note Purchase
Agreement, and incorporated by reference in this Note in Section 5.2), if such
failure is not cured within sixty (60) days.

               6.4 Representations and Warranties. If any representation or
warranty made by the Company or any of its Subsidiaries in the Loan Documents is
not true and correct in all material respects on the Initial Closing Date.

               6.5 Default on Other Obligations. The occurrence of any condition
or default under any other indebtedness for borrowed money of the Company or any
of its Subsidiaries with a principal amount of at least five hundred thousand
dollars ($500,000) that results in the acceleration of such indebtedness which
is not cured within sixty (60) days.

               6.6 Involuntary Bankruptcy. There shall be filed against the
Company or any of its Subsidiaries an involuntary petition or other pleading
seeking the entry of a decree or order for relief under the United States
Bankruptcy Code or any similar federal or state insolvency or similar laws
ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a
reorganization of the Company or any of its Subsidiaries or the business and
affairs of the Company or any of its Subsidiaries or (c) the appointment of a
receiver, liquidator, assignee, custodian, trustee or similar official for the
Company or any of its Subsidiaries of the property of the Company or any of its
Subsidiaries.

               6.7 Voluntary Bankruptcy. The commencement by the Company or any
of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any
federal or state insolvency or similar laws or the consent by the Company or any
of its Subsidiaries to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or similar official for the Company or
any of its Subsidiaries of any of the property of the Company or any of its
Subsidiaries or the making by the Company or any of its Subsidiaries of an
assignment for the benefit of creditors, or the failure by Company or any of its
Subsidiaries generally to pay its debts as the debts become due.

               6.8 Judgments, Awards. Any judgment or order for the payment of
money is rendered against the Company or any of its Subsidiaries in an amount in
excess of five hundred thousand dollars ($500,000) individually or in the
aggregate and either (i) enforcement proceedings are commenced by any creditor
upon such judgment or order and not stayed, or (ii) there is any period of sixty
(60) consecutive days during which such judgment has not been paid in full or a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, is not in effect.

               6.9 Attachment by Lenders. Any assets of the Company or any of
its Subsidiaries shall be attached, levied upon, seized or repossessed, or come
into the


                                       14



possession of a trustee, receiver or other custodian and a determination by any
Holder, in good faith but in its sole discretion, that the same could have a
material adverse effect on the prospect for the Holders to fully and punctually
realize the full benefits conferred on the Holders by the Loan Documents.

               6.10 Adverse Change in Financial Condition. Any event having a
material adverse effect on the business, operations, assets, properties or
condition of the Company and its Subsidiaries taken as a whole shall have
occurred and be continuing or a material adverse effect on the validity or
enforceability of this or any of the other Loan Documents or the rights or
remedies of the Holders hereunder or thereunder.

          7. Remedies. Upon and after the occurrence of an Event of Default, the
Holder shall be entitled to the exercise the rights and remedies set forth in
the Security Agreement, the other Loan Documents and under applicable law, all
such rights and remedies being cumulative and enforceable alternatively,
successively or concurrently.

          8. Prepayment. The Company may not prepay this Note prior to the
Maturity Date without the prior written consent of the Holders.

          9. Seniority.

                    (a) Except as set forth in the Subordination Agreement, the
Notes will rank senior in right of payment to all other indebtedness of the
Company, other than the GA Notes and the January 2004 Notes, with respect to
which the Notes will be pari passu in right of payment in accordance with the
Intercreditor Agreement.

                    (b) Notwithstanding anything to the contrary contained in
the Notes, this Note and the other Notes, and the terms and the conditions
hereof and thereof, are subject to the Intercreditor Agreement.

          10. Assignment. Subject to the restrictions on transfer described in
Section 12 below, the rights and obligations of the Company and Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties. The Company shall not be permitted to assign this
Note without the prior written consent of the Holders.

          11. Waiver of Notice. The Company hereby waives notice, presentment,
demand, protest and notice of dishonor.

          12. Transfer of This Note. With respect to any offer, sale or other
disposition of this Note, Holder will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such Holder's counsel, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any
federal or state law then in effect); provided, that no opinion shall be
required for any transfer to an Affiliate or if the transfer is made in
compliance with the Securities Act, so long as the transferee can make the same
representations and warranties at the time of transfer as set forth in Sections
4.5, 4.6, 4.7,


                                       15



4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly upon delivering
such written notice and opinion, if so required, Holder may sell or otherwise
dispose of this Note, all in accordance with the terms of the notice delivered
to the Company. Each Note thus transferred shall bear a legend as to the
applicable restrictions on transferability in order to ensure compliance with
the Securities Act, unless in the opinion of counsel for the Company such legend
is not required in order to ensure compliance with the Securities Act. The
Company may issue stop transfer instructions to its transfer agent in connection
with such restrictions. Notwithstanding the foregoing, the Holder shall not be
permitted to transfer this Note to any Person who is not an Affiliate until the
earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of
written notice from the Company that Stockholder Approval cannot be obtained, or
the occurrence of an actual vote of the Company's shareholders entitled to vote
(whether by written consent or at a meeting specially called for such purpose),
the result of which is a decision by a majority of the Company's shareholders
entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months
from the date hereof and (iv) the occurrence of an Event of Default. This Note
is registered as to both principal and stated interest with the Company (or its
agent) within the meaning of section 1.871-14(c)(1)(i) of the Income Tax
Regulations. Accordingly, notwithstanding anything to the contrary in this
paragraph, this Note, together with any interest thereon, may be transferred
only (i) upon surrender of the Note by the transferor to the Company (or its
agent) and the reissuance of the Note (or the issuance of a new Note) to the
transferee, or (ii) by transfer of the right to principal and interest through a
book-entry system meeting the requirements of section 1.871-14(c)(1)(i)(B) of
the Income Tax Regulations that is maintained by the Company (or its agent). In
the case of a Holder that is not a "United States person" within the meaning of
section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the
"Code"), so long as an exception under section 871(h) or section 881(c) of the
Code does not apply, the Company (or its agent) shall not withhold any U.S.
federal income tax with respect to such Holder provided that the Holder timely
provides the Company (or its agent) with a statement that meets the requirements
of section 871(h)(5) of the Code.

          13. Treatment of Note. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.

          14. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by nationally recognized courier
service or mailed by registered or certified mail, postage prepaid, to the
respective addresses of the parties as set forth on the signature pages hereto
or if sent by facsimile to the respective facsimile numbers of the parties set
forth on the signature pages hereto. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively be
deemed to have been given and received when personally delivered or three (3)
business days after deposited in the mail or one business day after sent by
courier or upon confirmation of facsimile delivery in the manner set forth
above.


                                       16



          15. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon Holder or any other Person the right to vote or to
consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company.

          16. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, excluding that body of law
relating to conflict of laws.

          17. Amendments and Waivers. No amendments or waivers of any provision
of this Note, and no consent by the Holder to any departure by the Company,
shall in any event be effective unless the same shall be in writing, and signed
by the Holders of a majority of the outstanding principal amount of all of the
Notes issued by the Company pursuant to the Note Purchase Agreement, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given.

          18. Severability. Any provision of this Note that is prohibited or
unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

          19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY
(A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF
RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION
WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY
TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY
OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN
THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER
OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE.
THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND
VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER
HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY
INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT
THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE
COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF
RIGHT TO TRIAL BY JURY. EACH OF


                                       17



THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED
IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT
LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

          20. Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except as otherwise indicated, all references herein to Sections refer to
Sections hereof.

              [the remainder of this page intentionally left blank]


                                       18



          IN WITNESS WHEREOF, the Company has caused this Note to be issued this
9th day of March, 2004.

                                        COMPANY:

                                        CRITICAL PATH, INC.,
                                        a California corporation

                                        By: /s/ William E. McGlashan, Jr.
                                            ------------------------------------
                                            Name: William E. McGlashan, Jr.
                                            Title: Chairman, Chief Executive
                                            Officer

                                            Critical Path, Inc.
                                            350 The Embarcadero
                                            San Francisco, CA 94105-1204
                                            Telecopy: (415) 541-2300
                                            Attention: Chief Financial Officer

                                            With a copy to:

                                            Pillsbury Winthrop LLP
                                            50 Fremont Street
                                            San Francisco, CA 94105
                                            Telecopy: (415) 983-1200
                                            Attention: Gregg Vignos, Esq.

Name of Holder: ZAXIS PARTNERS, L.P.

Address:   c/o Apex Capital, LLC
           25 Orinda Way, Suite 300
           Orinda, CA 94563
           Attention: Adam Fiore, General Counsel

Telephone: (925) 253-6125

Facsimile: (925) 253-1809

EX-4.37

                                                                    EXHIBIT 4.37

     THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
     SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN
     REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
     SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
     TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER
     OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.

                               CRITICAL PATH, INC.

                    CONVERTIBLE SUBORDINATED PROMISSORY NOTE

$675,000                                               San Francisco, California
                                                       March 9, 2004

          Critical Path, Inc., a California corporation (the "Company"), the
principal office of which is located in San Francisco, California, for value
received hereby promises to pay to the order of Guggenheim Portfolio Company
XIII, or its registered assigns ("Holder"), the sum of six hundred seventy-five
thousand dollars ($675,000), or such lesser amount as shall then equal the
outstanding principal amount hereof on the terms and conditions set forth
hereinafter. The outstanding principal amount hereof and all accrued and unpaid
interest hereon, as set forth below, shall be due and payable on the earlier to
occur of (i) March 9, 2008, (ii) when declared due and payable by Holder upon
the occurrence of an Event of Default (as defined below), (iii) consummation of
a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital
stock or Stock Equivalents by the Company, any cash capital contribution from
any third person or any other debt or equity financing consummated by the
Company after the date of issuance of this Note which, in the case of (v),
individually or in the aggregate raises proceeds of at least forty million
dollars ($40,000,000) in cash or cash equivalents (the earliest of the events
set forth in items (i)-(v) immediately above, the "Maturity Date").

          The following is a statement of the rights of the Holder of this Note
and the conditions to which this Note is subject, and to which the Holder
hereof, by the acceptance of this Note, agrees:

          1. Definitions. Except as otherwise defined herein, each capitalized
term used herein shall have the meaning assigned to it in the Note Purchase
Agreement, as in effect on the date hereof, and without regard to any subsequent
termination of the Note Purchase Agreement. All other references to the Note
Purchase Agreement in this Note refer to the Note Purchase Agreement as in
effect on the date hereof, and without regard to any subsequent termination of
the Note Purchase Agreement. As used in this Note, the following terms, unless
the context otherwise requires, have the following



meanings:

               1.1 "Affiliate" means any Person who is an "affiliate" as defined
in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange
Act of 1934, as amended.

               1.2 "Capitalized Lease Obligations" means, with respect to any
Person, all rental obligations of such Person which, under GAAP, are or will be
required to be capitalized on the books of such Person, in each case taken at
the amount thereof accounted for as indebtedness in accordance with such
principles.

               1.3 "Change of Control" shall mean (i) any merger, consolidation
or other business combination transaction (or series of related transactions) in
which the stockholders owning a majority of the voting securities of the Company
prior to such transaction do not own a majority of the voting securities of the
surviving entity, (ii) any tender offer, exchange offer or other transaction
whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as amended) (other than
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell
Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and
the Affiliates of the foregoing, provided that Affiliates shall be deemed not to
include any portfolio companies of any of the foregoing) obtains a majority of
the outstanding shares of capital stock entitled to vote in the election of
directors, (iii) any proxy contest in which a majority of the Board of Directors
of the Company (or persons appointed by such Board of Directors) prior to such
contest do not constitute a majority of the Company's Board of Directors after
such contest or (iv) any other transaction described in any stockholder rights
agreement or "poison pill," if any, to which the Company is party, which may
permit the holders of any rights or similar certificates to exercise the rights
evidenced thereby.

               1.4 "Company" shall have the meaning set forth in the recitals
hereto, and includes any corporation that shall succeed to or assume the
obligations of the Company under this Note.

               1.5 "Common Conversion Date" shall have the meaning set forth in
Section 3.1(b) hereof.

               1.6 "Common Stock" means the common stock, par value $0.001 per
share, of the Company.

               1.7 "Conversion Date" shall mean the Subsequent Closing Date.

               1.8 "Domestic Subsidiary" shall have the meaning set forth in
Section 5.10 hereof.

               1.9 "Event of Default" shall have the meaning set forth in
Section 6 hereof.


                                       2



               1.10 "GA Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP
Entities pursuant to the Purchase and Exchange Agreement.

               1.11 "GAP Entities" shall mean General Atlantic Partners 74,
L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG.

               1.12 "Guarantor" shall have the meaning set forth in the Security
Agreement.

               1.13 "Holder" shall mean the registered holder of this Note from
time to time, and in the plural, shall mean all registered holders of Notes from
time to time issued by the Company pursuant to the Note Purchase Agreement.

               1.14 "Intercreditor Agreement" shall mean the Intercreditor
Agreement, dated the date hereof, among the GAP Entities, the January Lenders,
Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore
Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital
Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures
International.

               1.15 "Interest Amount" shall have the meaning set forth in
Section 3.1 hereof.

               1.16 "Investment" means (i) the acquisition (whether for cash,
property, services, assumption of Indebtedness, securities or otherwise) of
assets (other than equipment, inventory, supplies or other assets acquired in
the ordinary course of business of the Company), capital stock, bonds, notes,
debentures, partnership, joint venture or other ownership interests or other
securities of any Person, (ii) any deposit with, or advance, loan or other
extension of credit to, or on behalf of, any Person (other than deposits made in
connection with the purchase of equipment, inventory, services, leases, supplies
or other assets in the ordinary course of business of the Company), and (iii)
any other capital contribution to or investment in any Person, including,
without limitation, any guaranty obligation incurred for the benefit of any
Person. For the sake of clarity, Investments shall include any transfer of
property or assets by the Company to any of its Subsidiaries or by any
Subsidiary of the Company to any other Subsidiary.

               1.17 "January Lenders" shall mean Permal U.S. Opportunities
Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis
Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P.

               1.18 "January Note Agreement" shall mean the Convertible Note
Purchase Agreement, dated January 16, 2004, among the January Lenders and the
Company.

               1.19 "January 2004 Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated January 16, 2003, issued by the Company to the
January Lenders pursuant to the January Note Agreement.


                                       3



               1.20 "Loan Documents" shall have the meaning set forth in the
Security Agreement.

               1.21 "Note" shall mean this note, and in the plural, shall mean
all notes issued to the Lenders pursuant to the terms of the Note Purchase
Agreement, including this Note, and all amendments, modifications and extensions
thereto.

               1.22 "Note Purchase Agreement" means that certain Convertible
Note Purchase Agreement, dated March 9, 2004, among the Company, the Holder and
the other parties thereto from time to time, and all amendments, modifications
and extensions thereto.

               1.23 "Permitted Investments" means (i) Investments in cash or
cash equivalents, (ii) accounts receivable created, acquired or made in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (iii) Investments existing on the closing date, and
listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty
obligations permitted by Section 5.3 of this Agreement, (v) loans to employees,
directors or officers of the Company in connection with the award of convertible
bonds or capital stock under a stock incentive plan, stock option plan or other
equity-based compensation plan or arrangement, (vi) other advances or loans to
employees, directors, officers or agents of the Company in the ordinary course
of business not to exceed $500,000 in the aggregate at any time outstanding;
(vii) loans, advances and investments in foreign Subsidiaries (that are not
incorporated or otherwise organized under the laws of the United States of
America or any state thereof) in an amount not to exceed $1,000,000 in the
aggregate at any time outstanding; (viii) any acquisition for which the prior
written consent of the Holders of a majority of the outstanding principal amount
of all of the Notes issued by the Company pursuant to the Note Purchase
Agreement has been obtained, (ix) other loans, advances and investments of a
nature not contemplated by the foregoing sections in an amount not to exceed
$500,000 in the aggregate at any time outstanding or (x) Investments by the
Company in the Guarantor.

               1.24 "Permitted Liens" shall have the meaning set forth in
Section 5.4.

               1.25 "Person" means any individual, firm, corporation,
partnership, trust, joint venture, joint stock company, limited liability
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.

               1.26 "Price Per Share" shall have the meaning attributed to such
term in the Series E Certificate of Determination, as filed with the Secretary
of State of the State of California.

               1.27 "Purchase and Exchange Agreement" shall mean the Convertible
Note Purchase and Exchange Agreement, dated November 18, 2003, among the
Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended.


                                       4



               1.28 "Qualified Asset Sale" means the sale, transfer or other
disposition of any of the assets of the Company or any of its Subsidiaries,
other than (a) sales of assets in the ordinary course of business, (b) sales of
assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the
sale, transfer or other disposition of assets of the Company where the proceeds
are applied to the purchase price or traded in for credit against the purchase
price of other assets, provided that any such purchase is made, or credit
issued, within 90 days of the sale, transfer or other disposition, and (d) one
or more sales of the Company's assets (other than sales otherwise included in
clauses (a), (b), and (c) immediately above) which collectively yield up to an
aggregate of one million dollars ($1,000,000) in gross proceeds to the Company
while this Note is outstanding.

               1.29 "Restricted Payment" means (a) any dividend or other
distribution (whether in cash, securities or other property) with respect to any
shares of any class of capital stock of the Company or any of its Subsidiaries
or (b) any payment (whether in cash, securities or other property), including
any sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any shares of any class
of capital stock of the Company or any Subsidiary or any option, warrant or
other right to acquire any such shares of capital stock of the Company or any
Subsidiary.

               1.30 "Security Agreement" means that certain Guaranty and
Security Agreement, of even date herewith between the Company, Compass Holding
Corp., the Lenders and the other parties thereto from time to time, and all
amendments, modifications and extensions thereto.

               1.31 "Series E Conversion Price" shall have the meaning set forth
in the Series E Certificate of Determination.

               1.32 "Series E Preferred Stock" means the Series E Preferred
Stock, par value $0.001, of the Company.

               1.33 "Subordination Agreement" shall have the meaning set forth
in Section 5.3.

               1.34 "Subsequent Closing Date" shall have the meaning set forth
in Section 2.4(e) of the Note Purchase Agreement.

               1.35 "SVB" means Silicon Valley Bank, a California chartered
bank, or any Affiliates thereof.

               1.36 "Ten Percent Holder" means, with respect to a class of
equity securities of the Company, a Person (together with such Person's
Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such
class of equity securities of the Company, as defined by Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

               1.37 "UCC" shall have the meaning set forth in Section 5.4.


                                       5



          2. Interest. Simple interest shall accrue at the rate of ten percent
(10%) per annum (or such lesser amount as shall equal the highest rate of
interest allowable under applicable law) (the "Interest Rate"), on the
outstanding principal of this Note from the date of this Note until the Maturity
Date or the date this Note is otherwise repaid. The Company shall not be
obligated to make any payments of interest which shall have accrued under this
Note prior to the Maturity Date. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. In the event that the
principal amount of this Note, any interest, or any amount payable hereunder is
not paid in full when such amount becomes due and payable, or upon the
occurrence of an Event of Default, interest shall accrue at the lesser of (a)
the initial Interest Rate plus five percent (5%) per annum or (b) the highest
rate of interest allowable under applicable law, on the balance of all amounts
outstanding until such overdue amounts are paid or the Event of Default is
cured, and such interest shall be payable on demand.

          3. Conversion.

               3.1 Conversion.

                    (a) On the Conversion Date, the principal amount of this
Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall
be automatically converted into the number of fully paid and nonassessable
shares of Series E Preferred Stock equal to the quotient obtained by dividing
(a) the entire principal amount of this Note plus the Interest Amount by (b) the
Price Per Share.

                    (b) In the event that the Conversion Date has not occurred
on or prior to August 15, 2004 (the "Common Conversion Date"), then, following
the Common Conversion Date, the principal amount of this Note plus the Interest
Amount shall be convertible, at the option of Holder and from time to time, only
into Common Stock at a conversion price per share equal to $2.18, as adjusted
for any stock dividends, stock splits or similar consolidations or subdivisions,
following the date hereof; provided, however, that Holder shall not be permitted
to convert any portion of the principal of this Note or the Interest Amount into
Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion,
the conversion would cause Holder to be a Ten Percent Holder.

               3.2 Notice of Conversion. Upon conversion of this Note as
provided in Section 3.1, Holder shall surrender this Note to the Company and
shall state the name or names in which the certificate or certificates for such
shares of Series E Preferred Stock or Common Stock, as the case may be, are to
be issued. The Person or Persons entitled to receive the shares of Series E
Preferred Stock or Common Stock, as the case may be, issuable upon such
conversion shall be treated for all purposes as the record holder or holders (a)
of such shares of Series E Preferred Stock as of the Conversion Date and (b) of
such shares of Common Stock as of the date of any conversion pursuant to Section
3.1(b).

               3.3 Delivery of Stock Certificates. Upon conversion of this Note
as provided in Section 3.1, the Company at its expense will issue and deliver to


                                       6



Holder of this Note a certificate or certificates (bearing such legends as are
required by applicable state and federal securities laws in the opinion of
counsel to the Company) for the number of full shares of Series E Preferred
Stock or Common Stock, as the case may be, issuable upon such conversion.

               3.4 Mechanics and Effect of Conversion. No fractional shares of
Series E Preferred Stock or Common Stock, as the case may be, shall be issued
upon conversion of this Note. In lieu of the Company issuing any fractional
shares to Holder upon the conversion of this Note, the Company shall pay to
Holder the amount of outstanding principal and interest that is not so
converted. Upon conversion of all amounts due under this Note, the Company shall
be released from all of its obligations under this Note.

          4. Adjustments. The number of shares of Series E Preferred Stock or
Common Stock convertible hereunder are subject to adjustment from time to time
as follows:

               4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at
any time while this Note remains outstanding and unexpired there shall be (a) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (b) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise or (c) a sale or
transfer of the Company's stock, properties or assets as, or substantially as,
an entirety to any other Person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that Holder
shall thereafter be entitled to receive by converting this Note the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon conversion of this Note would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Note had been converted immediately before such reorganization,
merger, consolidation, sale or transfer (notwithstanding that the Stockholder
Approval may not yet have been obtained), all subject to further adjustment as
provided in this Section 4. The foregoing provisions of this Section 4.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation. If the
per share consideration payable to Holder hereof for shares in connection with
any such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
Company's Board of Directors based on the amount the Holder would have otherwise
been entitled to receive had the transaction or transactions not occurred. In
all events, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions of this
Note with respect to the rights and interests of Holder after the transaction,
to the end that the provisions of this Note shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon conversion of


                                       7



this Note. The Company shall be obligated to retain and set aside, or otherwise
make fair provision for exercise of the right of the Holder to receive, the
shares of stock and/or other securities, cash or other property provided for in
this Section 4.1.

               4.2 Election of Holder upon Merger or Sale of Assets.
Notwithstanding anything to the contrary contained herein, if an event shall
occur as provided in Section 4.1 hereof that would otherwise result in the
occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first
paragraph of this Note, then the Holder may, in its sole discretion, by written
notice to the Company elect to convert the principal amount of this Note plus
the Interest Amount into the number of shares of stock or other securities or
property described in Section 4.1, in lieu of receiving payment in full of all
amounts outstanding under this Note. The number of shares of stock or other
securities or property to be issued upon such conversion shall be determined in
accordance with Section 4.1 hereof, taking into account the occurrence of such
event.

               4.3 Reclassification, Etc. If the Company shall, at any time
while this Note, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, change any of the securities as to
which conversion rights under this Note exist into the same or a different
number of securities of any other class or classes, this Note shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable with respect to the securities that were subject to the conversion
rights under this Note immediately prior to such reclassification or other
change, and the Price Per Share shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 4.

               4.4 Split, Subdivision or Combination of Shares. If the Company
at any time while this Note, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the shares of Series E Preferred
Stock or Common Stock into a different number of securities of the same class,
the Price Per Share or conversion price, as the case may be, shall be
proportionately adjusted.

               4.5 Series E Adjustments. The initial Series E Conversion Price
of the shares of Series E Preferred Stock issued upon conversion of this Note
pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on
the Conversion Date, subject to the adjustment of such Series E Conversion Price
from time to time thereafter as provided in the Series E Certificate of
Determination.

               4.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 4, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.

               4.7 No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all


                                       8



such action as may be necessary or appropriate in order to protect the rights of
Holder against impairment.

          5. Covenants. The Company covenants and agrees that until the earlier
of (i) the date on which all Obligations (as defined in the Security Agreement)
have been paid in full or (ii) the date on which all amounts outstanding under
the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b):

               5.1 Financial Statements and Other Information. The Company shall
deliver to the Holder of this Note the financial statements and other
information required to be delivered under Section 8.1 of the Note Purchase
Agreement.

               5.2 Financial Covenants. The Company shall at all times comply
with the financial and other covenants set forth in Schedule 8.5 to the Note
Purchase Agreement as if such covenants were set forth herein.

               5.3 Indebtedness. The Company shall not, and shall not permit any
Subsidiary to, issue, incur, assume, create or have outstanding any
Indebtedness, provided, however, that the foregoing shall not restrict nor
operate to prevent:

                    (a) Indebtedness in favor of the Holders under the Loan
Documents;

                    (b) Indebtedness existing on the date hereof, as set forth
on Schedule 3.22 to the Note Purchase Agreement;

                    (c) Indebtedness for accounts payable incurred in the
ordinary course of business by the Company;

                    (d) Indebtedness incurred solely for the purpose of
financing the acquisition of any equipment, machinery, software, improvements or
any other similar property, or extensions, renewals or replacements of any of
the foregoing for the same or a lesser amount; provided, that the aggregate
outstanding principal amount of all Indebtedness permitted pursuant to this
clause (d) outstanding for more than sixty (60) days after the incurrence of
such Indebtedness shall not at any time exceed $500,000;

                    (e) Indebtedness of the Company evidenced by Capitalized
Lease Obligations, provided, that in no event shall the aggregate principal
amount of Capitalized Lease Obligations permitted by this clause (e) exceed
$500,000 at any time outstanding; and

                    (f) Any extension, renewal, refinancing, refunding, or
replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and
(e) above, on such terms and conditions as are, on the whole, not materially
more onerous to the Company than the terms and conditions of such original
Indebtedness on the date of such refinancing (including that the principal
amount of such refinancing Indebtedness


                                       9



does not exceed the principal amount of, plus the amount of accrued and unpaid
interest on, the Indebtedness so refinanced (plus the amount of reasonable
premium and fees and expenses incurred in connection therewith)), provided that,
in the case of a refinancing of Indebtedness owed by the Company or any
Subsidiary to SVB, this clause (f) shall only apply to the extent consistent
with the Subordination Agreement, dated as of the date hereof, by and among SVB,
the Holders and the Company (the "Subordination Agreement").

               5.4 Liens. The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
the Company or any of its Subsidiaries, whether now owned or hereafter acquired,
or sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable), or assign any right to receive income or permit the
filing of any financing statement under the Uniform Commercial Code, as from
time to time in effect in the relevant jurisdiction (the "UCC"), or any other
similar notice of Lien under any similar recording or notice statute; provided,
that the provisions of this Section 5.4 shall not prevent the creation,
incurrence, assumption or existence of the following:

                    (a) Liens arising in the ordinary course of business by
statute in connection with worker's compensation, unemployment insurance, old
age benefits, social security obligations, statutory obligations or other
similar charges (other then Liens arising under ERISA), good faith cash deposits
in connection with tenders, contracts or leases to which the Company or any
Subsidiary is a party or other cash deposits required to be made in the ordinary
course of business, provided, that such Liens do not have a material adverse
effect on the ability of the Company to repay amounts due under the Notes;

                    (b) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due or Liens for taxes, assessments or governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP;

                    (c) Liens in respect of property or assets of the Company or
its Subsidiaries imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as carriers',
warehousemen's, materialmen's and mechanics' liens and other similar Liens
arising in the ordinary course of business, and (i) which do not in the
aggregate materially detract from the value of the Company's and its
Subsidiaries' property or assets taken as a whole or result in a material
adverse effect on the Condition of the Company or (ii) which are being contested
in good faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to any such
Lien;


                                       10



                    (d) the pledge of assets for the purpose of securing an
appeal, stay or discharge in the course of any legal proceeding, provided that
the aggregate amount of liabilities of the Company and its Subsidiaries secured
by a pledge of assets permitted under this subsection, including interest and
penalties thereon, if any, shall not be in excess of $500,000 at any one time
outstanding;

                    (e) any interest or title of a lessor under any operating
lease;

                    (f) easements, rights-of-way, restrictions and other similar
encumbrances against real property incurred in the ordinary course of business;

                    (g) the Liens existing on the date hereof identified on
Schedule 3.22 to the Note Purchase Agreement;

                    (h) Liens on cash deposited with account debtors to secure
performance by the Company or any Subsidiary in the ordinary course of business
subject to customary and reasonable terms;

                    (i) Liens upon assets of the Company or its Subsidiaries
subject to Capitalized Lease Obligations, provided, that (A) such Liens only
serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising
under such Capitalized Lease Obligation and (B) the Lien encumbering the asset
giving rise to the Capitalized Lease Obligation does not encumber any other
asset of the Company or its Subsidiaries;

                    (j) Liens placed upon equipment, machinery, software,
improvements or any other similar property, used in the ordinary course of
business of the Company or any of its Subsidiaries at the time of the
acquisition thereof by the Company or any of its Subsidiaries or within ninety
(90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above;
provided, that the Liens encumbering the equipment, machinery software,
improvements or any other similar property so acquired do not encumber any other
asset of the Company or its Subsidiaries;

                    (k) set-off rights of depository institutions; and

                    (l) Liens created by the Security Agreement (collectively
with clauses (a) through (k) hereof, the "Permitted Liens").

               5.5 Fundamental Changes. The Company will not, and will not
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (in one transaction or a series of transactions)
all or substantially all of its assets, or all or substantially all of the stock
of any of its Subsidiaries (in each case, whether now owned or hereafter
acquired), or liquidate or dissolve, except that, if at the time and immediately
after giving effect thereto no Event of Default shall have occurred and be
continuing (i) the Company or any of its Subsidiaries may, with the prior
written


                                       11



consent of the Holders, merge with or into any other Person; (ii) any
wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with
or into the Company or any other wholly-owned Subsidiary of the Company; (iii)
any Subsidiary (other than the Guarantor, and except as otherwise prohibited by
this Note) may sell, transfer, lease or otherwise dispose of its assets to the
Company or to another wholly-owned Subsidiary of the Company; and (iv) any
Subsidiary may liquidate or dissolve if the board of directors of the Company
determine in good faith that such liquidation or dissolution is in its best
interests and is not disadvantageous to the Holders.

               5.6 Restricted Payments. The Company will not, and the Company
will not permit any Subsidiary to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except that (i) any Subsidiary
may make a Restricted Payment to the Company or any of its wholly-owned
Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any
Restricted Payment required by the terms of the Note Purchase Agreement and the
other documents executed in connection therewith.

               5.7 Transactions with Affiliates. The Company will not, and the
Company will not permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions that are at prices and on terms and
conditions not less favorable to the Company or such Subsidiary than could be
obtained on an arm's length basis from unrelated third parties, (b) transactions
exclusively between the Company and the Guarantor and (c) transactions under the
agreements listed on Schedule 3.17 to the Note Purchase Agreement.

               5.8 Investments. The Company will not, and the Company will not
permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment
in any Person, except for Permitted Investments.

               5.9 Nature of Business. The Company will not, and the Company
will not permit any Subsidiary to, engage in any business other than that
conducted on the date hereof and any businesses reasonably related thereto.

               5.10 Property of Existing Domestic Subsidiaries. The Company will
not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise
organized under the laws of the United States of America or any state thereof (a
"Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease,
license, purchase or otherwise acquire any personal or real property (excluding
any material intellectual property) in excess of $50,000 for all property held
by such Subsidiary, or $250,000 in the aggregate for all property held by all
Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own
or otherwise hold any rights to any material intellectual property or (iv)
otherwise conduct any business or maintain operations.

               5.11 Formation of Subsidiaries. The Company will not, and will
not cause or permit any of its Subsidiaries to, form, acquire or permit the
existence of any


                                       12



new domestic Subsidiary, without causing such domestic Subsidiary to execute and
deliver to the Holders a secured guaranty of the Notes and related security
document, in form and substance satisfactory to the Holders.

               5.12 Books and Records. The Company shall keep proper books of
record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company and its
Subsidiaries in accordance with GAAP consistently applied.

               5.13 Inspection. The Company shall, and shall cause each of its
Subsidiaries to, permit representatives of the Holders to visit and inspect any
of its properties, to examine its corporate, financial and operating records and
make copies thereof or abstracts therefrom, and to discuss its affairs, finances
and accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested upon notice to the Company.

               5.14 Maintenance of Business. The Company shall, and shall cause
each Subsidiary to, preserve and maintain its existence. The Company shall, and
shall cause each Subsidiary to, preserve and keep in force and effect all
licenses, permits, franchises, approvals, patents, trademarks, trade names,
trade styles, copyrights, and other property rights necessary to the proper
conduct of its business, except where the failure to do so could not reasonably
be expected to have a material adverse effect on the Condition of the Company or
on the prospects of repayment of the Notes.

               5.15 Maintenance of Properties. The Company shall, and shall
cause each Subsidiary to, maintain, preserve and keep its property and equipment
in good repair, working order and condition (ordinary wear and tear excepted)
and shall from time to time make all needful and proper repairs, renewals,
replacements, additions and betterments thereto so that at all times the
efficiency thereof shall by fully preserved and maintained, except in each case
to the extent that, in the reasonable business judgment of such Person, any such
property or equipment is no longer necessary for the proper conduct of the
business of such Person.

          6. The occurrence of any one or more of the following events shall
constitute an "Event of Default":

               6.1 Failure To Pay. (i) The failure of the Company to pay any
principal due under any of the Notes when due and payable (whether by
acceleration, declaration, extension or otherwise), or (ii) the failure of the
Company to pay any other amounts due under any of the Notes when due and payable
if such failure is not cured within five (5) days of Company's receipt of notice
thereof from any of the Holders.

               6.2 Financial Covenants. The failure of Company or any of its
Subsidiaries to perform, observe or comply with any of the Financial Covenants
set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by
reference in this Note in Section 5.2.


                                       13



               6.3 Other Covenants and Agreements. The failure of Company or any
of its Subsidiaries to perform, observe or comply with any of the covenants of
this Note, the Security Agreement or any of the other Loan Documents (other than
the Financial Covenants set forth on Schedule 8.5 to the Note Purchase
Agreement, and incorporated by reference in this Note in Section 5.2), if such
failure is not cured within sixty (60) days.

               6.4 Representations and Warranties. If any representation or
warranty made by the Company or any of its Subsidiaries in the Loan Documents is
not true and correct in all material respects on the Initial Closing Date.

               6.5 Default on Other Obligations. The occurrence of any condition
or default under any other indebtedness for borrowed money of the Company or any
of its Subsidiaries with a principal amount of at least five hundred thousand
dollars ($500,000) that results in the acceleration of such indebtedness which
is not cured within sixty (60) days.

               6.6 Involuntary Bankruptcy. There shall be filed against the
Company or any of its Subsidiaries an involuntary petition or other pleading
seeking the entry of a decree or order for relief under the United States
Bankruptcy Code or any similar federal or state insolvency or similar laws
ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a
reorganization of the Company or any of its Subsidiaries or the business and
affairs of the Company or any of its Subsidiaries or (c) the appointment of a
receiver, liquidator, assignee, custodian, trustee or similar official for the
Company or any of its Subsidiaries of the property of the Company or any of its
Subsidiaries.

               6.7 Voluntary Bankruptcy. The commencement by the Company or any
of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any
federal or state insolvency or similar laws or the consent by the Company or any
of its Subsidiaries to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or similar official for the Company or
any of its Subsidiaries of any of the property of the Company or any of its
Subsidiaries or the making by the Company or any of its Subsidiaries of an
assignment for the benefit of creditors, or the failure by Company or any of its
Subsidiaries generally to pay its debts as the debts become due.

               6.8 Judgments, Awards. Any judgment or order for the payment of
money is rendered against the Company or any of its Subsidiaries in an amount in
excess of five hundred thousand dollars ($500,000) individually or in the
aggregate and either (i) enforcement proceedings are commenced by any creditor
upon such judgment or order and not stayed, or (ii) there is any period of sixty
(60) consecutive days during which such judgment has not been paid in full or a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, is not in effect.

               6.9 Attachment by Lenders. Any assets of the Company or any of
its Subsidiaries shall be attached, levied upon, seized or repossessed, or come
into the


                                       14



possession of a trustee, receiver or other custodian and a determination by any
Holder, in good faith but in its sole discretion, that the same could have a
material adverse effect on the prospect for the Holders to fully and punctually
realize the full benefits conferred on the Holders by the Loan Documents.

               6.10 Adverse Change in Financial Condition. Any event having a
material adverse effect on the business, operations, assets, properties or
condition of the Company and its Subsidiaries taken as a whole shall have
occurred and be continuing or a material adverse effect on the validity or
enforceability of this or any of the other Loan Documents or the rights or
remedies of the Holders hereunder or thereunder.

          7. Remedies. Upon and after the occurrence of an Event of Default, the
Holder shall be entitled to the exercise the rights and remedies set forth in
the Security Agreement, the other Loan Documents and under applicable law, all
such rights and remedies being cumulative and enforceable alternatively,
successively or concurrently.

          8. Prepayment. The Company may not prepay this Note prior to the
Maturity Date without the prior written consent of the Holders.

          9. Seniority.

                    (a) Except as set forth in the Subordination Agreement, the
Notes will rank senior in right of payment to all other indebtedness of the
Company, other than the GA Notes and the January 2004 Notes, with respect to
which the Notes will be pari passu in right of payment in accordance with the
Intercreditor Agreement.

                    (b) Notwithstanding anything to the contrary contained in
the Notes, this Note and the other Notes, and the terms and the conditions
hereof and thereof, are subject to the Intercreditor Agreement.

          10. Assignment. Subject to the restrictions on transfer described in
Section 12 below, the rights and obligations of the Company and Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties. The Company shall not be permitted to assign this
Note without the prior written consent of the Holders.

          11. Waiver of Notice. The Company hereby waives notice, presentment,
demand, protest and notice of dishonor.

          12. Transfer of This Note. With respect to any offer, sale or other
disposition of this Note, Holder will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such Holder's counsel, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any
federal or state law then in effect); provided, that no opinion shall be
required for any transfer to an Affiliate or if the transfer is made in
compliance with the Securities Act, so long as the transferee can make the same
representations and warranties at the time of transfer as set forth in Sections
4.5, 4.6, 4.7,


                                       15



4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly upon delivering
such written notice and opinion, if so required, Holder may sell or otherwise
dispose of this Note, all in accordance with the terms of the notice delivered
to the Company. Each Note thus transferred shall bear a legend as to the
applicable restrictions on transferability in order to ensure compliance with
the Securities Act, unless in the opinion of counsel for the Company such legend
is not required in order to ensure compliance with the Securities Act. The
Company may issue stop transfer instructions to its transfer agent in connection
with such restrictions. Notwithstanding the foregoing, the Holder shall not be
permitted to transfer this Note to any Person who is not an Affiliate until the
earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of
written notice from the Company that Stockholder Approval cannot be obtained, or
the occurrence of an actual vote of the Company's shareholders entitled to vote
(whether by written consent or at a meeting specially called for such purpose),
the result of which is a decision by a majority of the Company's shareholders
entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months
from the date hereof and (iv) the occurrence of an Event of Default. This Note
is registered as to both principal and stated interest with the Company (or its
agent) within the meaning of section 1.871-14(c)(1)(i) of the Income Tax
Regulations. Accordingly, notwithstanding anything to the contrary in this
paragraph, this Note, together with any interest thereon, may be transferred
only (i) upon surrender of the Note by the transferor to the Company (or its
agent) and the reissuance of the Note (or the issuance of a new Note) to the
transferee, or (ii) by transfer of the right to principal and interest through a
book-entry system meeting the requirements of section 1.871-14(c)(1)(i)(B) of
the Income Tax Regulations that is maintained by the Company (or its agent). In
the case of a Holder that is not a "United States person" within the meaning of
section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the
"Code"), so long as an exception under section 871(h) or section 881(c) of the
Code does not apply, the Company (or its agent) shall not withhold any U.S.
federal income tax with respect to such Holder provided that the Holder timely
provides the Company (or its agent) with a statement that meets the requirements
of section 871(h)(5) of the Code.

          13. Treatment of Note. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.

          14. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by nationally recognized courier
service or mailed by registered or certified mail, postage prepaid, to the
respective addresses of the parties as set forth on the signature pages hereto
or if sent by facsimile to the respective facsimile numbers of the parties set
forth on the signature pages hereto. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively be
deemed to have been given and received when personally delivered or three (3)
business days after deposited in the mail or one business day after sent by
courier or upon confirmation of facsimile delivery in the manner set forth
above.


                                       16



          15. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon Holder or any other Person the right to vote or to
consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company.

          16. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, excluding that body of law
relating to conflict of laws.

          17. Amendments and Waivers. No amendments or waivers of any provision
of this Note, and no consent by the Holder to any departure by the Company,
shall in any event be effective unless the same shall be in writing, and signed
by the Holders of a majority of the outstanding principal amount of all of the
Notes issued by the Company pursuant to the Note Purchase Agreement, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given.

          18. Severability. Any provision of this Note that is prohibited or
unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

          19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY
(A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF
RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION
WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY
TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY
OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN
THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER
OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE.
THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND
VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER
HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY
INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT
THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE
COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF
RIGHT TO TRIAL BY JURY. EACH OF


                                       17



THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED
IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT
LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

          20. Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except as otherwise indicated, all references herein to Sections refer to
Sections hereof.

              [the remainder of this page intentionally left blank]


                                       18



          IN WITNESS WHEREOF, the Company has caused this Note to be issued this
9th day of March, 2004.

                                   COMPANY:

                                   CRITICAL PATH, INC.,
                                   a California corporation

                                   By: /s/ William E. McGlashan, Jr.
                                       -----------------------------------------
                                       Name: William E. McGlashan, Jr.
                                       Title: Chairman, Chief Executive Officer

                                       Critical Path, Inc.
                                       350 The Embarcadero
                                       San Francisco, CA 94105-1204
                                       Telecopy: (415) 541-2300
                                       Attention: Chief Financial Officer

                                       With a copy to:

                                       Pillsbury Winthrop LLP
                                       50 Fremont Street
                                       San Francisco, CA 94105
                                       Telecopy: (415) 983-1200
                                       Attention: Gregg Vignos, Esq.

Name of Holder: GUGGENHEIM PORTFOLIO COMPANY XIII

Address:   c/o Apex Capital, LLC
           25 Orinda Way, Suite 300
           Orinda, CA 94563
           Attention: Adam Fiore, General Counsel

Telephone: (925) 253-6125

Facsimile: (925) 253-1809

EX-4.38

                                                                    EXHIBIT 4.38

     THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
     SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN
     REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
     SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
     TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER
     OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.

                               CRITICAL PATH, INC.

                    CONVERTIBLE SUBORDINATED PROMISSORY NOTE

$5,000,000                                             San Francisco, California
                                                                   March 9, 2004

          Critical Path, Inc., a California corporation (the "Company"), the
principal office of which is located in San Francisco, California, for value
received hereby promises to pay to the order of Crosslink Crossover Fund IV,
L.P., or its registered assigns ("Holder"), the sum of five million dollars
($5,000,000), or such lesser amount as shall then equal the outstanding
principal amount hereof on the terms and conditions set forth hereinafter. The
outstanding principal amount hereof and all accrued and unpaid interest hereon,
as set forth below, shall be due and payable on the earlier to occur of (i)
March 9, 2008, (ii) when declared due and payable by Holder upon the occurrence
of an Event of Default (as defined below), (iii) consummation of a Qualified
Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock or Stock
Equivalents by the Company, any cash capital contribution from any third person
or any other debt or equity financing consummated by the Company after the date
of issuance of this Note which, in the case of (v), individually or in the
aggregate raises proceeds of at least forty million dollars ($40,000,000) in
cash or cash equivalents (the earliest of the events set forth in items (i)-(v)
immediately above, the "Maturity Date").

          The following is a statement of the rights of the Holder of this Note
and the conditions to which this Note is subject, and to which the Holder
hereof, by the acceptance of this Note, agrees:

          1. Definitions. Except as otherwise defined herein, each capitalized
term used herein shall have the meaning assigned to it in the Note Purchase
Agreement, as in effect on the date hereof, and without regard to any subsequent
termination of the Note Purchase Agreement. All other references to the Note
Purchase Agreement in this Note refer to the Note Purchase Agreement as in
effect on the date hereof, and without regard to any subsequent termination of
the Note Purchase Agreement. As used in this Note, the following terms, unless
the context otherwise requires, have the following



meanings:

               1.1 "Affiliate" means any Person who is an "affiliate" as defined
in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange
Act of 1934, as amended.

               1.2 "Capitalized Lease Obligations" means, with respect to any
Person, all rental obligations of such Person which, under GAAP, are or will be
required to be capitalized on the books of such Person, in each case taken at
the amount thereof accounted for as indebtedness in accordance with such
principles.

               1.3 "Change of Control" shall mean (i) any merger, consolidation
or other business combination transaction (or series of related transactions) in
which the stockholders owning a majority of the voting securities of the Company
prior to such transaction do not own a majority of the voting securities of the
surviving entity, (ii) any tender offer, exchange offer or other transaction
whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as amended) (other than
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell
Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and
the Affiliates of the foregoing, provided that Affiliates shall be deemed not to
include any portfolio companies of any of the foregoing) obtains a majority of
the outstanding shares of capital stock entitled to vote in the election of
directors, (iii) any proxy contest in which a majority of the Board of Directors
of the Company (or persons appointed by such Board of Directors) prior to such
contest do not constitute a majority of the Company's Board of Directors after
such contest or (iv) any other transaction described in any stockholder rights
agreement or "poison pill," if any, to which the Company is party, which may
permit the holders of any rights or similar certificates to exercise the rights
evidenced thereby.

               1.4 "Company" shall have the meaning set forth in the recitals
hereto, and includes any corporation that shall succeed to or assume the
obligations of the Company under this Note.

               1.5 "Common Conversion Date" shall have the meaning set forth in
Section 3.1(b) hereof.

               1.6 "Common Stock" means the common stock, par value $0.001 per
share, of the Company.

               1.7 "Conversion Date" shall mean the Subsequent Closing Date.

               1.8 "Domestic Subsidiary" shall have the meaning set forth in
Section 5.10 hereof.

               1.9 "Event of Default" shall have the meaning set forth in
Section 6 hereof.


                                       2



               1.10 "GA Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP
Entities pursuant to the Purchase and Exchange Agreement.

               1.11 "GAP Entities" shall mean General Atlantic Partners 74,
L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG.

               1.12 "Guarantor" shall have the meaning set forth in the Security
Agreement.

               1.13 "Holder" shall mean the registered holder of this Note from
time to time, and in the plural, shall mean all registered holders of Notes from
time to time issued by the Company pursuant to the Note Purchase Agreement.

               1.14 "Intercreditor Agreement" shall mean the Intercreditor
Agreement, dated the date hereof, among the GAP Entities, the January Lenders,
Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore
Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital
Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures
International.

               1.15 "Interest Amount" shall have the meaning set forth in
Section 3.1 hereof.

               1.16 "Investment" means (i) the acquisition (whether for cash,
property, services, assumption of Indebtedness, securities or otherwise) of
assets (other than equipment, inventory, supplies or other assets acquired in
the ordinary course of business of the Company), capital stock, bonds, notes,
debentures, partnership, joint venture or other ownership interests or other
securities of any Person, (ii) any deposit with, or advance, loan or other
extension of credit to, or on behalf of, any Person (other than deposits made in
connection with the purchase of equipment, inventory, services, leases, supplies
or other assets in the ordinary course of business of the Company), and (iii)
any other capital contribution to or investment in any Person, including,
without limitation, any guaranty obligation incurred for the benefit of any
Person. For the sake of clarity, Investments shall include any transfer of
property or assets by the Company to any of its Subsidiaries or by any
Subsidiary of the Company to any other Subsidiary.

               1.17 "January Lenders" shall mean Permal U.S. Opportunities
Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis
Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P.

               1.18 "January Note Agreement" shall mean the Convertible Note
Purchase Agreement, dated January 16, 2004, among the January Lenders and the
Company.

               1.19 "January 2004 Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated January 16, 2003, issued by the Company to the
January Lenders pursuant to the January Note Agreement.


                                       3



               1.20 "Loan Documents" shall have the meaning set forth in the
Security Agreement.

               1.21 "Note" shall mean this note, and in the plural, shall mean
all notes issued to the Lenders pursuant to the terms of the Note Purchase
Agreement, including this Note, and all amendments, modifications and extensions
thereto.

               1.22 "Note Purchase Agreement" means that certain Convertible
Note Purchase Agreement, dated March 9, 2004, among the Company, the Holder and
the other parties thereto from time to time, and all amendments, modifications
and extensions thereto.

               1.23 "Permitted Investments" means (i) Investments in cash or
cash equivalents, (ii) accounts receivable created, acquired or made in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (iii) Investments existing on the closing date, and
listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty
obligations permitted by Section 5.3 of this Agreement, (v) loans to employees,
directors or officers of the Company in connection with the award of convertible
bonds or capital stock under a stock incentive plan, stock option plan or other
equity-based compensation plan or arrangement, (vi) other advances or loans to
employees, directors, officers or agents of the Company in the ordinary course
of business not to exceed $500,000 in the aggregate at any time outstanding;
(vii) loans, advances and investments in foreign Subsidiaries (that are not
incorporated or otherwise organized under the laws of the United States of
America or any state thereof) in an amount not to exceed $1,000,000 in the
aggregate at any time outstanding; (viii) any acquisition for which the prior
written consent of the Holders of a majority of the outstanding principal amount
of all of the Notes issued by the Company pursuant to the Note Purchase
Agreement has been obtained, (ix) other loans, advances and investments of a
nature not contemplated by the foregoing sections in an amount not to exceed
$500,000 in the aggregate at any time outstanding or (x) Investments by the
Company in the Guarantor.

               1.24 "Permitted Liens" shall have the meaning set forth in
Section 5.4.

               1.25 "Person" means any individual, firm, corporation,
partnership, trust, joint venture, joint stock company, limited liability
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.

               1.26 "Price Per Share" shall have the meaning attributed to such
term in the Series E Certificate of Determination, as filed with the Secretary
of State of the State of California.

               1.27 "Purchase and Exchange Agreement" shall mean the Convertible
Note Purchase and Exchange Agreement, dated November 18, 2003, among the
Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended.


                                       4



               1.28 "Qualified Asset Sale" means the sale, transfer or other
disposition of any of the assets of the Company or any of its Subsidiaries,
other than (a) sales of assets in the ordinary course of business, (b) sales of
assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the
sale, transfer or other disposition of assets of the Company where the proceeds
are applied to the purchase price or traded in for credit against the purchase
price of other assets, provided that any such purchase is made, or credit
issued, within 90 days of the sale, transfer or other disposition, and (d) one
or more sales of the Company's assets (other than sales otherwise included in
clauses (a), (b), and (c) immediately above) which collectively yield up to an
aggregate of one million dollars ($1,000,000) in gross proceeds to the Company
while this Note is outstanding.

               1.29 "Restricted Payment" means (a) any dividend or other
distribution (whether in cash, securities or other property) with respect to any
shares of any class of capital stock of the Company or any of its Subsidiaries
or (b) any payment (whether in cash, securities or other property), including
any sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any shares of any class
of capital stock of the Company or any Subsidiary or any option, warrant or
other right to acquire any such shares of capital stock of the Company or any
Subsidiary.

               1.30 "Security Agreement" means that certain Guaranty and
Security Agreement, of even date herewith between the Company, Compass Holding
Corp., the Lenders and the other parties thereto from time to time, and all
amendments, modifications and extensions thereto.

               1.31 "Series E Conversion Price" shall have the meaning set forth
in the Series E Certificate of Determination.

               1.32 "Series E Preferred Stock" means the Series E Preferred
Stock, par value $0.001, of the Company.

               1.33 "Subordination Agreement" shall have the meaning set forth
in Section 5.3.

               1.34 "Subsequent Closing Date" shall have the meaning set forth
in Section 2.4(e) of the Note Purchase Agreement.

               1.35 "SVB" means Silicon Valley Bank, a California chartered
bank, or any Affiliates thereof.

               1.36 "Ten Percent Holder" means, with respect to a class of
equity securities of the Company, a Person (together with such Person's
Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such
class of equity securities of the Company, as defined by Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

               1.37 "UCC" shall have the meaning set forth in Section 5.4.


                                       5



          2. Interest. Simple interest shall accrue at the rate of ten percent
(10%) per annum (or such lesser amount as shall equal the highest rate of
interest allowable under applicable law) (the "Interest Rate"), on the
outstanding principal of this Note from the date of this Note until the Maturity
Date or the date this Note is otherwise repaid. The Company shall not be
obligated to make any payments of interest which shall have accrued under this
Note prior to the Maturity Date. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. In the event that the
principal amount of this Note, any interest, or any amount payable hereunder is
not paid in full when such amount becomes due and payable, or upon the
occurrence of an Event of Default, interest shall accrue at the lesser of (a)
the initial Interest Rate plus five percent (5%) per annum or (b) the highest
rate of interest allowable under applicable law, on the balance of all amounts
outstanding until such overdue amounts are paid or the Event of Default is
cured, and such interest shall be payable on demand.

          3.   Conversion.

               3.1  Conversion.

                    (a) On the Conversion Date, the principal amount of this
Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall
be automatically converted into the number of fully paid and nonassessable
shares of Series E Preferred Stock equal to the quotient obtained by dividing
(a) the entire principal amount of this Note plus the Interest Amount by (b) the
Price Per Share.

                    (b) In the event that the Conversion Date has not occurred
on or prior to August 15, 2004 (the "Common Conversion Date"), then, following
the Common Conversion Date, the principal amount of this Note plus the Interest
Amount shall be convertible, at the option of Holder and from time to time, only
into Common Stock at a conversion price per share equal to $2.18, as adjusted
for any stock dividends, stock splits or similar consolidations or subdivisions,
following the date hereof; provided, however, that Holder shall not be permitted
to convert any portion of the principal of this Note or the Interest Amount into
Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion,
the conversion would cause Holder to be a Ten Percent Holder.

               3.2 Notice of Conversion. Upon conversion of this Note as
provided in Section 3.1, Holder shall surrender this Note to the Company and
shall state the name or names in which the certificate or certificates for such
shares of Series E Preferred Stock or Common Stock, as the case may be, are to
be issued. The Person or Persons entitled to receive the shares of Series E
Preferred Stock or Common Stock, as the case may be, issuable upon such
conversion shall be treated for all purposes as the record holder or holders (a)
of such shares of Series E Preferred Stock as of the Conversion Date and (b) of
such shares of Common Stock as of the date of any conversion pursuant to Section
3.1(b).

               3.3 Delivery of Stock Certificates. Upon conversion of this Note
as provided in Section 3.1, the Company at its expense will issue and deliver to


                                       6



Holder of this Note a certificate or certificates (bearing such legends as are
required by applicable state and federal securities laws in the opinion of
counsel to the Company) for the number of full shares of Series E Preferred
Stock or Common Stock, as the case may be, issuable upon such conversion.

               3.4 Mechanics and Effect of Conversion. No fractional shares of
Series E Preferred Stock or Common Stock, as the case may be, shall be issued
upon conversion of this Note. In lieu of the Company issuing any fractional
shares to Holder upon the conversion of this Note, the Company shall pay to
Holder the amount of outstanding principal and interest that is not so
converted. Upon conversion of all amounts due under this Note, the Company shall
be released from all of its obligations under this Note.

          4. Adjustments. The number of shares of Series E Preferred Stock or
Common Stock convertible hereunder are subject to adjustment from time to time
as follows:

               4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at
any time while this Note remains outstanding and unexpired there shall be (a) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (b) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise or (c) a sale or
transfer of the Company's stock, properties or assets as, or substantially as,
an entirety to any other Person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that Holder
shall thereafter be entitled to receive by converting this Note the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon conversion of this Note would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Note had been converted immediately before such reorganization,
merger, consolidation, sale or transfer (notwithstanding that the Stockholder
Approval may not yet have been obtained), all subject to further adjustment as
provided in this Section 4. The foregoing provisions of this Section 4.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation. If the
per share consideration payable to Holder hereof for shares in connection with
any such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
Company's Board of Directors based on the amount the Holder would have otherwise
been entitled to receive had the transaction or transactions not occurred. In
all events, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions of this
Note with respect to the rights and interests of Holder after the transaction,
to the end that the provisions of this Note shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon conversion of


                                       7



this Note. The Company shall be obligated to retain and set aside, or otherwise
make fair provision for exercise of the right of the Holder to receive, the
shares of stock and/or other securities, cash or other property provided for in
this Section 4.1.

               4.2 Election of Holder upon Merger or Sale of Assets.
Notwithstanding anything to the contrary contained herein, if an event shall
occur as provided in Section 4.1 hereof that would otherwise result in the
occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first
paragraph of this Note, then the Holder may, in its sole discretion, by written
notice to the Company elect to convert the principal amount of this Note plus
the Interest Amount into the number of shares of stock or other securities or
property described in Section 4.1, in lieu of receiving payment in full of all
amounts outstanding under this Note. The number of shares of stock or other
securities or property to be issued upon such conversion shall be determined in
accordance with Section 4.1 hereof, taking into account the occurrence of such
event.

               4.3 Reclassification, Etc. If the Company shall, at any time
while this Note, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, change any of the securities as to
which conversion rights under this Note exist into the same or a different
number of securities of any other class or classes, this Note shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable with respect to the securities that were subject to the conversion
rights under this Note immediately prior to such reclassification or other
change, and the Price Per Share shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 4.

               4.4 Split, Subdivision or Combination of Shares. If the Company
at any time while this Note, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the shares of Series E Preferred
Stock or Common Stock into a different number of securities of the same class,
the Price Per Share or conversion price, as the case may be, shall be
proportionately adjusted.

               4.5 Series E Adjustments. The initial Series E Conversion Price
of the shares of Series E Preferred Stock issued upon conversion of this Note
pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on
the Conversion Date, subject to the adjustment of such Series E Conversion Price
from time to time thereafter as provided in the Series E Certificate of
Determination.

               4.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 4, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.

               4.7 No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all


                                       8



such action as may be necessary or appropriate in order to protect the rights of
Holder against impairment.

          5. Covenants. The Company covenants and agrees that until the earlier
of (i) the date on which all Obligations (as defined in the Security Agreement)
have been paid in full or (ii) the date on which all amounts outstanding under
the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b):

               5.1 Financial Statements and Other Information. The Company shall
deliver to the Holder of this Note the financial statements and other
information required to be delivered under Section 8.1 of the Note Purchase
Agreement.

               5.2 Financial Covenants. The Company shall at all times comply
with the financial and other covenants set forth in Schedule 8.5 to the Note
Purchase Agreement as if such covenants were set forth herein.

               5.3 Indebtedness. The Company shall not, and shall not permit any
Subsidiary to, issue, incur, assume, create or have outstanding any
Indebtedness, provided, however, that the foregoing shall not restrict nor
operate to prevent:

                    (a) Indebtedness in favor of the Holders under the Loan

Documents;

                    (b) Indebtedness existing on the date hereof, as set forth
on Schedule 3.22 to the Note Purchase Agreement;

                    (c) Indebtedness for accounts payable incurred in the
ordinary course of business by the Company;

                    (d) Indebtedness incurred solely for the purpose of
financing the acquisition of any equipment, machinery, software, improvements or
any other similar property, or extensions, renewals or replacements of any of
the foregoing for the same or a lesser amount; provided, that the aggregate
outstanding principal amount of all Indebtedness permitted pursuant to this
clause (d) outstanding for more than sixty (60) days after the incurrence of
such Indebtedness shall not at any time exceed $500,000;

                    (e) Indebtedness of the Company evidenced by Capitalized
Lease Obligations, provided, that in no event shall the aggregate principal
amount of Capitalized Lease Obligations permitted by this clause (e) exceed
$500,000 at any time outstanding; and

                    (f) Any extension, renewal, refinancing, refunding, or
replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and
(e) above, on such terms and conditions as are, on the whole, not materially
more onerous to the Company than the terms and conditions of such original
Indebtedness on the date of such refinancing (including that the principal
amount of such refinancing Indebtedness


                                       9



does not exceed the principal amount of, plus the amount of accrued and unpaid
interest on, the Indebtedness so refinanced (plus the amount of reasonable
premium and fees and expenses incurred in connection therewith)), provided that,
in the case of a refinancing of Indebtedness owed by the Company or any
Subsidiary to SVB, this clause (f) shall only apply to the extent consistent
with the Subordination Agreement, dated as of the date hereof, by and among SVB,
the Holders and the Company (the "Subordination Agreement").

               5.4 Liens. The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
the Company or any of its Subsidiaries, whether now owned or hereafter acquired,
or sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable), or assign any right to receive income or permit the
filing of any financing statement under the Uniform Commercial Code, as from
time to time in effect in the relevant jurisdiction (the "UCC"), or any other
similar notice of Lien under any similar recording or notice statute; provided,
that the provisions of this Section 5.4 shall not prevent the creation,
incurrence, assumption or existence of the following:

                    (a) Liens arising in the ordinary course of business by
statute in connection with worker's compensation, unemployment insurance, old
age benefits, social security obligations, statutory obligations or other
similar charges (other then Liens arising under ERISA), good faith cash deposits
in connection with tenders, contracts or leases to which the Company or any
Subsidiary is a party or other cash deposits required to be made in the ordinary
course of business, provided, that such Liens do not have a material adverse
effect on the ability of the Company to repay amounts due under the Notes;

                    (b) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due or Liens for taxes, assessments or governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP;

                    (c) Liens in respect of property or assets of the Company or
its Subsidiaries imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as carriers',
warehousemen's, materialmen's and mechanics' liens and other similar Liens
arising in the ordinary course of business, and (i) which do not in the
aggregate materially detract from the value of the Company's and its
Subsidiaries' property or assets taken as a whole or result in a material
adverse effect on the Condition of the Company or (ii) which are being contested
in good faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to any such
Lien;


                                       10



                    (d) the pledge of assets for the purpose of securing an
appeal, stay or discharge in the course of any legal proceeding, provided that
the aggregate amount of liabilities of the Company and its Subsidiaries secured
by a pledge of assets permitted under this subsection, including interest and
penalties thereon, if any, shall not be in excess of $500,000 at any one time
outstanding;

                    (e) any interest or title of a lessor under any operating
lease;

                    (f) easements, rights-of-way, restrictions and other similar
encumbrances against real property incurred in the ordinary course of business;

                    (g) the Liens existing on the date hereof identified on
Schedule 3.22 to the Note Purchase Agreement;

                    (h) Liens on cash deposited with account debtors to secure
performance by the Company or any Subsidiary in the ordinary course of business
subject to customary and reasonable terms;

                    (i) Liens upon assets of the Company or its Subsidiaries
subject to Capitalized Lease Obligations, provided, that (A) such Liens only
serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising
under such Capitalized Lease Obligation and (B) the Lien encumbering the asset
giving rise to the Capitalized Lease Obligation does not encumber any other
asset of the Company or its Subsidiaries;

                    (j) Liens placed upon equipment, machinery, software,
improvements or any other similar property, used in the ordinary course of
business of the Company or any of its Subsidiaries at the time of the
acquisition thereof by the Company or any of its Subsidiaries or within ninety
(90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above;
provided, that the Liens encumbering the equipment, machinery software,
improvements or any other similar property so acquired do not encumber any other
asset of the Company or its Subsidiaries;

                    (k) set-off rights of depository institutions; and

                    (l) Liens created by the Security Agreement (collectively
with clauses (a) through (k) hereof, the "Permitted Liens").

               5.5 Fundamental Changes. The Company will not, and will not
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (in one transaction or a series of transactions)
all or substantially all of its assets, or all or substantially all of the stock
of any of its Subsidiaries (in each case, whether now owned or hereafter
acquired), or liquidate or dissolve, except that, if at the time and immediately
after giving effect thereto no Event of Default shall have occurred and be
continuing (i) the Company or any of its Subsidiaries may, with the prior
written


                                       11



consent of the Holders, merge with or into any other Person; (ii) any
wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with
or into the Company or any other wholly-owned Subsidiary of the Company; (iii)
any Subsidiary (other than the Guarantor, and except as otherwise prohibited by
this Note) may sell, transfer, lease or otherwise dispose of its assets to the
Company or to another wholly-owned Subsidiary of the Company; and (iv) any
Subsidiary may liquidate or dissolve if the board of directors of the Company
determine in good faith that such liquidation or dissolution is in its best
interests and is not disadvantageous to the Holders.

               5.6 Restricted Payments. The Company will not, and the Company
will not permit any Subsidiary to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except that (i) any Subsidiary
may make a Restricted Payment to the Company or any of its wholly-owned
Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any
Restricted Payment required by the terms of the Note Purchase Agreement and the
other documents executed in connection therewith.

               5.7 Transactions with Affiliates. The Company will not, and the
Company will not permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions that are at prices and on terms and
conditions not less favorable to the Company or such Subsidiary than could be
obtained on an arm's length basis from unrelated third parties, (b) transactions
exclusively between the Company and the Guarantor and (c) transactions under the
agreements listed on Schedule 3.17 to the Note Purchase Agreement.

               5.8 Investments. The Company will not, and the Company will not
permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment
in any Person, except for Permitted Investments.

               5.9 Nature of Business. The Company will not, and the Company
will not permit any Subsidiary to, engage in any business other than that
conducted on the date hereof and any businesses reasonably related thereto.

               5.10 Property of Existing Domestic Subsidiaries. The Company will
not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise
organized under the laws of the United States of America or any state thereof (a
"Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease,
license, purchase or otherwise acquire any personal or real property (excluding
any material intellectual property) in excess of $50,000 for all property held
by such Subsidiary, or $250,000 in the aggregate for all property held by all
Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own
or otherwise hold any rights to any material intellectual property or (iv)
otherwise conduct any business or maintain operations.

               5.11 Formation of Subsidiaries. The Company will not, and will
not cause or permit any of its Subsidiaries to, form, acquire or permit the
existence of


                                       12



any new domestic Subsidiary, without causing such domestic Subsidiary to execute
and deliver to the Holders a secured guaranty of the Notes and related security
document, in form and substance satisfactory to the Holders.

               5.12 Books and Records. The Company shall keep proper books of
record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company and its
Subsidiaries in accordance with GAAP consistently applied.

               5.13 Inspection. The Company shall, and shall cause each of its
Subsidiaries to, permit representatives of the Holders to visit and inspect any
of its properties, to examine its corporate, financial and operating records and
make copies thereof or abstracts therefrom, and to discuss its affairs, finances
and accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested upon notice to the Company.

               5.14 Maintenance of Business. The Company shall, and shall cause
each Subsidiary to, preserve and maintain its existence. The Company shall, and
shall cause each Subsidiary to, preserve and keep in force and effect all
licenses, permits, franchises, approvals, patents, trademarks, trade names,
trade styles, copyrights, and other property rights necessary to the proper
conduct of its business, except where the failure to do so could not reasonably
be expected to have a material adverse effect on the Condition of the Company or
on the prospects of repayment of the Notes.

               5.15 Maintenance of Properties. The Company shall, and shall
cause each Subsidiary to, maintain, preserve and keep its property and equipment
in good repair, working order and condition (ordinary wear and tear excepted)
and shall from time to time make all needful and proper repairs, renewals,
replacements, additions and betterments thereto so that at all times the
efficiency thereof shall by fully preserved and maintained, except in each case
to the extent that, in the reasonable business judgment of such Person, any such
property or equipment is no longer necessary for the proper conduct of the
business of such Person.

          6. The occurrence of any one or more of the following events shall
constitute an "Event of Default":

               6.1 Failure To Pay. (i) The failure of the Company to pay any
principal due under any of the Notes when due and payable (whether by
acceleration, declaration, extension or otherwise), or (ii) the failure of the
Company to pay any other amounts due under any of the Notes when due and payable
if such failure is not cured within five (5) days of Company's receipt of notice
thereof from any of the Holders.

               6.2 Financial Covenants. The failure of Company or any of its
Subsidiaries to perform, observe or comply with any of the Financial Covenants
set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by
reference in this Note in Section 5.2.


                                       13



               6.3 Other Covenants and Agreements. The failure of Company or any
of its Subsidiaries to perform, observe or comply with any of the covenants of
this Note, the Security Agreement or any of the other Loan Documents (other than
the Financial Covenants set forth on Schedule 8.5 to the Note Purchase
Agreement, and incorporated by reference in this Note in Section 5.2), if such
failure is not cured within sixty (60) days.

               6.4 Representations and Warranties. If any representation or
warranty made by the Company or any of its Subsidiaries in the Loan Documents is
not true and correct in all material respects on the Initial Closing Date.

               6.5 Default on Other Obligations. The occurrence of any condition
or default under any other indebtedness for borrowed money of the Company or any
of its Subsidiaries with a principal amount of at least five hundred thousand
dollars ($500,000) that results in the acceleration of such indebtedness which
is not cured within sixty (60) days.

               6.6 Involuntary Bankruptcy. There shall be filed against the
Company or any of its Subsidiaries an involuntary petition or other pleading
seeking the entry of a decree or order for relief under the United States
Bankruptcy Code or any similar federal or state insolvency or similar laws
ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a
reorganization of the Company or any of its Subsidiaries or the business and
affairs of the Company or any of its Subsidiaries or (c) the appointment of a
receiver, liquidator, assignee, custodian, trustee or similar official for the
Company or any of its Subsidiaries of the property of the Company or any of its
Subsidiaries.

               6.7 Voluntary Bankruptcy. The commencement by the Company or any
of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any
federal or state insolvency or similar laws or the consent by the Company or any
of its Subsidiaries to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or similar official for the Company or
any of its Subsidiaries of any of the property of the Company or any of its
Subsidiaries or the making by the Company or any of its Subsidiaries of an
assignment for the benefit of creditors, or the failure by Company or any of its
Subsidiaries generally to pay its debts as the debts become due.

               6.8 Judgments, Awards. Any judgment or order for the payment of
money is rendered against the Company or any of its Subsidiaries in an amount in
excess of five hundred thousand dollars ($500,000) individually or in the
aggregate and either (i) enforcement proceedings are commenced by any creditor
upon such judgment or order and not stayed, or (ii) there is any period of sixty
(60) consecutive days during which such judgment has not been paid in full or a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, is not in effect.

               6.9 Attachment by Lenders. Any assets of the Company or any of
its Subsidiaries shall be attached, levied upon, seized or repossessed, or come
into the


                                       14



possession of a trustee, receiver or other custodian and a determination by any
Holder, in good faith but in its sole discretion, that the same could have a
material adverse effect on the prospect for the Holders to fully and punctually
realize the full benefits conferred on the Holders by the Loan Documents.

               6.10 Adverse Change in Financial Condition. Any event having a
material adverse effect on the business, operations, assets, properties or
condition of the Company and its Subsidiaries taken as a whole shall have
occurred and be continuing or a material adverse effect on the validity or
enforceability of this or any of the other Loan Documents or the rights or
remedies of the Holders hereunder or thereunder.

          7. Remedies. Upon and after the occurrence of an Event of Default, the
Holder shall be entitled to the exercise the rights and remedies set forth in
the Security Agreement, the other Loan Documents and under applicable law, all
such rights and remedies being cumulative and enforceable alternatively,
successively or concurrently.

          8. Prepayment. The Company may not prepay this Note prior to the
Maturity Date without the prior written consent of the Holders.

          9. Seniority.

                    (a) Except as set forth in the Subordination Agreement, the
Notes will rank senior in right of payment to all other indebtedness of the
Company, other than the GA Notes and the January 2004 Notes, with respect to
which the Notes will be pari passu in right of payment in accordance with the
Intercreditor Agreement.

                    (b) Notwithstanding anything to the contrary contained in
the Notes, this Note and the other Notes, and the terms and the conditions
hereof and thereof, are subject to the Intercreditor Agreement.

          10. Assignment. Subject to the restrictions on transfer described in
Section 12 below, the rights and obligations of the Company and Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties. The Company shall not be permitted to assign this
Note without the prior written consent of the Holders.

          11. Waiver of Notice. The Company hereby waives notice, presentment,
demand, protest and notice of dishonor.

          12. Transfer of This Note. With respect to any offer, sale or other
disposition of this Note, Holder will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such Holder's counsel, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any
federal or state law then in effect); provided, that no opinion shall be
required for any transfer to an Affiliate or if the transfer is made in
compliance with the Securities Act, so long as the transferee can make the same
representations and warranties at the time of transfer as set forth in Sections
4.5, 4.6, 4.7,


                                       15



4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly upon delivering
such written notice and opinion, if so required, Holder may sell or otherwise
dispose of this Note, all in accordance with the terms of the notice delivered
to the Company. Each Note thus transferred shall bear a legend as to the
applicable restrictions on transferability in order to ensure compliance with
the Securities Act, unless in the opinion of counsel for the Company such legend
is not required in order to ensure compliance with the Securities Act. The
Company may issue stop transfer instructions to its transfer agent in connection
with such restrictions. Notwithstanding the foregoing, the Holder shall not be
permitted to transfer this Note to any Person who is not an Affiliate until the
earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of
written notice from the Company that Stockholder Approval cannot be obtained, or
the occurrence of an actual vote of the Company's shareholders entitled to vote
(whether by written consent or at a meeting specially called for such purpose),
the result of which is a decision by a majority of the Company's shareholders
entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months
from the date hereof and (iv) the occurrence of an Event of Default. This Note
is registered as to both principal and stated interest with the Company (or its
agent) within the meaning of section 1.871-14(c)(1)(i) of the Income Tax
Regulations. Accordingly, notwithstanding anything to the contrary in this
paragraph, this Note, together with any interest thereon, may be transferred
only (i) upon surrender of the Note by the transferor to the Company (or its
agent) and the reissuance of the Note (or the issuance of a new Note) to the
transferee, or (ii) by transfer of the right to principal and interest through a
book-entry system meeting the requirements of section 1.871-14(c)(1)(i)(B) of
the Income Tax Regulations that is maintained by the Company (or its agent). In
the case of a Holder that is not a "United States person" within the meaning of
section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the
"Code"), so long as an exception under section 871(h) or section 881(c) of the
Code does not apply, the Company (or its agent) shall not withhold any U.S.
federal income tax with respect to such Holder provided that the Holder timely
provides the Company (or its agent) with a statement that meets the requirements
of section 871(h)(5) of the Code.

          13. Treatment of Note. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.

          14. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by nationally recognized courier
service or mailed by registered or certified mail, postage prepaid, to the
respective addresses of the parties as set forth on the signature pages hereto
or if sent by facsimile to the respective facsimile numbers of the parties set
forth on the signature pages hereto. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively be
deemed to have been given and received when personally delivered or three (3)
business days after deposited in the mail or one business day after sent by
courier or upon confirmation of facsimile delivery in the manner set forth
above.


                                       16



          15. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon Holder or any other Person the right to vote or to
consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company.

          16. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, excluding that body of law
relating to conflict of laws.

          17. Amendments and Waivers. No amendments or waivers of any provision
of this Note, and no consent by the Holder to any departure by the Company,
shall in any event be effective unless the same shall be in writing, and signed
by the Holders of a majority of the outstanding principal amount of all of the
Notes issued by the Company pursuant to the Note Purchase Agreement, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given.

          18. Severability. Any provision of this Note that is prohibited or
unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

          19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY
(A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF
RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION
WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY
TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY
OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN
THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER
OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE.
THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND
VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER
HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY
INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT
THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE
COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF
RIGHT TO TRIAL BY JURY. EACH OF


                                       17



THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED
IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT
LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

          20. Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except as otherwise indicated, all references herein to Sections refer to
Sections hereof.

               [the remainder of this page intentionally left blank]


                                       18



          IN WITNESS WHEREOF, the Company has caused this Note to be issued this
9th day of March, 2004.

                                        COMPANY:

                                        CRITICAL PATH, INC.,
                                        a California corporation

                                        By: /s/ William E. McGlashan, Jr.
                                            ------------------------------------
                                            Name: William E. McGlashan, Jr.
                                            Title: Chairman, Chief Executive
                                            Officer

                                            Critical Path, Inc.
                                            350 The Embarcadero
                                            San Francisco, CA 94105-1204
                                            Telecopy: (415) 541-2300
                                            Attention: Chief Financial Officer

                                            With a copy to:

                                            Pillsbury Winthrop LLP
                                            50 Fremont Street
                                            San Francisco, CA 94105
                                            Telecopy: (415) 983-1200
                                            Attention: Gregg Vignos, Esq.

Name of Holder: CROSSLINK CROSSOVER FUND IV, L.P.

Address: c/o Crosslink Capital
         Two Embarcadero Center, Suite 2200
         San Francisco, CA 94111
         Attention: Jason Sanders

Telephone: (415) 617-1845

Facsimile: (415) 617-1801

EX-4.39

                                                                    EXHIBIT 4.39

     THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
     SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN
     REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
     SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
     TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER
     OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.

                               CRITICAL PATH, INC.

                    CONVERTIBLE SUBORDINATED PROMISSORY NOTE

$3,000,000                                             San Francisco, California
                                                       March 9, 2004

          Critical Path, Inc., a California corporation (the "Company"), the
principal office of which is located in San Francisco, California, for value
received hereby promises to pay to the order of Sagamore Hill Hub Fund, Ltd., or
its registered assigns ("Holder"), the sum of three million dollars
($3,000,000), or such lesser amount as shall then equal the outstanding
principal amount hereof on the terms and conditions set forth hereinafter. The
outstanding principal amount hereof and all accrued and unpaid interest hereon,
as set forth below, shall be due and payable on the earlier to occur of (i)
March 9, 2008, (ii) when declared due and payable by Holder upon the occurrence
of an Event of Default (as defined below), (iii) consummation of a Qualified
Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock or Stock
Equivalents by the Company, any cash capital contribution from any third person
or any other debt or equity financing consummated by the Company after the date
of issuance of this Note which, in the case of (v), individually or in the
aggregate raises proceeds of at least forty million dollars ($40,000,000) in
cash or cash equivalents (the earliest of the events set forth in items (i)-(v)
immediately above, the "Maturity Date").

          The following is a statement of the rights of the Holder of this Note
and the conditions to which this Note is subject, and to which the Holder
hereof, by the acceptance of this Note, agrees:

          1. Definitions. Except as otherwise defined herein, each capitalized
term used herein shall have the meaning assigned to it in the Note Purchase
Agreement, as in effect on the date hereof, and without regard to any subsequent
termination of the Note Purchase Agreement. All other references to the Note
Purchase Agreement in this Note refer to the Note Purchase Agreement as in
effect on the date hereof, and without regard to any subsequent termination of
the Note Purchase Agreement. As used in this Note, the following terms, unless
the context otherwise requires, have the following



meanings:

               1.1 "Affiliate" means any Person who is an "affiliate" as defined
in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange
Act of 1934, as amended.

               1.2 "Capitalized Lease Obligations" means, with respect to any
Person, all rental obligations of such Person which, under GAAP, are or will be
required to be capitalized on the books of such Person, in each case taken at
the amount thereof accounted for as indebtedness in accordance with such
principles.

               1.3 "Change of Control" shall mean (i) any merger, consolidation
or other business combination transaction (or series of related transactions) in
which the stockholders owning a majority of the voting securities of the Company
prior to such transaction do not own a majority of the voting securities of the
surviving entity, (ii) any tender offer, exchange offer or other transaction
whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as amended) (other than
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell
Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and
the Affiliates of the foregoing, provided that Affiliates shall be deemed not to
include any portfolio companies of any of the foregoing) obtains a majority of
the outstanding shares of capital stock entitled to vote in the election of
directors, (iii) any proxy contest in which a majority of the Board of Directors
of the Company (or persons appointed by such Board of Directors) prior to such
contest do not constitute a majority of the Company's Board of Directors after
such contest or (iv) any other transaction described in any stockholder rights
agreement or "poison pill," if any, to which the Company is party, which may
permit the holders of any rights or similar certificates to exercise the rights
evidenced thereby.

               1.4 "Company" shall have the meaning set forth in the recitals
hereto, and includes any corporation that shall succeed to or assume the
obligations of the Company under this Note.

               1.5 "Common Conversion Date" shall have the meaning set forth in
Section 3.1(b) hereof.

               1.6 "Common Stock" means the common stock, par value $0.001 per
share, of the Company.

               1.7 "Conversion Date" shall mean the Subsequent Closing Date.

               1.8 "Domestic Subsidiary" shall have the meaning set forth in
Section 5.10 hereof.

               1.9 "Event of Default" shall have the meaning set forth in
Section 6 hereof.


                                       2



               1.10 "GA Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP
Entities pursuant to the Purchase and Exchange Agreement.

               1.11 "GAP Entities" shall mean General Atlantic Partners 74,
L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG.

               1.12 "Guarantor" shall have the meaning set forth in the Security
Agreement.

               1.13 "Holder" shall mean the registered holder of this Note from
time to time, and in the plural, shall mean all registered holders of Notes from
time to time issued by the Company pursuant to the Note Purchase Agreement.

               1.14 "Intercreditor Agreement" shall mean the Intercreditor
Agreement, dated the date hereof, among the GAP Entities, the January Lenders,
Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore
Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital
Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures
International.

               1.15 "Interest Amount" shall have the meaning set forth in
Section 3.1 hereof.

               1.16 "Investment" means (i) the acquisition (whether for cash,
property, services, assumption of Indebtedness, securities or otherwise) of
assets (other than equipment, inventory, supplies or other assets acquired in
the ordinary course of business of the Company), capital stock, bonds, notes,
debentures, partnership, joint venture or other ownership interests or other
securities of any Person, (ii) any deposit with, or advance, loan or other
extension of credit to, or on behalf of, any Person (other than deposits made in
connection with the purchase of equipment, inventory, services, leases, supplies
or other assets in the ordinary course of business of the Company), and (iii)
any other capital contribution to or investment in any Person, including,
without limitation, any guaranty obligation incurred for the benefit of any
Person. For the sake of clarity, Investments shall include any transfer of
property or assets by the Company to any of its Subsidiaries or by any
Subsidiary of the Company to any other Subsidiary.

               1.17 "January Lenders" shall mean Permal U.S. Opportunities
Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis
Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P.

               1.18 "January Note Agreement" shall mean the Convertible Note
Purchase Agreement, dated January 16, 2004, among the January Lenders and the
Company.

               1.19 "January 2004 Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated January 16, 2003, issued by the Company to the
January Lenders pursuant to the January Note Agreement.


                                       3



               1.20 "Loan Documents" shall have the meaning set forth in the
Security Agreement.

               1.21 "Note" shall mean this note, and in the plural, shall mean
all notes issued to the Lenders pursuant to the terms of the Note Purchase
Agreement, including this Note, and all amendments, modifications and extensions
thereto.

               1.22 "Note Purchase Agreement" means that certain Convertible
Note Purchase Agreement, dated March 9, 2004, among the Company, the Holder and
the other parties thereto from time to time, and all amendments, modifications
and extensions thereto.

               1.23 "Permitted Investments" means (i) Investments in cash or
cash equivalents, (ii) accounts receivable created, acquired or made in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (iii) Investments existing on the closing date, and
listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty
obligations permitted by Section 5.3 of this Agreement, (v) loans to employees,
directors or officers of the Company in connection with the award of convertible
bonds or capital stock under a stock incentive plan, stock option plan or other
equity-based compensation plan or arrangement, (vi) other advances or loans to
employees, directors, officers or agents of the Company in the ordinary course
of business not to exceed $500,000 in the aggregate at any time outstanding;
(vii) loans, advances and investments in foreign Subsidiaries (that are not
incorporated or otherwise organized under the laws of the United States of
America or any state thereof) in an amount not to exceed $1,000,000 in the
aggregate at any time outstanding; (viii) any acquisition for which the prior
written consent of the Holders of a majority of the outstanding principal amount
of all of the Notes issued by the Company pursuant to the Note Purchase
Agreement has been obtained, (ix) other loans, advances and investments of a
nature not contemplated by the foregoing sections in an amount not to exceed
$500,000 in the aggregate at any time outstanding or (x) Investments by the
Company in the Guarantor.

               1.24 "Permitted Liens" shall have the meaning set forth in
Section 5.4.

               1.25 "Person" means any individual, firm, corporation,
partnership, trust, joint venture, joint stock company, limited liability
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.

               1.26 "Price Per Share" shall have the meaning attributed to such
term in the Series E Certificate of Determination, as filed with the Secretary
of State of the State of California.

               1.27 "Purchase and Exchange Agreement" shall mean the Convertible
Note Purchase and Exchange Agreement, dated November 18, 2003, among the
Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended.


                                       4



               1.28 "Qualified Asset Sale" means the sale, transfer or other
disposition of any of the assets of the Company or any of its Subsidiaries,
other than (a) sales of assets in the ordinary course of business, (b) sales of
assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the
sale, transfer or other disposition of assets of the Company where the proceeds
are applied to the purchase price or traded in for credit against the purchase
price of other assets, provided that any such purchase is made, or credit
issued, within 90 days of the sale, transfer or other disposition, and (d) one
or more sales of the Company's assets (other than sales otherwise included in
clauses (a), (b), and (c) immediately above) which collectively yield up to an
aggregate of one million dollars ($1,000,000) in gross proceeds to the Company
while this Note is outstanding.

               1.29 "Restricted Payment" means (a) any dividend or other
distribution (whether in cash, securities or other property) with respect to any
shares of any class of capital stock of the Company or any of its Subsidiaries
or (b) any payment (whether in cash, securities or other property), including
any sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any shares of any class
of capital stock of the Company or any Subsidiary or any option, warrant or
other right to acquire any such shares of capital stock of the Company or any
Subsidiary.

               1.30 "Security Agreement" means that certain Guaranty and
Security Agreement, of even date herewith between the Company, Compass Holding
Corp., the Lenders and the other parties thereto from time to time, and all
amendments, modifications and extensions thereto.

               1.31 "Series E Conversion Price" shall have the meaning set forth
in the Series E Certificate of Determination.

               1.32 "Series E Preferred Stock" means the Series E Preferred
Stock, par value $0.001, of the Company.

               1.33 "Subordination Agreement" shall have the meaning set forth
in Section 5.3.

               1.34 "Subsequent Closing Date" shall have the meaning set forth
in Section 2.4(e) of the Note Purchase Agreement.

               1.35 "SVB" means Silicon Valley Bank, a California chartered
bank, or any Affiliates thereof.

               1.36 "Ten Percent Holder" means, with respect to a class of
equity securities of the Company, a Person (together with such Person's
Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such
class of equity securities of the Company, as defined by Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

               1.37 "UCC" shall have the meaning set forth in Section 5.4.


                                       5



          2. Interest. Simple interest shall accrue at the rate of ten percent
(10%) per annum (or such lesser amount as shall equal the highest rate of
interest allowable under applicable law) (the "Interest Rate"), on the
outstanding principal of this Note from the date of this Note until the Maturity
Date or the date this Note is otherwise repaid. The Company shall not be
obligated to make any payments of interest which shall have accrued under this
Note prior to the Maturity Date. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. In the event that the
principal amount of this Note, any interest, or any amount payable hereunder is
not paid in full when such amount becomes due and payable, or upon the
occurrence of an Event of Default, interest shall accrue at the lesser of (a)
the initial Interest Rate plus five percent (5%) per annum or (b) the highest
rate of interest allowable under applicable law, on the balance of all amounts
outstanding until such overdue amounts are paid or the Event of Default is
cured, and such interest shall be payable on demand.

          3. Conversion.

               3.1 Conversion.

                    (a) On the Conversion Date, the principal amount of this
Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall
be automatically converted into the number of fully paid and nonassessable
shares of Series E Preferred Stock equal to the quotient obtained by dividing
(a) the entire principal amount of this Note plus the Interest Amount by (b) the
Price Per Share.

                    (b) In the event that the Conversion Date has not occurred
on or prior to August 15, 2004 (the "Common Conversion Date"), then, following
the Common Conversion Date, the principal amount of this Note plus the Interest
Amount shall be convertible, at the option of Holder and from time to time, only
into Common Stock at a conversion price per share equal to $2.18, as adjusted
for any stock dividends, stock splits or similar consolidations or subdivisions,
following the date hereof; provided, however, that Holder shall not be permitted
to convert any portion of the principal of this Note or the Interest Amount into
Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion,
the conversion would cause Holder to be a Ten Percent Holder.

               3.2 Notice of Conversion. Upon conversion of this Note as
provided in Section 3.1, Holder shall surrender this Note to the Company and
shall state the name or names in which the certificate or certificates for such
shares of Series E Preferred Stock or Common Stock, as the case may be, are to
be issued. The Person or Persons entitled to receive the shares of Series E
Preferred Stock or Common Stock, as the case may be, issuable upon such
conversion shall be treated for all purposes as the record holder or holders (a)
of such shares of Series E Preferred Stock as of the Conversion Date and (b) of
such shares of Common Stock as of the date of any conversion pursuant to Section
3.1(b).

               3.3 Delivery of Stock Certificates. Upon conversion of this Note
as provided in Section 3.1, the Company at its expense will issue and deliver to


                                       6



Holder of this Note a certificate or certificates (bearing such legends as are
required by applicable state and federal securities laws in the opinion of
counsel to the Company) for the number of full shares of Series E Preferred
Stock or Common Stock, as the case may be, issuable upon such conversion.

               3.4 Mechanics and Effect of Conversion. No fractional shares of
Series E Preferred Stock or Common Stock, as the case may be, shall be issued
upon conversion of this Note. In lieu of the Company issuing any fractional
shares to Holder upon the conversion of this Note, the Company shall pay to
Holder the amount of outstanding principal and interest that is not so
converted. Upon conversion of all amounts due under this Note, the Company shall
be released from all of its obligations under this Note.

          4. Adjustments. The number of shares of Series E Preferred Stock or
Common Stock convertible hereunder are subject to adjustment from time to time
as follows:

               4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at
any time while this Note remains outstanding and unexpired there shall be (a) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (b) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise or (c) a sale or
transfer of the Company's stock, properties or assets as, or substantially as,
an entirety to any other Person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that Holder
shall thereafter be entitled to receive by converting this Note the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon conversion of this Note would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Note had been converted immediately before such reorganization,
merger, consolidation, sale or transfer (notwithstanding that the Stockholder
Approval may not yet have been obtained), all subject to further adjustment as
provided in this Section 4. The foregoing provisions of this Section 4.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation. If the
per share consideration payable to Holder hereof for shares in connection with
any such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
Company's Board of Directors based on the amount the Holder would have otherwise
been entitled to receive had the transaction or transactions not occurred. In
all events, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions of this
Note with respect to the rights and interests of Holder after the transaction,
to the end that the provisions of this Note shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon conversion of


                                       7



this Note. The Company shall be obligated to retain and set aside, or otherwise
make fair provision for exercise of the right of the Holder to receive, the
shares of stock and/or other securities, cash or other property provided for in
this Section 4.1.

               4.2 Election of Holder upon Merger or Sale of Assets.
Notwithstanding anything to the contrary contained herein, if an event shall
occur as provided in Section 4.1 hereof that would otherwise result in the
occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first
paragraph of this Note, then the Holder may, in its sole discretion, by written
notice to the Company elect to convert the principal amount of this Note plus
the Interest Amount into the number of shares of stock or other securities or
property described in Section 4.1, in lieu of receiving payment in full of all
amounts outstanding under this Note. The number of shares of stock or other
securities or property to be issued upon such conversion shall be determined in
accordance with Section 4.1 hereof, taking into account the occurrence of such
event.

               4.3 Reclassification, Etc. If the Company shall, at any time
while this Note, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, change any of the securities as to
which conversion rights under this Note exist into the same or a different
number of securities of any other class or classes, this Note shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable with respect to the securities that were subject to the conversion
rights under this Note immediately prior to such reclassification or other
change, and the Price Per Share shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 4.

               4.4 Split, Subdivision or Combination of Shares. If the Company
at any time while this Note, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the shares of Series E Preferred
Stock or Common Stock into a different number of securities of the same class,
the Price Per Share or conversion price, as the case may be, shall be
proportionately adjusted.

               4.5 Series E Adjustments. The initial Series E Conversion Price
of the shares of Series E Preferred Stock issued upon conversion of this Note
pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on
the Conversion Date, subject to the adjustment of such Series E Conversion Price
from time to time thereafter as provided in the Series E Certificate of
Determination.

               4.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 4, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.

               4.7 No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all


                                       8



such action as may be necessary or appropriate in order to protect the rights of
Holder against impairment.

          5. Covenants. The Company covenants and agrees that until the earlier
of (i) the date on which all Obligations (as defined in the Security Agreement)
have been paid in full or (ii) the date on which all amounts outstanding under
the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b):

               5.1 Financial Statements and Other Information. The Company shall
deliver to the Holder of this Note the financial statements and other
information required to be delivered under Section 8.1 of the Note Purchase
Agreement.

               5.2 Financial Covenants. The Company shall at all times comply
with the financial and other covenants set forth in Schedule 8.5 to the Note
Purchase Agreement as if such covenants were set forth herein.

               5.3 Indebtedness. The Company shall not, and shall not permit any
Subsidiary to, issue, incur, assume, create or have outstanding any
Indebtedness, provided, however, that the foregoing shall not restrict nor
operate to prevent:

                    (a) Indebtedness in favor of the Holders under the Loan
Documents;

                    (b) Indebtedness existing on the date hereof, as set forth
on Schedule 3.22 to the Note Purchase Agreement;

                    (c) Indebtedness for accounts payable incurred in the
ordinary course of business by the Company;

                    (d) Indebtedness incurred solely for the purpose of
financing the acquisition of any equipment, machinery, software, improvements or
any other similar property, or extensions, renewals or replacements of any of
the foregoing for the same or a lesser amount; provided, that the aggregate
outstanding principal amount of all Indebtedness permitted pursuant to this
clause (d) outstanding for more than sixty (60) days after the incurrence of
such Indebtedness shall not at any time exceed $500,000;

                    (e) Indebtedness of the Company evidenced by Capitalized
Lease Obligations, provided, that in no event shall the aggregate principal
amount of Capitalized Lease Obligations permitted by this clause (e) exceed
$500,000 at any time outstanding; and

                    (f) Any extension, renewal, refinancing, refunding, or
replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and
(e) above, on such terms and conditions as are, on the whole, not materially
more onerous to the Company than the terms and conditions of such original
Indebtedness on the date of such refinancing (including that the principal
amount of such refinancing Indebtedness


                                       9



does not exceed the principal amount of, plus the amount of accrued and unpaid
interest on, the Indebtedness so refinanced (plus the amount of reasonable
premium and fees and expenses incurred in connection therewith)), provided that,
in the case of a refinancing of Indebtedness owed by the Company or any
Subsidiary to SVB, this clause (f) shall only apply to the extent consistent
with the Subordination Agreement, dated as of the date hereof, by and among SVB,
the Holders and the Company (the "Subordination Agreement").

               5.4 Liens. The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
the Company or any of its Subsidiaries, whether now owned or hereafter acquired,
or sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable), or assign any right to receive income or permit the
filing of any financing statement under the Uniform Commercial Code, as from
time to time in effect in the relevant jurisdiction (the "UCC"), or any other
similar notice of Lien under any similar recording or notice statute; provided,
that the provisions of this Section 5.4 shall not prevent the creation,
incurrence, assumption or existence of the following:

                    (a) Liens arising in the ordinary course of business by
statute in connection with worker's compensation, unemployment insurance, old
age benefits, social security obligations, statutory obligations or other
similar charges (other then Liens arising under ERISA), good faith cash deposits
in connection with tenders, contracts or leases to which the Company or any
Subsidiary is a party or other cash deposits required to be made in the ordinary
course of business, provided, that such Liens do not have a material adverse
effect on the ability of the Company to repay amounts due under the Notes;

                    (b) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due or Liens for taxes, assessments or governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP;

                    (c) Liens in respect of property or assets of the Company or
its Subsidiaries imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as carriers',
warehousemen's, materialmen's and mechanics' liens and other similar Liens
arising in the ordinary course of business, and (i) which do not in the
aggregate materially detract from the value of the Company's and its
Subsidiaries' property or assets taken as a whole or result in a material
adverse effect on the Condition of the Company or (ii) which are being contested
in good faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to any such
Lien;


                                       10



                    (d) the pledge of assets for the purpose of securing an
appeal, stay or discharge in the course of any legal proceeding, provided that
the aggregate amount of liabilities of the Company and its Subsidiaries secured
by a pledge of assets permitted under this subsection, including interest and
penalties thereon, if any, shall not be in excess of $500,000 at any one time
outstanding;

                    (e) any interest or title of a lessor under any operating
lease;

                    (f) easements, rights-of-way, restrictions and other similar
encumbrances against real property incurred in the ordinary course of business;

                    (g) the Liens existing on the date hereof identified on
Schedule 3.22 to the Note Purchase Agreement;

                    (h) Liens on cash deposited with account debtors to secure
performance by the Company or any Subsidiary in the ordinary course of business
subject to customary and reasonable terms;

                    (i) Liens upon assets of the Company or its Subsidiaries
subject to Capitalized Lease Obligations, provided, that (A) such Liens only
serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising
under such Capitalized Lease Obligation and (B) the Lien encumbering the asset
giving rise to the Capitalized Lease Obligation does not encumber any other
asset of the Company or its Subsidiaries;

                    (j) Liens placed upon equipment, machinery, software,
improvements or any other similar property, used in the ordinary course of
business of the Company or any of its Subsidiaries at the time of the
acquisition thereof by the Company or any of its Subsidiaries or within ninety
(90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above;
provided, that the Liens encumbering the equipment, machinery software,
improvements or any other similar property so acquired do not encumber any other
asset of the Company or its Subsidiaries;

                    (k) set-off rights of depository institutions; and

                    (l) Liens created by the Security Agreement (collectively
with clauses (a) through (k) hereof, the "Permitted Liens").

               5.5 Fundamental Changes. The Company will not, and will not
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (in one transaction or a series of transactions)
all or substantially all of its assets, or all or substantially all of the stock
of any of its Subsidiaries (in each case, whether now owned or hereafter
acquired), or liquidate or dissolve, except that, if at the time and immediately
after giving effect thereto no Event of Default shall have occurred and be
continuing (i) the Company or any of its Subsidiaries may, with the prior
written


                                       11



consent of the Holders, merge with or into any other Person; (ii) any
wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with
or into the Company or any other wholly-owned Subsidiary of the Company; (iii)
any Subsidiary (other than the Guarantor, and except as otherwise prohibited by
this Note) may sell, transfer, lease or otherwise dispose of its assets to the
Company or to another wholly-owned Subsidiary of the Company; and (iv) any
Subsidiary may liquidate or dissolve if the board of directors of the Company
determine in good faith that such liquidation or dissolution is in its best
interests and is not disadvantageous to the Holders.

               5.6 Restricted Payments. The Company will not, and the Company
will not permit any Subsidiary to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except that (i) any Subsidiary
may make a Restricted Payment to the Company or any of its wholly-owned
Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any
Restricted Payment required by the terms of the Note Purchase Agreement and the
other documents executed in connection therewith.

               5.7 Transactions with Affiliates. The Company will not, and the
Company will not permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions that are at prices and on terms and
conditions not less favorable to the Company or such Subsidiary than could be
obtained on an arm's length basis from unrelated third parties, (b) transactions
exclusively between the Company and the Guarantor and (c) transactions under the
agreements listed on Schedule 3.17 to the Note Purchase Agreement.

               5.8 Investments. The Company will not, and the Company will not
permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment
in any Person, except for Permitted Investments.

               5.9 Nature of Business. The Company will not, and the Company
will not permit any Subsidiary to, engage in any business other than that
conducted on the date hereof and any businesses reasonably related thereto.

               5.10 Property of Existing Domestic Subsidiaries. The Company will
not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise
organized under the laws of the United States of America or any state thereof (a
"Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease,
license, purchase or otherwise acquire any personal or real property (excluding
any material intellectual property) in excess of $50,000 for all property held
by such Subsidiary, or $250,000 in the aggregate for all property held by all
Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own
or otherwise hold any rights to any material intellectual property or (iv)
otherwise conduct any business or maintain operations.

               5.11 Formation of Subsidiaries. The Company will not, and will
not cause or permit any of its Subsidiaries to, form, acquire or permit the
existence of any


                                       12



new domestic Subsidiary, without causing such domestic Subsidiary to execute and
deliver to the Holders a secured guaranty of the Notes and related security
document, in form and substance satisfactory to the Holders.

               5.12 Books and Records. The Company shall keep proper books of
record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company and its
Subsidiaries in accordance with GAAP consistently applied.

               5.13 Inspection. The Company shall, and shall cause each of its
Subsidiaries to, permit representatives of the Holders to visit and inspect any
of its properties, to examine its corporate, financial and operating records and
make copies thereof or abstracts therefrom, and to discuss its affairs, finances
and accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested upon notice to the Company.

               5.14 Maintenance of Business. The Company shall, and shall cause
each Subsidiary to, preserve and maintain its existence. The Company shall, and
shall cause each Subsidiary to, preserve and keep in force and effect all
licenses, permits, franchises, approvals, patents, trademarks, trade names,
trade styles, copyrights, and other property rights necessary to the proper
conduct of its business, except where the failure to do so could not reasonably
be expected to have a material adverse effect on the Condition of the Company or
on the prospects of repayment of the Notes.

               5.15 Maintenance of Properties. The Company shall, and shall
cause each Subsidiary to, maintain, preserve and keep its property and equipment
in good repair, working order and condition (ordinary wear and tear excepted)
and shall from time to time make all needful and proper repairs, renewals,
replacements, additions and betterments thereto so that at all times the
efficiency thereof shall by fully preserved and maintained, except in each case
to the extent that, in the reasonable business judgment of such Person, any such
property or equipment is no longer necessary for the proper conduct of the
business of such Person.

          6. The occurrence of any one or more of the following events shall
constitute an "Event of Default":

               6.1 Failure To Pay. (i) The failure of the Company to pay any
principal due under any of the Notes when due and payable (whether by
acceleration, declaration, extension or otherwise), or (ii) the failure of the
Company to pay any other amounts due under any of the Notes when due and payable
if such failure is not cured within five (5) days of Company's receipt of notice
thereof from any of the Holders.

               6.2 Financial Covenants. The failure of Company or any of its
Subsidiaries to perform, observe or comply with any of the Financial Covenants
set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by
reference in this Note in Section 5.2.


                                       13



               6.3 Other Covenants and Agreements. The failure of Company or any
of its Subsidiaries to perform, observe or comply with any of the covenants of
this Note, the Security Agreement or any of the other Loan Documents (other than
the Financial Covenants set forth on Schedule 8.5 to the Note Purchase
Agreement, and incorporated by reference in this Note in Section 5.2), if such
failure is not cured within sixty (60) days.

               6.4 Representations and Warranties. If any representation or
warranty made by the Company or any of its Subsidiaries in the Loan Documents is
not true and correct in all material respects on the Initial Closing Date.

               6.5 Default on Other Obligations. The occurrence of any condition
or default under any other indebtedness for borrowed money of the Company or any
of its Subsidiaries with a principal amount of at least five hundred thousand
dollars ($500,000) that results in the acceleration of such indebtedness which
is not cured within sixty (60) days.

               6.6 Involuntary Bankruptcy. There shall be filed against the
Company or any of its Subsidiaries an involuntary petition or other pleading
seeking the entry of a decree or order for relief under the United States
Bankruptcy Code or any similar federal or state insolvency or similar laws
ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a
reorganization of the Company or any of its Subsidiaries or the business and
affairs of the Company or any of its Subsidiaries or (c) the appointment of a
receiver, liquidator, assignee, custodian, trustee or similar official for the
Company or any of its Subsidiaries of the property of the Company or any of its
Subsidiaries.

               6.7 Voluntary Bankruptcy. The commencement by the Company or any
of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any
federal or state insolvency or similar laws or the consent by the Company or any
of its Subsidiaries to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or similar official for the Company or
any of its Subsidiaries of any of the property of the Company or any of its
Subsidiaries or the making by the Company or any of its Subsidiaries of an
assignment for the benefit of creditors, or the failure by Company or any of its
Subsidiaries generally to pay its debts as the debts become due.

               6.8 Judgments, Awards. Any judgment or order for the payment of
money is rendered against the Company or any of its Subsidiaries in an amount in
excess of five hundred thousand dollars ($500,000) individually or in the
aggregate and either (i) enforcement proceedings are commenced by any creditor
upon such judgment or order and not stayed, or (ii) there is any period of sixty
(60) consecutive days during which such judgment has not been paid in full or a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, is not in effect.

               6.9 Attachment by Lenders. Any assets of the Company or any of
its Subsidiaries shall be attached, levied upon, seized or repossessed, or come
into the


                                       14



possession of a trustee, receiver or other custodian and a determination by any
Holder, in good faith but in its sole discretion, that the same could have a
material adverse effect on the prospect for the Holders to fully and punctually
realize the full benefits conferred on the Holders by the Loan Documents.

               6.10 Adverse Change in Financial Condition. Any event having a
material adverse effect on the business, operations, assets, properties or
condition of the Company and its Subsidiaries taken as a whole shall have
occurred and be continuing or a material adverse effect on the validity or
enforceability of this or any of the other Loan Documents or the rights or
remedies of the Holders hereunder or thereunder.

          7. Remedies. Upon and after the occurrence of an Event of Default, the
Holder shall be entitled to the exercise the rights and remedies set forth in
the Security Agreement, the other Loan Documents and under applicable law, all
such rights and remedies being cumulative and enforceable alternatively,
successively or concurrently.

          8. Prepayment. The Company may not prepay this Note prior to the
Maturity Date without the prior written consent of the Holders.

          9. Seniority.

               (a) Except as set forth in the Subordination Agreement, the Notes
will rank senior in right of payment to all other indebtedness of the Company,
other than the GA Notes and the January 2004 Notes, with respect to which the
Notes will be pari passu in right of payment in accordance with the
Intercreditor Agreement.

               (b) Notwithstanding anything to the contrary contained in the
Notes, this Note and the other Notes, and the terms and the conditions hereof
and thereof, are subject to the Intercreditor Agreement.

          10. Assignment. Subject to the restrictions on transfer described in
Section 12 below, the rights and obligations of the Company and Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties. The Company shall not be permitted to assign this
Note without the prior written consent of the Holders.

          11. Waiver of Notice. The Company hereby waives notice, presentment,
demand, protest and notice of dishonor.

          12. Transfer of This Note. With respect to any offer, sale or other
disposition of this Note, Holder will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such Holder's counsel, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any
federal or state law then in effect); provided, that no opinion shall be
required for any transfer to an Affiliate or if the transfer is made in
compliance with the Securities Act, so long as the transferee can make the same
representations and warranties at the time of transfer as set forth in Sections
4.5, 4.6, 4.7,


                                       15



4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly upon delivering
such written notice and opinion, if so required, Holder may sell or otherwise
dispose of this Note, all in accordance with the terms of the notice delivered
to the Company. Each Note thus transferred shall bear a legend as to the
applicable restrictions on transferability in order to ensure compliance with
the Securities Act, unless in the opinion of counsel for the Company such legend
is not required in order to ensure compliance with the Securities Act. The
Company may issue stop transfer instructions to its transfer agent in connection
with such restrictions. Notwithstanding the foregoing, the Holder shall not be
permitted to transfer this Note to any Person who is not an Affiliate until the
earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of
written notice from the Company that Stockholder Approval cannot be obtained, or
the occurrence of an actual vote of the Company's shareholders entitled to vote
(whether by written consent or at a meeting specially called for such purpose),
the result of which is a decision by a majority of the Company's shareholders
entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months
from the date hereof and (iv) the occurrence of an Event of Default. This Note
is registered as to both principal and stated interest with the Company (or its
agent) within the meaning of section 1.871-14(c)(1)(i) of the Income Tax
Regulations. Accordingly, notwithstanding anything to the contrary in this
paragraph, this Note, together with any interest thereon, may be transferred
only (i) upon surrender of the Note by the transferor to the Company (or its
agent) and the reissuance of the Note (or the issuance of a new Note) to the
transferee, or (ii) by transfer of the right to principal and interest through a
book-entry system meeting the requirements of section 1.871-14(c)(1)(i)(B) of
the Income Tax Regulations that is maintained by the Company (or its agent). In
the case of a Holder that is not a "United States person" within the meaning of
section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the
"Code"), so long as an exception under section 871(h) or section 881(c) of the
Code does not apply, the Company (or its agent) shall not withhold any U.S.
federal income tax with respect to such Holder provided that the Holder timely
provides the Company (or its agent) with a statement that meets the requirements
of section 871(h)(5) of the Code.

          13. Treatment of Note. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.

          14. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by nationally recognized courier
service or mailed by registered or certified mail, postage prepaid, to the
respective addresses of the parties as set forth on the signature pages hereto
or if sent by facsimile to the respective facsimile numbers of the parties set
forth on the signature pages hereto. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively be
deemed to have been given and received when personally delivered or three (3)
business days after deposited in the mail or one business day after sent by
courier or upon confirmation of facsimile delivery in the manner set forth
above.


                                       16



          15. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon Holder or any other Person the right to vote or to
consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company.

          16. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, excluding that body of law
relating to conflict of laws.

          17. Amendments and Waivers. No amendments or waivers of any provision
of this Note, and no consent by the Holder to any departure by the Company,
shall in any event be effective unless the same shall be in writing, and signed
by the Holders of a majority of the outstanding principal amount of all of the
Notes issued by the Company pursuant to the Note Purchase Agreement, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given.

          18. Severability. Any provision of this Note that is prohibited or
unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

          19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY
(A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF
RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION
WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY
TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY
OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN
THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER
OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE.
THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND
VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER
HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY
INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT
THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE
COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF
RIGHT TO TRIAL BY JURY. EACH OF


                                       17



THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED
IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT
LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

          20. Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except as otherwise indicated, all references herein to Sections refer to
Sections hereof.

              [the remainder of this page intentionally left blank]


                                       18



          IN WITNESS WHEREOF, the Company has caused this Note to be issued this
9th day of March, 2004.

                                    COMPANY:

                                    CRITICAL PATH, INC.,
                                    a California corporation

                                    By: /s/   William E. McGlashan, Jr.
                                        ------------------------------------
                                        Name: William E. McGlashan, Jr.
                                        Title: Chairman, Chief Executive Officer

                                        Critical Path, Inc.
                                        350 The Embarcadero
                                        San Francisco, CA 94105-1204
                                        Telecopy: (415) 541-2300
                                        Attention: Chief Financial Officer

                                        With a copy to:

                                        Pillsbury Winthrop LLP
                                        50 Fremont Street
                                        San Francisco, CA 94105
                                        Telecopy:  (415) 983-1200
                                        Attention:  Gregg Vignos, Esq.

Name of Holder: SAGAMORE HILL HUB FUND, LTD.

Address: c/o Sagamore Hill Capital Management
         10 Glenville Street, 3rd Floor
         Greenwich, CT  06831
         Attention:  Legal Department

Telephone:
           ----------------------------------

Facsimile: (203) 422-7214

EX-4.40

                                                                    EXHIBIT 4.40

     THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
     SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN
     REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
     SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
     TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER
     OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.

                               CRITICAL PATH, INC.

                    CONVERTIBLE SUBORDINATED PROMISSORY NOTE

$1,843,000                                             San Francisco, California
                                                       March 9, 2004

          Critical Path, Inc., a California corporation (the "Company"), the
principal office of which is located in San Francisco, California, for value
received hereby promises to pay to the order of Criterion Capital Partners,
Ltd., or its registered assigns ("Holder"), the sum of one million eight hundred
forty-three thousand dollars ($1,843,000), or such lesser amount as shall then
equal the outstanding principal amount hereof on the terms and conditions set
forth hereinafter. The outstanding principal amount hereof and all accrued and
unpaid interest hereon, as set forth below, shall be due and payable on the
earlier to occur of (i) March 9, 2008, (ii) when declared due and payable by
Holder upon the occurrence of an Event of Default (as defined below), (iii)
consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v) any
sale of capital stock or Stock Equivalents by the Company, any cash capital
contribution from any third person or any other debt or equity financing
consummated by the Company after the date of issuance of this Note which, in the
case of (v), individually or in the aggregate raises proceeds of at least forty
million dollars ($40,000,000) in cash or cash equivalents (the earliest of the
events set forth in items (i)-(v) immediately above, the "Maturity Date").

          The following is a statement of the rights of the Holder of this Note
and the conditions to which this Note is subject, and to which the Holder
hereof, by the acceptance of this Note, agrees:

          1. Definitions. Except as otherwise defined herein, each capitalized
term used herein shall have the meaning assigned to it in the Note Purchase
Agreement, as in effect on the date hereof, and without regard to any subsequent
termination of the Note Purchase Agreement. All other references to the Note
Purchase Agreement in this Note refer to the Note Purchase Agreement as in
effect on the date hereof, and without regard to any subsequent termination of
the Note Purchase Agreement. As used in this



Note, the following terms, unless the context otherwise requires, have the
following meanings:

               1.1 "Affiliate" means any Person who is an "affiliate" as defined
in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange
Act of 1934, as amended.

               1.2 "Capitalized Lease Obligations" means, with respect to any
Person, all rental obligations of such Person which, under GAAP, are or will be
required to be capitalized on the books of such Person, in each case taken at
the amount thereof accounted for as indebtedness in accordance with such
principles.

               1.3 "Change of Control" shall mean (i) any merger, consolidation
or other business combination transaction (or series of related transactions) in
which the stockholders owning a majority of the voting securities of the Company
prior to such transaction do not own a majority of the voting securities of the
surviving entity, (ii) any tender offer, exchange offer or other transaction
whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as amended) (other than
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell
Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and
the Affiliates of the foregoing, provided that Affiliates shall be deemed not to
include any portfolio companies of any of the foregoing) obtains a majority of
the outstanding shares of capital stock entitled to vote in the election of
directors, (iii) any proxy contest in which a majority of the Board of Directors
of the Company (or persons appointed by such Board of Directors) prior to such
contest do not constitute a majority of the Company's Board of Directors after
such contest or (iv) any other transaction described in any stockholder rights
agreement or "poison pill," if any, to which the Company is party, which may
permit the holders of any rights or similar certificates to exercise the rights
evidenced thereby.

               1.4 "Company" shall have the meaning set forth in the recitals
hereto, and includes any corporation that shall succeed to or assume the
obligations of the Company under this Note.

               1.5 "Common Conversion Date" shall have the meaning set forth in
Section 3.1(b) hereof.


               1.6 "Common Stock" means the common stock, par value $0.001 per
share, of the Company.

               1.7 "Conversion Date" shall mean the Subsequent Closing Date.

               1.8 "Domestic Subsidiary" shall have the meaning set forth in
Section 5.10 hereof.


                                       2



               1.9 "Event of Default" shall have the meaning set forth in
Section 6 hereof.


               1.10 "GA Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP
Entities pursuant to the Purchase and Exchange Agreement.

               1.11 "GAP Entities" shall mean General Atlantic Partners 74,
L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG.

               1.12 "Guarantor" shall have the meaning set forth in the Security
Agreement.

               1.13 "Holder" shall mean the registered holder of this Note from
time to time, and in the plural, shall mean all registered holders of Notes from
time to time issued by the Company pursuant to the Note Purchase Agreement.

               1.14 "Intercreditor Agreement" shall mean the Intercreditor
Agreement, dated the date hereof, among the GAP Entities, the January Lenders,
Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore
Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital
Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures
International.

               1.15 "Interest Amount" shall have the meaning set forth in
Section 3.1 hereof.

               1.16 "Investment" means (i) the acquisition (whether for cash,
property, services, assumption of Indebtedness, securities or otherwise) of
assets (other than equipment, inventory, supplies or other assets acquired in
the ordinary course of business of the Company), capital stock, bonds, notes,
debentures, partnership, joint venture or other ownership interests or other
securities of any Person, (ii) any deposit with, or advance, loan or other
extension of credit to, or on behalf of, any Person (other than deposits made in
connection with the purchase of equipment, inventory, services, leases, supplies
or other assets in the ordinary course of business of the Company), and (iii)
any other capital contribution to or investment in any Person, including,
without limitation, any guaranty obligation incurred for the benefit of any
Person. For the sake of clarity, Investments shall include any transfer of
property or assets by the Company to any of its Subsidiaries or by any
Subsidiary of the Company to any other Subsidiary.

               1.17 "January Lenders" shall mean Permal U.S. Opportunities
Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis
Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P.

               1.18 "January Note Agreement" shall mean the Convertible Note
Purchase Agreement, dated January 16, 2004, among the January Lenders and the
Company.


                                       3



               1.19 "January 2004 Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated January 16, 2003, issued by the Company to the
January Lenders pursuant to the January Note Agreement.

               1.20 "Loan Documents" shall have the meaning set forth in the
Security Agreement.

               1.21 "Note" shall mean this note, and in the plural, shall mean
all notes issued to the Lenders pursuant to the terms of the Note Purchase
Agreement, including this Note, and all amendments, modifications and extensions
thereto.

               1.22 "Note Purchase Agreement" means that certain Convertible
Note Purchase Agreement, dated March 9, 2004, among the Company, the Holder and
the other parties thereto from time to time, and all amendments, modifications
and extensions thereto.

               1.23 "Permitted Investments" means (i) Investments in cash or
cash equivalents, (ii) accounts receivable created, acquired or made in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (iii) Investments existing on the closing date, and
listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty
obligations permitted by Section 5.3 of this Agreement, (v) loans to employees,
directors or officers of the Company in connection with the award of convertible
bonds or capital stock under a stock incentive plan, stock option plan or other
equity-based compensation plan or arrangement, (vi) other advances or loans to
employees, directors, officers or agents of the Company in the ordinary course
of business not to exceed $500,000 in the aggregate at any time outstanding;
(vii) loans, advances and investments in foreign Subsidiaries (that are not
incorporated or otherwise organized under the laws of the United States of
America or any state thereof) in an amount not to exceed $1,000,000 in the
aggregate at any time outstanding; (viii) any acquisition for which the prior
written consent of the Holders of a majority of the outstanding principal amount
of all of the Notes issued by the Company pursuant to the Note Purchase
Agreement has been obtained, (ix) other loans, advances and investments of a
nature not contemplated by the foregoing sections in an amount not to exceed
$500,000 in the aggregate at any time outstanding or (x) Investments by the
Company in the Guarantor.

               1.24 "Permitted Liens" shall have the meaning set forth in
Section 5.4.

               1.25 "Person" means any individual, firm, corporation,
partnership, trust, joint venture, joint stock company, limited liability
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.

               1.26 "Price Per Share" shall have the meaning attributed to such
term in the Series E Certificate of Determination, as filed with the Secretary
of State of the State of California.


                                       4



               1.27 "Purchase and Exchange Agreement" shall mean the Convertible
Note Purchase and Exchange Agreement, dated November 18, 2003, among the
Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended.

               1.28 "Qualified Asset Sale" means the sale, transfer or other
disposition of any of the assets of the Company or any of its Subsidiaries,
other than (a) sales of assets in the ordinary course of business, (b) sales of
assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the
sale, transfer or other disposition of assets of the Company where the proceeds
are applied to the purchase price or traded in for credit against the purchase
price of other assets, provided that any such purchase is made, or credit
issued, within 90 days of the sale, transfer or other disposition, and (d) one
or more sales of the Company's assets (other than sales otherwise included in
clauses (a), (b), and (c) immediately above) which collectively yield up to an
aggregate of one million dollars ($1,000,000) in gross proceeds to the Company
while this Note is outstanding.

               1.29 "Restricted Payment" means (a) any dividend or other
distribution (whether in cash, securities or other property) with respect to any
shares of any class of capital stock of the Company or any of its Subsidiaries
or (b) any payment (whether in cash, securities or other property), including
any sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any shares of any class
of capital stock of the Company or any Subsidiary or any option, warrant or
other right to acquire any such shares of capital stock of the Company or any
Subsidiary.

               1.30 "Security Agreement" means that certain Guaranty and
Security Agreement, of even date herewith between the Company, Compass Holding
Corp., the Lenders and the other parties thereto from time to time, and all
amendments, modifications and extensions thereto.

               1.31 "Series E Conversion Price" shall have the meaning set forth
in the Series E Certificate of Determination.

               1.32 "Series E Preferred Stock" means the Series E Preferred
Stock, par value $0.001, of the Company.

               1.33 "Subordination Agreement" shall have the meaning set forth
in Section 5.3.

               1.34 "Subsequent Closing Date" shall have the meaning set forth
in Section 2.4(e) of the Note Purchase Agreement.

               1.35 "SVB" means Silicon Valley Bank, a California chartered
bank, or any Affiliates thereof.

               1.36 "Ten Percent Holder" means, with respect to a class of
equity securities of the Company, a Person (together with such Person's
Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such
class of equity securities of


                                       5



the Company, as defined by Section 13(d) of the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.

               1.37 "UCC" shall have the meaning set forth in Section 5.4.

          2. Interest. Simple interest shall accrue at the rate of ten percent
(10%) per annum (or such lesser amount as shall equal the highest rate of
interest allowable under applicable law) (the "Interest Rate"), on the
outstanding principal of this Note from the date of this Note until the Maturity
Date or the date this Note is otherwise repaid. The Company shall not be
obligated to make any payments of interest which shall have accrued under this
Note prior to the Maturity Date. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. In the event that the
principal amount of this Note, any interest, or any amount payable hereunder is
not paid in full when such amount becomes due and payable, or upon the
occurrence of an Event of Default, interest shall accrue at the lesser of (a)
the initial Interest Rate plus five percent (5%) per annum or (b) the highest
rate of interest allowable under applicable law, on the balance of all amounts
outstanding until such overdue amounts are paid or the Event of Default is
cured, and such interest shall be payable on demand.

          3. Conversion.

               3.1 Conversion.

                    (a) On the Conversion Date, the principal amount of this
Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall
be automatically converted into the number of fully paid and nonassessable
shares of Series E Preferred Stock equal to the quotient obtained by dividing
(a) the entire principal amount of this Note plus the Interest Amount by (b) the
Price Per Share.

                    (b) In the event that the Conversion Date has not occurred
on or prior to August 15, 2004 (the "Common Conversion Date"), then, following
the Common Conversion Date, the principal amount of this Note plus the Interest
Amount shall be convertible, at the option of Holder and from time to time, only
into Common Stock at a conversion price per share equal to $2.18, as adjusted
for any stock dividends, stock splits or similar consolidations or subdivisions,
following the date hereof; provided, however, that Holder shall not be permitted
to convert any portion of the principal of this Note or the Interest Amount into
Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion,
the conversion would cause Holder to be a Ten Percent Holder.

               3.2 Notice of Conversion. Upon conversion of this Note as
provided in Section 3.1, Holder shall surrender this Note to the Company and
shall state the name or names in which the certificate or certificates for such
shares of Series E Preferred Stock or Common Stock, as the case may be, are to
be issued. The Person or Persons entitled to receive the shares of Series E
Preferred Stock or Common Stock, as the case may be, issuable upon such
conversion shall be treated for all purposes as the record holder or holders (a)
of such shares of Series E Preferred Stock as of the


                                       6



Conversion Date and (b) of such shares of Common Stock as of the date of any
conversion pursuant to Section 3.1(b).

               3.3 Delivery of Stock Certificates. Upon conversion of this Note
as provided in Section 3.1, the Company at its expense will issue and deliver to
Holder of this Note a certificate or certificates (bearing such legends as are
required by applicable state and federal securities laws in the opinion of
counsel to the Company) for the number of full shares of Series E Preferred
Stock or Common Stock, as the case may be, issuable upon such conversion.

               3.4 Mechanics and Effect of Conversion. No fractional shares of
Series E Preferred Stock or Common Stock, as the case may be, shall be issued
upon conversion of this Note. In lieu of the Company issuing any fractional
shares to Holder upon the conversion of this Note, the Company shall pay to
Holder the amount of outstanding principal and interest that is not so
converted. Upon conversion of all amounts due under this Note, the Company shall
be released from all of its obligations under this Note.

          4. Adjustments. The number of shares of Series E Preferred Stock or
Common Stock convertible hereunder are subject to adjustment from time to time
as follows:

               4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at
any time while this Note remains outstanding and unexpired there shall be (a) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (b) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise or (c) a sale or
transfer of the Company's stock, properties or assets as, or substantially as,
an entirety to any other Person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that Holder
shall thereafter be entitled to receive by converting this Note the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon conversion of this Note would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Note had been converted immediately before such reorganization,
merger, consolidation, sale or transfer (notwithstanding that the Stockholder
Approval may not yet have been obtained), all subject to further adjustment as
provided in this Section 4. The foregoing provisions of this Section 4.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation. If the
per share consideration payable to Holder hereof for shares in connection with
any such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
Company's Board of Directors based on the amount the Holder would have otherwise
been entitled to receive had the transaction or transactions not occurred.


                                       7



In all events, appropriate adjustment (as determined in good faith by the
Company's Board of Directors) shall be made in the application of the provisions
of this Note with respect to the rights and interests of Holder after the
transaction, to the end that the provisions of this Note shall be applicable
after that event, as near as reasonably may be, in relation to any shares or
other property deliverable after that event upon conversion of this Note. The
Company shall be obligated to retain and set aside, or otherwise make fair
provision for exercise of the right of the Holder to receive, the shares of
stock and/or other securities, cash or other property provided for in this
Section 4.1.

               4.2 Election of Holder upon Merger or Sale of Assets.
Notwithstanding anything to the contrary contained herein, if an event shall
occur as provided in Section 4.1 hereof that would otherwise result in the
occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first
paragraph of this Note, then the Holder may, in its sole discretion, by written
notice to the Company elect to convert the principal amount of this Note plus
the Interest Amount into the number of shares of stock or other securities or
property described in Section 4.1, in lieu of receiving payment in full of all
amounts outstanding under this Note. The number of shares of stock or other
securities or property to be issued upon such conversion shall be determined in
accordance with Section 4.1 hereof, taking into account the occurrence of such
event.

               4.3 Reclassification, Etc. If the Company shall, at any time
while this Note, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, change any of the securities as to
which conversion rights under this Note exist into the same or a different
number of securities of any other class or classes, this Note shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable with respect to the securities that were subject to the conversion
rights under this Note immediately prior to such reclassification or other
change, and the Price Per Share shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 4.

               4.4 Split, Subdivision or Combination of Shares. If the Company
at any time while this Note, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the shares of Series E Preferred
Stock or Common Stock into a different number of securities of the same class,
the Price Per Share or conversion price, as the case may be, shall be
proportionately adjusted.

               4.5 Series E Adjustments. The initial Series E Conversion Price
of the shares of Series E Preferred Stock issued upon conversion of this Note
pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on
the Conversion Date, subject to the adjustment of such Series E Conversion Price
from time to time thereafter as provided in the Series E Certificate of
Determination.

               4.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 4, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.


                                       8



               4.7 No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of Holder against impairment.

          5. Covenants. The Company covenants and agrees that until the earlier
of (i) the date on which all Obligations (as defined in the Security Agreement)
have been paid in full or (ii) the date on which all amounts outstanding under
the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b):

               5.1 Financial Statements and Other Information. The Company shall
deliver to the Holder of this Note the financial statements and other
information required to be delivered under Section 8.1 of the Note Purchase
Agreement.

               5.2 Financial Covenants. The Company shall at all times comply
with the financial and other covenants set forth in Schedule 8.5 to the Note
Purchase Agreement as if such covenants were set forth herein.

               5.3 Indebtedness. The Company shall not, and shall not permit any
Subsidiary to, issue, incur, assume, create or have outstanding any
Indebtedness, provided, however, that the foregoing shall not restrict nor
operate to prevent:

                    (a) Indebtedness in favor of the Holders under the Loan
Documents;

                    (b) Indebtedness existing on the date hereof, as set forth
on Schedule 3.22 to the Note Purchase Agreement;

                    (c) Indebtedness for accounts payable incurred in the
ordinary course of business by the Company;

                    (d) Indebtedness incurred solely for the purpose of
financing the acquisition of any equipment, machinery, software, improvements or
any other similar property, or extensions, renewals or replacements of any of
the foregoing for the same or a lesser amount; provided, that the aggregate
outstanding principal amount of all Indebtedness permitted pursuant to this
clause (d) outstanding for more than sixty (60) days after the incurrence of
such Indebtedness shall not at any time exceed $500,000;

                    (e) Indebtedness of the Company evidenced by Capitalized
Lease Obligations, provided, that in no event shall the aggregate principal
amount of Capitalized Lease Obligations permitted by this clause (e) exceed
$500,000 at any time outstanding; and


                                       9



                    (f) Any extension, renewal, refinancing, refunding, or
replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and
(e) above, on such terms and conditions as are, on the whole, not materially
more onerous to the Company than the terms and conditions of such original
Indebtedness on the date of such refinancing (including that the principal
amount of such refinancing Indebtedness does not exceed the principal amount of,
plus the amount of accrued and unpaid interest on, the Indebtedness so
refinanced (plus the amount of reasonable premium and fees and expenses incurred
in connection therewith)), provided that, in the case of a refinancing of
Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall
only apply to the extent consistent with the Subordination Agreement, dated as
of the date hereof, by and among SVB, the Holders and the Company (the
"Subordination Agreement").

               5.4 Liens. The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
the Company or any of its Subsidiaries, whether now owned or hereafter acquired,
or sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable), or assign any right to receive income or permit the
filing of any financing statement under the Uniform Commercial Code, as from
time to time in effect in the relevant jurisdiction (the "UCC"), or any other
similar notice of Lien under any similar recording or notice statute; provided,
that the provisions of this Section 5.4 shall not prevent the creation,
incurrence, assumption or existence of the following:

                    (a) Liens arising in the ordinary course of business by
statute in connection with worker's compensation, unemployment insurance, old
age benefits, social security obligations, statutory obligations or other
similar charges (other then Liens arising under ERISA), good faith cash deposits
in connection with tenders, contracts or leases to which the Company or any
Subsidiary is a party or other cash deposits required to be made in the ordinary
course of business, provided, that such Liens do not have a material adverse
effect on the ability of the Company to repay amounts due under the Notes;

                    (b) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due or Liens for taxes, assessments or governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP;

                    (c) Liens in respect of property or assets of the Company or
its Subsidiaries imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as carriers',
warehousemen's, materialmen's and mechanics' liens and other similar Liens
arising in the ordinary course of business, and (i) which do not in the
aggregate materially detract from the value of the Company's and its
Subsidiaries' property or assets taken as a whole or result in a material
adverse effect on the Condition of the Company or (ii) which are


                                       10



being contested in good faith by appropriate proceedings, which proceedings have
the effect of preventing the forfeiture or sale of the property or assets
subject to any such Lien;

                    (d) the pledge of assets for the purpose of securing an
appeal, stay or discharge in the course of any legal proceeding, provided that
the aggregate amount of liabilities of the Company and its Subsidiaries secured
by a pledge of assets permitted under this subsection, including interest and
penalties thereon, if any, shall not be in excess of $500,000 at any one time
outstanding;

                    (e) any interest or title of a lessor under any operating
lease;

                    (f) easements, rights-of-way, restrictions and other similar
encumbrances against real property incurred in the ordinary course of business;

                    (g) the Liens existing on the date hereof identified on
Schedule 3.22 to the Note Purchase Agreement;

                    (h) Liens on cash deposited with account debtors to secure
performance by the Company or any Subsidiary in the ordinary course of business
subject to customary and reasonable terms;

                    (i) Liens upon assets of the Company or its Subsidiaries
subject to Capitalized Lease Obligations, provided, that (A) such Liens only
serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising
under such Capitalized Lease Obligation and (B) the Lien encumbering the asset
giving rise to the Capitalized Lease Obligation does not encumber any other
asset of the Company or its Subsidiaries;

                    (j) Liens placed upon equipment, machinery, software,
improvements or any other similar property, used in the ordinary course of
business of the Company or any of its Subsidiaries at the time of the
acquisition thereof by the Company or any of its Subsidiaries or within ninety
(90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above;
provided, that the Liens encumbering the equipment, machinery software,
improvements or any other similar property so acquired do not encumber any other
asset of the Company or its Subsidiaries;

                    (k) set-off rights of depository institutions; and

                    (l) Liens created by the Security Agreement (collectively
with clauses (a) through (k) hereof, the "Permitted Liens").

               5.5 Fundamental Changes. The Company will not, and will not
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (in one transaction or a series of transactions)
all or substantially all of its


                                       11



assets, or all or substantially all of the stock of any of its Subsidiaries (in
each case, whether now owned or hereafter acquired), or liquidate or dissolve,
except that, if at the time and immediately after giving effect thereto no Event
of Default shall have occurred and be continuing (i) the Company or any of its
Subsidiaries may, with the prior written consent of the Holders, merge with or
into any other Person; (ii) any wholly-owned Subsidiary of the Company (other
than the Guarantor) may merge with or into the Company or any other wholly-owned
Subsidiary of the Company; (iii) any Subsidiary (other than the Guarantor, and
except as otherwise prohibited by this Note) may sell, transfer, lease or
otherwise dispose of its assets to the Company or to another wholly-owned
Subsidiary of the Company; and (iv) any Subsidiary may liquidate or dissolve if
the board of directors of the Company determine in good faith that such
liquidation or dissolution is in its best interests and is not disadvantageous
to the Holders.

               5.6 Restricted Payments. The Company will not, and the Company
will not permit any Subsidiary to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except that (i) any Subsidiary
may make a Restricted Payment to the Company or any of its wholly-owned
Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any
Restricted Payment required by the terms of the Note Purchase Agreement and the
other documents executed in connection therewith.

               5.7 Transactions with Affiliates. The Company will not, and the
Company will not permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions that are at prices and on terms and
conditions not less favorable to the Company or such Subsidiary than could be
obtained on an arm's length basis from unrelated third parties, (b) transactions
exclusively between the Company and the Guarantor and (c) transactions under the
agreements listed on Schedule 3.17 to the Note Purchase Agreement.

               5.8 Investments. The Company will not, and the Company will not
permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment
in any Person, except for Permitted Investments.

               5.9 Nature of Business. The Company will not, and the Company
will not permit any Subsidiary to, engage in any business other than that
conducted on the date hereof and any businesses reasonably related thereto.

               5.10 Property of Existing Domestic Subsidiaries. The Company will
not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise
organized under the laws of the United States of America or any state thereof (a
"Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease,
license, purchase or otherwise acquire any personal or real property (excluding
any material intellectual property) in excess of $50,000 for all property held
by such Subsidiary, or $250,000 in the aggregate for all property held by all
Domestic Subsidiaries (ii) maintain


                                       12



any deposit account in its name, (iii) own or otherwise hold any rights to any
material intellectual property or (iv) otherwise conduct any business or
maintain operations.

               5.11 Formation of Subsidiaries. The Company will not, and will
not cause or permit any of its Subsidiaries to, form, acquire or permit the
existence of any new domestic Subsidiary, without causing such domestic
Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes
and related security document, in form and substance satisfactory to the
Holders.

               5.12 Books and Records. The Company shall keep proper books of
record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company and its
Subsidiaries in accordance with GAAP consistently applied.

               5.13 Inspection. The Company shall, and shall cause each of its
Subsidiaries to, permit representatives of the Holders to visit and inspect any
of its properties, to examine its corporate, financial and operating records and
make copies thereof or abstracts therefrom, and to discuss its affairs, finances
and accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested upon notice to the Company.

               5.14 Maintenance of Business. The Company shall, and shall cause
each Subsidiary to, preserve and maintain its existence. The Company shall, and
shall cause each Subsidiary to, preserve and keep in force and effect all
licenses, permits, franchises, approvals, patents, trademarks, trade names,
trade styles, copyrights, and other property rights necessary to the proper
conduct of its business, except where the failure to do so could not reasonably
be expected to have a material adverse effect on the Condition of the Company or
on the prospects of repayment of the Notes.

               5.15 Maintenance of Properties. The Company shall, and shall
cause each Subsidiary to, maintain, preserve and keep its property and equipment
in good repair, working order and condition (ordinary wear and tear excepted)
and shall from time to time make all needful and proper repairs, renewals,
replacements, additions and betterments thereto so that at all times the
efficiency thereof shall by fully preserved and maintained, except in each case
to the extent that, in the reasonable business judgment of such Person, any such
property or equipment is no longer necessary for the proper conduct of the
business of such Person.

          6. The occurrence of any one or more of the following events shall
constitute an "Event of Default":

               6.1 Failure To Pay. (i) The failure of the Company to pay any
principal due under any of the Notes when due and payable (whether by
acceleration, declaration, extension or otherwise), or (ii) the failure of the
Company to pay any other amounts due under any of the Notes when due and payable
if such failure is not cured within five (5) days of Company's receipt of notice
thereof from any of the Holders.


                                       13



               6.2 Financial Covenants. The failure of Company or any of its
Subsidiaries to perform, observe or comply with any of the Financial Covenants
set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by
reference in this Note in Section 5.2.

               6.3 Other Covenants and Agreements. The failure of Company or any
of its Subsidiaries to perform, observe or comply with any of the covenants of
this Note, the Security Agreement or any of the other Loan Documents (other than
the Financial Covenants set forth on Schedule 8.5 to the Note Purchase
Agreement, and incorporated by reference in this Note in Section 5.2), if such
failure is not cured within sixty (60) days.

               6.4 Representations and Warranties. If any representation or
warranty made by the Company or any of its Subsidiaries in the Loan Documents is
not true and correct in all material respects on the Initial Closing Date.

               6.5 Default on Other Obligations. The occurrence of any condition
or default under any other indebtedness for borrowed money of the Company or any
of its Subsidiaries with a principal amount of at least five hundred thousand
dollars ($500,000) that results in the acceleration of such indebtedness which
is not cured within sixty (60) days.

               6.6 Involuntary Bankruptcy. There shall be filed against the
Company or any of its Subsidiaries an involuntary petition or other pleading
seeking the entry of a decree or order for relief under the United States
Bankruptcy Code or any similar federal or state insolvency or similar laws
ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a
reorganization of the Company or any of its Subsidiaries or the business and
affairs of the Company or any of its Subsidiaries or (c) the appointment of a
receiver, liquidator, assignee, custodian, trustee or similar official for the
Company or any of its Subsidiaries of the property of the Company or any of its
Subsidiaries.

               6.7 Voluntary Bankruptcy. The commencement by the Company or any
of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any
federal or state insolvency or similar laws or the consent by the Company or any
of its Subsidiaries to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or similar official for the Company or
any of its Subsidiaries of any of the property of the Company or any of its
Subsidiaries or the making by the Company or any of its Subsidiaries of an
assignment for the benefit of creditors, or the failure by Company or any of its
Subsidiaries generally to pay its debts as the debts become due.

               6.8 Judgments, Awards. Any judgment or order for the payment of
money is rendered against the Company or any of its Subsidiaries in an amount in
excess of five hundred thousand dollars ($500,000) individually or in the
aggregate and either (i) enforcement proceedings are commenced by any creditor
upon such judgment or order and not stayed, or (ii) there is any period of sixty
(60) consecutive


                                       14



days during which such judgment has not been paid in full or a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, is not in effect.

               6.9 Attachment by Lenders. Any assets of the Company or any of
its Subsidiaries shall be attached, levied upon, seized or repossessed, or come
into the possession of a trustee, receiver or other custodian and a
determination by any Holder, in good faith but in its sole discretion, that the
same could have a material adverse effect on the prospect for the Holders to
fully and punctually realize the full benefits conferred on the Holders by the
Loan Documents.

               6.10 Adverse Change in Financial Condition. Any event having a
material adverse effect on the business, operations, assets, properties or
condition of the Company and its Subsidiaries taken as a whole shall have
occurred and be continuing or a material adverse effect on the validity or
enforceability of this or any of the other Loan Documents or the rights or
remedies of the Holders hereunder or thereunder.

          7. Remedies. Upon and after the occurrence of an Event of Default, the
Holder shall be entitled to the exercise the rights and remedies set forth in
the Security Agreement, the other Loan Documents and under applicable law, all
such rights and remedies being cumulative and enforceable alternatively,
successively or concurrently.

          8. Prepayment. The Company may not prepay this Note prior to the
Maturity Date without the prior written consent of the Holders.

          9. Seniority.

                    (a) Except as set forth in the Subordination Agreement, the
Notes will rank senior in right of payment to all other indebtedness of the
Company, other than the GA Notes and the January 2004 Notes, with respect to
which the Notes will be pari passu in right of payment in accordance with the
Intercreditor Agreement.

                    (b) Notwithstanding anything to the contrary contained in
the Notes, this Note and the other Notes, and the terms and the conditions
hereof and thereof, are subject to the Intercreditor Agreement.

          10. Assignment. Subject to the restrictions on transfer described in
Section 12 below, the rights and obligations of the Company and Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties. The Company shall not be permitted to assign this
Note without the prior written consent of the Holders.

          11. Waiver of Notice. The Company hereby waives notice, presentment,
demand, protest and notice of dishonor.

          12. Transfer of This Note. With respect to any offer, sale or other
disposition of this Note, Holder will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such Holder's


                                       15



counsel, to the effect that such offer, sale or other distribution may be
effected without registration or qualification (under any federal or state law
then in effect); provided, that no opinion shall be required for any transfer to
an Affiliate or if the transfer is made in compliance with the Securities Act,
so long as the transferee can make the same representations and warranties at
the time of transfer as set forth in Sections 4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and
4.11 of the Note Purchase Agreement. Promptly upon delivering such written
notice and opinion, if so required, Holder may sell or otherwise dispose of this
Note, all in accordance with the terms of the notice delivered to the Company.
Each Note thus transferred shall bear a legend as to the applicable restrictions
on transferability in order to ensure compliance with the Securities Act, unless
in the opinion of counsel for the Company such legend is not required in order
to ensure compliance with the Securities Act. The Company may issue stop
transfer instructions to its transfer agent in connection with such
restrictions. Notwithstanding the foregoing, the Holder shall not be permitted
to transfer this Note to any Person who is not an Affiliate until the earlier of
(i) the obtaining of Stockholder Approval, (ii) the receipt of written notice
from the Company that Stockholder Approval cannot be obtained, or the occurrence
of an actual vote of the Company's shareholders entitled to vote (whether by
written consent or at a meeting specially called for such purpose), the result
of which is a decision by a majority of the Company's shareholders entitled to
vote to decline to grant Stockholder Approval, (iii) six (6) months from the
date hereof and (iv) the occurrence of an Event of Default. This Note is
registered as to both principal and stated interest with the Company (or its
agent) within the meaning of section 1.871-14(c)(1)(i) of the Income Tax
Regulations. Accordingly, notwithstanding anything to the contrary in this
paragraph, this Note, together with any interest thereon, may be transferred
only (i) upon surrender of the Note by the transferor to the Company (or its
agent) and the reissuance of the Note (or the issuance of a new Note) to the
transferee, or (ii) by transfer of the right to principal and interest through a
book-entry system meeting the requirements of section 1.871-14(c)(1)(i)(B) of
the Income Tax Regulations that is maintained by the Company (or its agent). In
the case of a Holder that is not a "United States person" within the meaning of
section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the
"Code"), so long as an exception under section 871(h) or section 881(c) of the
Code does not apply, the Company (or its agent) shall not withhold any U.S.
federal income tax with respect to such Holder provided that the Holder timely
provides the Company (or its agent) with a statement that meets the requirements
of section 871(h)(5) of the Code.

          13. Treatment of Note. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.

          14. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by nationally recognized courier
service or mailed by registered or certified mail, postage prepaid, to the
respective addresses of the parties as set forth on the signature pages hereto
or if sent by facsimile to the respective facsimile numbers of the parties set
forth on the signature pages hereto. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively


                                       16



be deemed to have been given and received when personally delivered or three (3)
business days after deposited in the mail or one business day after sent by
courier or upon confirmation of facsimile delivery in the manner set forth
above.

          15. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon Holder or any other Person the right to vote or to
consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company.

          16. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, excluding that body of law
relating to conflict of laws.

          17. Amendments and Waivers. No amendments or waivers of any provision
of this Note, and no consent by the Holder to any departure by the Company,
shall in any event be effective unless the same shall be in writing, and signed
by the Holders of a majority of the outstanding principal amount of all of the
Notes issued by the Company pursuant to the Note Purchase Agreement, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given.

          18. Severability. Any provision of this Note that is prohibited or
unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

          19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY
(A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF
RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION
WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY
TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY
OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN
THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER
OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE.
THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND
VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER
HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY
INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT. THE COMPANY AND THE


                                       17



HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING
JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO
SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF
THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED
IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT
LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

          20. Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except as otherwise indicated, all references herein to Sections refer to
Sections hereof.

          [the remainder of this page intentionally left blank]


                                       18



          IN WITNESS WHEREOF, the Company has caused this Note to be issued this
9th day of March, 2004.

                                   COMPANY:

                                   CRITICAL PATH, INC.,
                                   a California corporation

                                   By: /s/ William E. McGlashan, Jr.
                                       -----------------------------------------
                                       Name: William E. McGlashan, Jr.
                                       Title: Chairman, Chief Executive
                                       Officer

                                       Critical Path, Inc.
                                       350 The Embarcadero
                                       San Francisco, CA 94105-1204
                                       Telecopy: (415) 541-2300
                                       Attention: Chief Financial Officer

                                       With a copy to:

                                       Pillsbury Winthrop LLP
                                       50 Fremont Street
                                       San Francisco, CA 94105
                                       Telecopy: (415) 983-1200
                                       Attention: Gregg Vignos, Esq.

Name of Holder: CRITERION CAPITAL PARTNERS, LTD.

Address: c/o Criterion Capital Management
         One Maritime Plaza, Suite 1460
         San Francisco, CA 64111
         Attention: R. Daniel Beckham

Telephone:
           ------------------------------

Facsimile:
           ------------------------------

EX-4.41

                                                                    EXHIBIT 4.41

     THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
     SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN
     REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
     SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
     TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER
     OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.

                               CRITICAL PATH, INC.

                    CONVERTIBLE SUBORDINATED PROMISSORY NOTE

$1,307,000
                                                       San Francisco, California
                                                       March 9, 2004

          Critical Path, Inc., a California corporation (the "Company"), the
principal office of which is located in San Francisco, California, for value
received hereby promises to pay to the order of Criterion Capital Partners,
Institutional, or its registered assigns ("Holder"), the sum of one million
three hundred seven thousand dollars ($1,307,000), or such lesser amount as
shall then equal the outstanding principal amount hereof on the terms and
conditions set forth hereinafter. The outstanding principal amount hereof and
all accrued and unpaid interest hereon, as set forth below, shall be due and
payable on the earlier to occur of (i) March 9, 2008, (ii) when declared due and
payable by Holder upon the occurrence of an Event of Default (as defined below),
(iii) consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v)
any sale of capital stock or Stock Equivalents by the Company, any cash capital
contribution from any third person or any other debt or equity financing
consummated by the Company after the date of issuance of this Note which, in the
case of (v), individually or in the aggregate raises proceeds of at least forty
million dollars ($40,000,000) in cash or cash equivalents (the earliest of the
events set forth in items (i)-(v) immediately above, the "Maturity Date").

          The following is a statement of the rights of the Holder of this Note
and the conditions to which this Note is subject, and to which the Holder
hereof, by the acceptance of this Note, agrees:

          1. Definitions. Except as otherwise defined herein, each capitalized
term used herein shall have the meaning assigned to it in the Note Purchase
Agreement, as in effect on the date hereof, and without regard to any subsequent
termination of the Note Purchase Agreement. All other references to the Note
Purchase Agreement in this Note refer to the Note Purchase Agreement as in
effect on the date hereof, and without regard to any subsequent termination of
the Note Purchase Agreement. As used in this



Note, the following terms, unless the context otherwise requires, have the
following meanings:

               1.1 "Affiliate" means any Person who is an "affiliate" as defined
in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange
Act of 1934, as amended.

               1.2 "Capitalized Lease Obligations" means, with respect to any
Person, all rental obligations of such Person which, under GAAP, are or will be
required to be capitalized on the books of such Person, in each case taken at
the amount thereof accounted for as indebtedness in accordance with such
principles.

               1.3 "Change of Control" shall mean (i) any merger, consolidation
or other business combination transaction (or series of related transactions) in
which the stockholders owning a majority of the voting securities of the Company
prior to such transaction do not own a majority of the voting securities of the
surviving entity, (ii) any tender offer, exchange offer or other transaction
whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as amended) (other than
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell
Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and
the Affiliates of the foregoing, provided that Affiliates shall be deemed not to
include any portfolio companies of any of the foregoing) obtains a majority of
the outstanding shares of capital stock entitled to vote in the election of
directors, (iii) any proxy contest in which a majority of the Board of Directors
of the Company (or persons appointed by such Board of Directors) prior to such
contest do not constitute a majority of the Company's Board of Directors after
such contest or (iv) any other transaction described in any stockholder rights
agreement or "poison pill," if any, to which the Company is party, which may
permit the holders of any rights or similar certificates to exercise the rights
evidenced thereby.

               1.4 "Company" shall have the meaning set forth in the recitals
hereto, and includes any corporation that shall succeed to or assume the
obligations of the Company under this Note.

               1.5 "Common Conversion Date" shall have the meaning set forth in
Section 3.1(b) hereof.

               1.6 "Common Stock" means the common stock, par value $0.001 per
share, of the Company.

               1.7 "Conversion Date" shall mean the Subsequent Closing Date.

               1.8 "Domestic Subsidiary" shall have the meaning set forth in
Section 5.10 hereof.


                                       2



               1.9 "Event of Default" shall have the meaning set forth in
Section 6 hereof.

               1.10 "GA Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP
Entities pursuant to the Purchase and Exchange Agreement.

               1.11 "GAP Entities" shall mean General Atlantic Partners 74,
L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG.

               1.12 "Guarantor" shall have the meaning set forth in the Security
Agreement.

               1.13 "Holder" shall mean the registered holder of this Note from
time to time, and in the plural, shall mean all registered holders of Notes from
time to time issued by the Company pursuant to the Note Purchase Agreement.

               1.14 "Intercreditor Agreement" shall mean the Intercreditor
Agreement, dated the date hereof, among the GAP Entities, the January Lenders,
Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore
Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital
Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures
International.

               1.15 "Interest Amount" shall have the meaning set forth in
Section 3.1 hereof.

               1.16 "Investment" means (i) the acquisition (whether for cash,
property, services, assumption of Indebtedness, securities or otherwise) of
assets (other than equipment, inventory, supplies or other assets acquired in
the ordinary course of business of the Company), capital stock, bonds, notes,
debentures, partnership, joint venture or other ownership interests or other
securities of any Person, (ii) any deposit with, or advance, loan or other
extension of credit to, or on behalf of, any Person (other than deposits made in
connection with the purchase of equipment, inventory, services, leases, supplies
or other assets in the ordinary course of business of the Company), and (iii)
any other capital contribution to or investment in any Person, including,
without limitation, any guaranty obligation incurred for the benefit of any
Person. For the sake of clarity, Investments shall include any transfer of
property or assets by the Company to any of its Subsidiaries or by any
Subsidiary of the Company to any other Subsidiary.

               1.17 "January Lenders" shall mean Permal U.S. Opportunities
Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis
Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P.

               1.18 "January Note Agreement" shall mean the Convertible Note
Purchase Agreement, dated January 16, 2004, among the January Lenders and the
Company.


                                       3


               1.19 "January 2004 Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated January 16, 2003, issued by the Company to the
January Lenders pursuant to the January Note Agreement.

               1.20 "Loan Documents" shall have the meaning set forth in the
Security Agreement.

               1.21 "Note" shall mean this note, and in the plural, shall mean
all notes issued to the Lenders pursuant to the terms of the Note Purchase
Agreement, including this Note, and all amendments, modifications and extensions
thereto.

               1.22 "Note Purchase Agreement" means that certain Convertible
Note Purchase Agreement, dated March 9, 2004, among the Company, the Holder and
the other parties thereto from time to time, and all amendments, modifications
and extensions thereto.

               1.23 "Permitted Investments" means (i) Investments in cash or
cash equivalents, (ii) accounts receivable created, acquired or made in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (iii) Investments existing on the closing date, and
listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty
obligations permitted by Section 5.3 of this Agreement, (v) loans to employees,
directors or officers of the Company in connection with the award of convertible
bonds or capital stock under a stock incentive plan, stock option plan or other
equity-based compensation plan or arrangement, (vi) other advances or loans to
employees, directors, officers or agents of the Company in the ordinary course
of business not to exceed $500,000 in the aggregate at any time outstanding;
(vii) loans, advances and investments in foreign Subsidiaries (that are not
incorporated or otherwise organized under the laws of the United States of
America or any state thereof) in an amount not to exceed $1,000,000 in the
aggregate at any time outstanding; (viii) any acquisition for which the prior
written consent of the Holders of a majority of the outstanding principal amount
of all of the Notes issued by the Company pursuant to the Note Purchase
Agreement has been obtained, (ix) other loans, advances and investments of a
nature not contemplated by the foregoing sections in an amount not to exceed
$500,000 in the aggregate at any time outstanding or (x) Investments by the
Company in the Guarantor.

               1.24 "Permitted Liens" shall have the meaning set forth in
Section 5.4.

               1.25 "Person" means any individual, firm, corporation,
partnership, trust, joint venture, joint stock company, limited liability
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.

               1.26 "Price Per Share" shall have the meaning attributed to such
term in the Series E Certificate of Determination, as filed with the Secretary
of State of the State of California.


                                       4



               1.27 "Purchase and Exchange Agreement" shall mean the Convertible
Note Purchase and Exchange Agreement, dated November 18, 2003, among the
Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended.

               1.28 "Qualified Asset Sale" means the sale, transfer or other
disposition of any of the assets of the Company or any of its Subsidiaries,
other than (a) sales of assets in the ordinary course of business, (b) sales of
assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the
sale, transfer or other disposition of assets of the Company where the proceeds
are applied to the purchase price or traded in for credit against the purchase
price of other assets, provided that any such purchase is made, or credit
issued, within 90 days of the sale, transfer or other disposition, and (d) one
or more sales of the Company's assets (other than sales otherwise included in
clauses (a), (b), and (c) immediately above) which collectively yield up to an
aggregate of one million dollars ($1,000,000) in gross proceeds to the Company
while this Note is outstanding.

               1.29 "Restricted Payment" means (a) any dividend or other
distribution (whether in cash, securities or other property) with respect to any
shares of any class of capital stock of the Company or any of its Subsidiaries
or (b) any payment (whether in cash, securities or other property), including
any sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any shares of any class
of capital stock of the Company or any Subsidiary or any option, warrant or
other right to acquire any such shares of capital stock of the Company or any
Subsidiary.

               1.30 "Security Agreement" means that certain Guaranty and
Security Agreement, of even date herewith between the Company, Compass Holding
Corp., the Lenders and the other parties thereto from time to time, and all
amendments, modifications and extensions thereto.

               1.31 "Series E Conversion Price" shall have the meaning set forth
in the Series E Certificate of Determination.

               1.32 "Series E Preferred Stock" means the Series E Preferred
Stock, par value $0.001, of the Company.

               1.33 "Subordination Agreement" shall have the meaning set forth
in Section 5.3.

               1.34 "Subsequent Closing Date" shall have the meaning set forth
in Section 2.4(e) of the Note Purchase Agreement.

               1.35 "SVB" means Silicon Valley Bank, a California chartered
bank, or any Affiliates thereof.

               1.36 "Ten Percent Holder" means, with respect to a class of
equity securities of the Company, a Person (together with such Person's
Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such
class of equity securities of


                                       5



the Company, as defined by Section 13(d) of the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.

               1.37 "UCC" shall have the meaning set forth in Section 5.4.

          2. Interest. Simple interest shall accrue at the rate of ten percent
(10%) per annum (or such lesser amount as shall equal the highest rate of
interest allowable under applicable law) (the "Interest Rate"), on the
outstanding principal of this Note from the date of this Note until the Maturity
Date or the date this Note is otherwise repaid. The Company shall not be
obligated to make any payments of interest which shall have accrued under this
Note prior to the Maturity Date. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. In the event that the
principal amount of this Note, any interest, or any amount payable hereunder is
not paid in full when such amount becomes due and payable, or upon the
occurrence of an Event of Default, interest shall accrue at the lesser of (a)
the initial Interest Rate plus five percent (5%) per annum or (b) the highest
rate of interest allowable under applicable law, on the balance of all amounts
outstanding until such overdue amounts are paid or the Event of Default is
cured, and such interest shall be payable on demand.

          3. Conversion.

               3.1 Conversion.

                    (a) On the Conversion Date, the principal amount of this
Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall
be automatically converted into the number of fully paid and nonassessable
shares of Series E Preferred Stock equal to the quotient obtained by dividing
(a) the entire principal amount of this Note plus the Interest Amount by (b) the
Price Per Share.

                    (b) In the event that the Conversion Date has not occurred
on or prior to August 15, 2004 (the "Common Conversion Date"), then, following
the Common Conversion Date, the principal amount of this Note plus the Interest
Amount shall be convertible, at the option of Holder and from time to time, only
into Common Stock at a conversion price per share equal to $2.18, as adjusted
for any stock dividends, stock splits or similar consolidations or subdivisions,
following the date hereof; provided, however, that Holder shall not be permitted
to convert any portion of the principal of this Note or the Interest Amount into
Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion,
the conversion would cause Holder to be a Ten Percent Holder.

               3.2 Notice of Conversion. Upon conversion of this Note as
provided in Section 3.1, Holder shall surrender this Note to the Company and
shall state the name or names in which the certificate or certificates for such
shares of Series E Preferred Stock or Common Stock, as the case may be, are to
be issued. The Person or Persons entitled to receive the shares of Series E
Preferred Stock or Common Stock, as the case may be, issuable upon such
conversion shall be treated for all purposes as the record holder or holders (a)
of such shares of Series E Preferred Stock as of the


                                       6



Conversion Date and (b) of such shares of Common Stock as of the date of any
conversion pursuant to Section 3.1(b).

               3.3 Delivery of Stock Certificates. Upon conversion of this Note
as provided in Section 3.1, the Company at its expense will issue and deliver to
Holder of this Note a certificate or certificates (bearing such legends as are
required by applicable state and federal securities laws in the opinion of
counsel to the Company) for the number of full shares of Series E Preferred
Stock or Common Stock, as the case may be, issuable upon such conversion.

               3.4 Mechanics and Effect of Conversion. No fractional shares of
Series E Preferred Stock or Common Stock, as the case may be, shall be issued
upon conversion of this Note. In lieu of the Company issuing any fractional
shares to Holder upon the conversion of this Note, the Company shall pay to
Holder the amount of outstanding principal and interest that is not so
converted. Upon conversion of all amounts due under this Note, the Company shall
be released from all of its obligations under this Note.

          4. Adjustments. The number of shares of Series E Preferred Stock or
Common Stock convertible hereunder are subject to adjustment from time to time
as follows:

               4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at
any time while this Note remains outstanding and unexpired there shall be (a) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (b) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise or (c) a sale or
transfer of the Company's stock, properties or assets as, or substantially as,
an entirety to any other Person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that Holder
shall thereafter be entitled to receive by converting this Note the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon conversion of this Note would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Note had been converted immediately before such reorganization,
merger, consolidation, sale or transfer (notwithstanding that the Stockholder
Approval may not yet have been obtained), all subject to further adjustment as
provided in this Section 4. The foregoing provisions of this Section 4.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation. If the
per share consideration payable to Holder hereof for shares in connection with
any such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
Company's Board of Directors based on the amount the Holder would have otherwise
been entitled to receive had the transaction or transactions not occurred.


                                       7



In all events, appropriate adjustment (as determined in good faith by the
Company's Board of Directors) shall be made in the application of the provisions
of this Note with respect to the rights and interests of Holder after the
transaction, to the end that the provisions of this Note shall be applicable
after that event, as near as reasonably may be, in relation to any shares or
other property deliverable after that event upon conversion of this Note. The
Company shall be obligated to retain and set aside, or otherwise make fair
provision for exercise of the right of the Holder to receive, the shares of
stock and/or other securities, cash or other property provided for in this
Section 4.1.

               4.2 Election of Holder upon Merger or Sale of Assets.
Notwithstanding anything to the contrary contained herein, if an event shall
occur as provided in Section 4.1 hereof that would otherwise result in the
occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first
paragraph of this Note, then the Holder may, in its sole discretion, by written
notice to the Company elect to convert the principal amount of this Note plus
the Interest Amount into the number of shares of stock or other securities or
property described in Section 4.1, in lieu of receiving payment in full of all
amounts outstanding under this Note. The number of shares of stock or other
securities or property to be issued upon such conversion shall be determined in
accordance with Section 4.1 hereof, taking into account the occurrence of such
event.

               4.3 Reclassification, Etc. If the Company shall, at any time
while this Note, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, change any of the securities as to
which conversion rights under this Note exist into the same or a different
number of securities of any other class or classes, this Note shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable with respect to the securities that were subject to the conversion
rights under this Note immediately prior to such reclassification or other
change, and the Price Per Share shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 4.

               4.4 Split, Subdivision or Combination of Shares. If the Company
at any time while this Note, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the shares of Series E Preferred
Stock or Common Stock into a different number of securities of the same class,
the Price Per Share or conversion price, as the case may be, shall be
proportionately adjusted.

               4.5 Series E Adjustments. The initial Series E Conversion Price
of the shares of Series E Preferred Stock issued upon conversion of this Note
pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on
the Conversion Date, subject to the adjustment of such Series E Conversion Price
from time to time thereafter as provided in the Series E Certificate of
Determination.

               4.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 4, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.


                                       8



               4.7 No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of Holder against impairment.

          5. Covenants. The Company covenants and agrees that until the earlier
of (i) the date on which all Obligations (as defined in the Security Agreement)
have been paid in full or (ii) the date on which all amounts outstanding under
the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b):

               5.1 Financial Statements and Other Information. The Company shall
deliver to the Holder of this Note the financial statements and other
information required to be delivered under Section 8.1 of the Note Purchase
Agreement.

               5.2 Financial Covenants. The Company shall at all times comply
with the financial and other covenants set forth in Schedule 8.5 to the Note
Purchase Agreement as if such covenants were set forth herein.

               5.3 Indebtedness. The Company shall not, and shall not permit any
Subsidiary to, issue, incur, assume, create or have outstanding any
Indebtedness, provided, however, that the foregoing shall not restrict nor
operate to prevent:

                    (a) Indebtedness in favor of the Holders under the Loan
Documents;

                    (b) Indebtedness existing on the date hereof, as set forth
on Schedule 3.22 to the Note Purchase Agreement;

                    (c) Indebtedness for accounts payable incurred in the
ordinary course of business by the Company;

                    (d) Indebtedness incurred solely for the purpose of
financing the acquisition of any equipment, machinery, software, improvements or
any other similar property, or extensions, renewals or replacements of any of
the foregoing for the same or a lesser amount; provided, that the aggregate
outstanding principal amount of all Indebtedness permitted pursuant to this
clause (d) outstanding for more than sixty (60) days after the incurrence of
such Indebtedness shall not at any time exceed $500,000;

                    (e) Indebtedness of the Company evidenced by Capitalized
Lease Obligations, provided, that in no event shall the aggregate principal
amount of Capitalized Lease Obligations permitted by this clause (e) exceed
$500,000 at any time outstanding; and


                                       9



                    (f) Any extension, renewal, refinancing, refunding, or
replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and
(e) above, on such terms and conditions as are, on the whole, not materially
more onerous to the Company than the terms and conditions of such original
Indebtedness on the date of such refinancing (including that the principal
amount of such refinancing Indebtedness does not exceed the principal amount of,
plus the amount of accrued and unpaid interest on, the Indebtedness so
refinanced (plus the amount of reasonable premium and fees and expenses incurred
in connection therewith)), provided that, in the case of a refinancing of
Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall
only apply to the extent consistent with the Subordination Agreement, dated as
of the date hereof, by and among SVB, the Holders and the Company (the
"Subordination Agreement").

               5.4 Liens. The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
the Company or any of its Subsidiaries, whether now owned or hereafter acquired,
or sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable), or assign any right to receive income or permit the
filing of any financing statement under the Uniform Commercial Code, as from
time to time in effect in the relevant jurisdiction (the "UCC"), or any other
similar notice of Lien under any similar recording or notice statute; provided,
that the provisions of this Section 5.4 shall not prevent the creation,
incurrence, assumption or existence of the following:

                    (a) Liens arising in the ordinary course of business by
statute in connection with worker's compensation, unemployment insurance, old
age benefits, social security obligations, statutory obligations or other
similar charges (other then Liens arising under ERISA), good faith cash deposits
in connection with tenders, contracts or leases to which the Company or any
Subsidiary is a party or other cash deposits required to be made in the ordinary
course of business, provided, that such Liens do not have a material adverse
effect on the ability of the Company to repay amounts due under the Notes;

                    (b) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due or Liens for taxes, assessments or governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP;

                    (c) Liens in respect of property or assets of the Company or
its Subsidiaries imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as carriers',
warehousemen's, materialmen's and mechanics' liens and other similar Liens
arising in the ordinary course of business, and (i) which do not in the
aggregate materially detract from the value of the Company's and its
Subsidiaries' property or assets taken as a whole or result in a material
adverse effect on the Condition of the Company or (ii) which are


                                       10



being contested in good faith by appropriate proceedings, which proceedings have
the effect of preventing the forfeiture or sale of the property or assets
subject to any such Lien;

                    (d) the pledge of assets for the purpose of securing an
appeal, stay or discharge in the course of any legal proceeding, provided that
the aggregate amount of liabilities of the Company and its Subsidiaries secured
by a pledge of assets permitted under this subsection, including interest and
penalties thereon, if any, shall not be in excess of $500,000 at any one time
outstanding;

                    (e) any interest or title of a lessor under any operating
lease;

                    (f) easements, rights-of-way, restrictions and other similar
encumbrances against real property incurred in the ordinary course of business;

                    (g) the Liens existing on the date hereof identified on
Schedule 3.22 to the Note Purchase Agreement;

                    (h) Liens on cash deposited with account debtors to secure
performance by the Company or any Subsidiary in the ordinary course of business
subject to customary and reasonable terms;

                    (i) Liens upon assets of the Company or its Subsidiaries
subject to Capitalized Lease Obligations, provided, that (A) such Liens only
serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising
under such Capitalized Lease Obligation and (B) the Lien encumbering the asset
giving rise to the Capitalized Lease Obligation does not encumber any other
asset of the Company or its Subsidiaries;

                    (j) Liens placed upon equipment, machinery, software,
improvements or any other similar property, used in the ordinary course of
business of the Company or any of its Subsidiaries at the time of the
acquisition thereof by the Company or any of its Subsidiaries or within ninety
(90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above;
provided, that the Liens encumbering the equipment, machinery software,
improvements or any other similar property so acquired do not encumber any other
asset of the Company or its Subsidiaries;

                    (k) set-off rights of depository institutions; and

                    (l) Liens created by the Security Agreement (collectively
with clauses (a) through (k) hereof, the "Permitted Liens").

               5.5 Fundamental Changes. The Company will not, and will not
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (in one transaction or a series of transactions)
all or substantially all of its


                                       11



assets, or all or substantially all of the stock of any of its Subsidiaries (in
each case, whether now owned or hereafter acquired), or liquidate or dissolve,
except that, if at the time and immediately after giving effect thereto no Event
of Default shall have occurred and be continuing (i) the Company or any of its
Subsidiaries may, with the prior written consent of the Holders, merge with or
into any other Person; (ii) any wholly-owned Subsidiary of the Company (other
than the Guarantor) may merge with or into the Company or any other wholly-owned
Subsidiary of the Company; (iii) any Subsidiary (other than the Guarantor, and
except as otherwise prohibited by this Note) may sell, transfer, lease or
otherwise dispose of its assets to the Company or to another wholly-owned
Subsidiary of the Company; and (iv) any Subsidiary may liquidate or dissolve if
the board of directors of the Company determine in good faith that such
liquidation or dissolution is in its best interests and is not disadvantageous
to the Holders.

               5.6 Restricted Payments. The Company will not, and the Company
will not permit any Subsidiary to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except that (i) any Subsidiary
may make a Restricted Payment to the Company or any of its wholly-owned
Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any
Restricted Payment required by the terms of the Note Purchase Agreement and the
other documents executed in connection therewith.

               5.7 Transactions with Affiliates. The Company will not, and the
Company will not permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions that are at prices and on terms and
conditions not less favorable to the Company or such Subsidiary than could be
obtained on an arm's length basis from unrelated third parties, (b) transactions
exclusively between the Company and the Guarantor and (c) transactions under the
agreements listed on Schedule 3.17 to the Note Purchase Agreement.

               5.8 Investments. The Company will not, and the Company will not
permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment
in any Person, except for Permitted Investments.

               5.9 Nature of Business. The Company will not, and the Company
will not permit any Subsidiary to, engage in any business other than that
conducted on the date hereof and any businesses reasonably related thereto.

               5.10 Property of Existing Domestic Subsidiaries. The Company will
not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise
organized under the laws of the United States of America or any state thereof (a
"Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease,
license, purchase or otherwise acquire any personal or real property (excluding
any material intellectual property) in excess of $50,000 for all property held
by such Subsidiary, or $250,000 in the aggregate for all property held by all
Domestic Subsidiaries (ii) maintain


                                       12



any deposit account in its name, (iii) own or otherwise hold any rights to any
material intellectual property or (iv) otherwise conduct any business or
maintain operations.

               5.11 Formation of Subsidiaries. The Company will not, and will
not cause or permit any of its Subsidiaries to, form, acquire or permit the
existence of any new domestic Subsidiary, without causing such domestic
Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes
and related security document, in form and substance satisfactory to the
Holders.

               5.12 Books and Records. The Company shall keep proper books of
record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company and its
Subsidiaries in accordance with GAAP consistently applied.

               5.13 Inspection. The Company shall, and shall cause each of its
Subsidiaries to, permit representatives of the Holders to visit and inspect any
of its properties, to examine its corporate, financial and operating records and
make copies thereof or abstracts therefrom, and to discuss its affairs, finances
and accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested upon notice to the Company.

               5.14 Maintenance of Business. The Company shall, and shall cause
each Subsidiary to, preserve and maintain its existence. The Company shall, and
shall cause each Subsidiary to, preserve and keep in force and effect all
licenses, permits, franchises, approvals, patents, trademarks, trade names,
trade styles, copyrights, and other property rights necessary to the proper
conduct of its business, except where the failure to do so could not reasonably
be expected to have a material adverse effect on the Condition of the Company or
on the prospects of repayment of the Notes.

               5.15 Maintenance of Properties. The Company shall, and shall
cause each Subsidiary to, maintain, preserve and keep its property and equipment
in good repair, working order and condition (ordinary wear and tear excepted)
and shall from time to time make all needful and proper repairs, renewals,
replacements, additions and betterments thereto so that at all times the
efficiency thereof shall by fully preserved and maintained, except in each case
to the extent that, in the reasonable business judgment of such Person, any such
property or equipment is no longer necessary for the proper conduct of the
business of such Person.

          6. The occurrence of any one or more of the following events shall
constitute an "Event of Default":

               6.1 Failure To Pay. (i) The failure of the Company to pay any
principal due under any of the Notes when due and payable (whether by
acceleration, declaration, extension or otherwise), or (ii) the failure of the
Company to pay any other amounts due under any of the Notes when due and payable
if such failure is not cured within five (5) days of Company's receipt of notice
thereof from any of the Holders.


                                       13



               6.2 Financial Covenants. The failure of Company or any of its
Subsidiaries to perform, observe or comply with any of the Financial Covenants
set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by
reference in this Note in Section 5.2.

               6.3 Other Covenants and Agreements. The failure of Company or any
of its Subsidiaries to perform, observe or comply with any of the covenants of
this Note, the Security Agreement or any of the other Loan Documents (other than
the Financial Covenants set forth on Schedule 8.5 to the Note Purchase
Agreement, and incorporated by reference in this Note in Section 5.2), if such
failure is not cured within sixty (60) days.

               6.4 Representations and Warranties. If any representation or
warranty made by the Company or any of its Subsidiaries in the Loan Documents is
not true and correct in all material respects on the Initial Closing Date.

               6.5 Default on Other Obligations. The occurrence of any condition
or default under any other indebtedness for borrowed money of the Company or any
of its Subsidiaries with a principal amount of at least five hundred thousand
dollars ($500,000) that results in the acceleration of such indebtedness which
is not cured within sixty (60) days.

               6.6 Involuntary Bankruptcy. There shall be filed against the
Company or any of its Subsidiaries an involuntary petition or other pleading
seeking the entry of a decree or order for relief under the United States
Bankruptcy Code or any similar federal or state insolvency or similar laws
ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a
reorganization of the Company or any of its Subsidiaries or the business and
affairs of the Company or any of its Subsidiaries or (c) the appointment of a
receiver, liquidator, assignee, custodian, trustee or similar official for the
Company or any of its Subsidiaries of the property of the Company or any of its
Subsidiaries.

               6.7 Voluntary Bankruptcy. The commencement by the Company or any
of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any
federal or state insolvency or similar laws or the consent by the Company or any
of its Subsidiaries to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or similar official for the Company or
any of its Subsidiaries of any of the property of the Company or any of its
Subsidiaries or the making by the Company or any of its Subsidiaries of an
assignment for the benefit of creditors, or the failure by Company or any of its
Subsidiaries generally to pay its debts as the debts become due.

               6.8 Judgments, Awards. Any judgment or order for the payment of
money is rendered against the Company or any of its Subsidiaries in an amount in
excess of five hundred thousand dollars ($500,000) individually or in the
aggregate and either (i) enforcement proceedings are commenced by any creditor
upon such judgment or order and not stayed, or (ii) there is any period of sixty
(60) consecutive


                                       14



days during which such judgment has not been paid in full or a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, is not in effect.

               6.9 Attachment by Lenders. Any assets of the Company or any of
its Subsidiaries shall be attached, levied upon, seized or repossessed, or come
into the possession of a trustee, receiver or other custodian and a
determination by any Holder, in good faith but in its sole discretion, that the
same could have a material adverse effect on the prospect for the Holders to
fully and punctually realize the full benefits conferred on the Holders by the
Loan Documents.

               6.10 Adverse Change in Financial Condition. Any event having a
material adverse effect on the business, operations, assets, properties or
condition of the Company and its Subsidiaries taken as a whole shall have
occurred and be continuing or a material adverse effect on the validity or
enforceability of this or any of the other Loan Documents or the rights or
remedies of the Holders hereunder or thereunder.

          7. Remedies. Upon and after the occurrence of an Event of Default, the
Holder shall be entitled to the exercise the rights and remedies set forth in
the Security Agreement, the other Loan Documents and under applicable law, all
such rights and remedies being cumulative and enforceable alternatively,
successively or concurrently.

          8. Prepayment. The Company may not prepay this Note prior to the
Maturity Date without the prior written consent of the Holders.

          9. Seniority.

                    (a) Except as set forth in the Subordination Agreement, the
Notes will rank senior in right of payment to all other indebtedness of the
Company, other than the GA Notes and the January 2004 Notes, with respect to
which the Notes will be pari passu in right of payment in accordance with the
Intercreditor Agreement.

                    (b) Notwithstanding anything to the contrary contained in
the Notes, this Note and the other Notes, and the terms and the conditions
hereof and thereof, are subject to the Intercreditor Agreement.

          10. Assignment. Subject to the restrictions on transfer described in
Section 12 below, the rights and obligations of the Company and Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties. The Company shall not be permitted to assign this
Note without the prior written consent of the Holders.

          11. Waiver of Notice. The Company hereby waives notice, presentment,
demand, protest and notice of dishonor.

          12. Transfer of This Note. With respect to any offer, sale or other
disposition of this Note, Holder will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such Holder's


                                       15



counsel, to the effect that such offer, sale or other distribution may be
effected without registration or qualification (under any federal or state law
then in effect); provided, that no opinion shall be required for any transfer to
an Affiliate or if the transfer is made in compliance with the Securities Act,
so long as the transferee can make the same representations and warranties at
the time of transfer as set forth in Sections 4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and
4.11 of the Note Purchase Agreement. Promptly upon delivering such written
notice and opinion, if so required, Holder may sell or otherwise dispose of this
Note, all in accordance with the terms of the notice delivered to the Company.
Each Note thus transferred shall bear a legend as to the applicable restrictions
on transferability in order to ensure compliance with the Securities Act, unless
in the opinion of counsel for the Company such legend is not required in order
to ensure compliance with the Securities Act. The Company may issue stop
transfer instructions to its transfer agent in connection with such
restrictions. Notwithstanding the foregoing, the Holder shall not be permitted
to transfer this Note to any Person who is not an Affiliate until the earlier of
(i) the obtaining of Stockholder Approval, (ii) the receipt of written notice
from the Company that Stockholder Approval cannot be obtained, or the occurrence
of an actual vote of the Company's shareholders entitled to vote (whether by
written consent or at a meeting specially called for such purpose), the result
of which is a decision by a majority of the Company's shareholders entitled to
vote to decline to grant Stockholder Approval, (iii) six (6) months from the
date hereof and (iv) the occurrence of an Event of Default. This Note is
registered as to both principal and stated interest with the Company (or its
agent) within the meaning of section 1.871-14(c)(1)(i) of the Income Tax
Regulations. Accordingly, notwithstanding anything to the contrary in this
paragraph, this Note, together with any interest thereon, may be transferred
only (i) upon surrender of the Note by the transferor to the Company (or its
agent) and the reissuance of the Note (or the issuance of a new Note) to the
transferee, or (ii) by transfer of the right to principal and interest through a
book-entry system meeting the requirements of section 1.871-14(c)(1)(i)(B) of
the Income Tax Regulations that is maintained by the Company (or its agent). In
the case of a Holder that is not a "United States person" within the meaning of
section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the
"Code"), so long as an exception under section 871(h) or section 881(c) of the
Code does not apply, the Company (or its agent) shall not withhold any U.S.
federal income tax with respect to such Holder provided that the Holder timely
provides the Company (or its agent) with a statement that meets the requirements
of section 871(h)(5) of the Code.

          13. Treatment of Note. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.

          14. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by nationally recognized courier
service or mailed by registered or certified mail, postage prepaid, to the
respective addresses of the parties as set forth on the signature pages hereto
or if sent by facsimile to the respective facsimile numbers of the parties set
forth on the signature pages hereto. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively


                                       16



be deemed to have been given and received when personally delivered or three (3)
business days after deposited in the mail or one business day after sent by
courier or upon confirmation of facsimile delivery in the manner set forth
above.

          15. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon Holder or any other Person the right to vote or to
consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company.

          16. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, excluding that body of law
relating to conflict of laws.

          17. Amendments and Waivers. No amendments or waivers of any provision
of this Note, and no consent by the Holder to any departure by the Company,
shall in any event be effective unless the same shall be in writing, and signed
by the Holders of a majority of the outstanding principal amount of all of the
Notes issued by the Company pursuant to the Note Purchase Agreement, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given.

          18. Severability. Any provision of this Note that is prohibited or
unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

          19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY
(A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF
RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION
WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY
TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY
OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN
THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER
OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE.
THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND
VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER
HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY
INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT. THE COMPANY AND THE


                                       17



HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING
JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO AS TO
SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF
THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED
IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT
LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

          20. Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except as otherwise indicated, all references herein to Sections refer to
Sections hereof.

              [the remainder of this page intentionally left blank]


                                       18



          IN WITNESS WHEREOF, the Company has caused this Note to be issued this
9(th) day of March, 2004.

                                    COMPANY:

                                    CRITICAL PATH, INC.,
                                    a California corporation

                                    By: /s/ William E. McGlashan, Jr.
                                       -------------------------------------
                                       Name:  William E. McGlashan, Jr.
                                       Title:  Chairman, Chief Executive Officer

                                       Critical Path, Inc.
                                       350 The Embarcadero
                                       San Francisco, CA 94105-1204
                                       Telecopy:  (415) 541-2300
                                       Attention:  Chief Financial Officer

                                       With a copy to:

                                       Pillsbury Winthrop LLP
                                       50 Fremont Street
                                       San Francisco, CA 94105
                                       Telecopy:  (415) 983-1200
                                       Attention:  Gregg Vignos, Esq.

Name of Holder: CRITERION CAPITAL PARTNERS, INSTITUTIONAL

Address:   c/o Criterion Capital Management
           One Maritime Plaza, Suite 1460
           San Francisco, CA  64111
           Attention:  R. Daniel Beckham

Telephone:
           -----------------------------------

Facsimile:
           -----------------------------------

EX-4.42

                                                                    EXHIBIT 4.42

     THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
     SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN
     REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
     SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
     TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER
     OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.

                               CRITICAL PATH, INC.

                    CONVERTIBLE SUBORDINATED PROMISSORY NOTE

$350,000                                               San Francisco, California
                                                       March 9, 2004

          Critical Path, Inc., a California corporation (the "Company"), the
principal office of which is located in San Francisco, California, for value
received hereby promises to pay to the order of Criterion Capital Partners,
L.P., or its registered assigns ("Holder"), the sum of three hundred fifty
thousand dollars ($350,000), or such lesser amount as shall then equal the
outstanding principal amount hereof on the terms and conditions set forth
hereinafter. The outstanding principal amount hereof and all accrued and unpaid
interest hereon, as set forth below, shall be due and payable on the earlier to
occur of (i) March 9, 2008, (ii) when declared due and payable by Holder upon
the occurrence of an Event of Default (as defined below), (iii) consummation of
a Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital
stock or Stock Equivalents by the Company, any cash capital contribution from
any third person or any other debt or equity financing consummated by the
Company after the date of issuance of this Note which, in the case of (v),
individually or in the aggregate raises proceeds of at least forty million
dollars ($40,000,000) in cash or cash equivalents (the earliest of the events
set forth in items (i)-(v) immediately above, the "Maturity Date").

          The following is a statement of the rights of the Holder of this Note
and the conditions to which this Note is subject, and to which the Holder
hereof, by the acceptance of this Note, agrees:

          1. Definitions. Except as otherwise defined herein, each capitalized
term used herein shall have the meaning assigned to it in the Note Purchase
Agreement, as in effect on the date hereof, and without regard to any subsequent
termination of the Note Purchase Agreement. All other references to the Note
Purchase Agreement in this Note refer to the Note Purchase Agreement as in
effect on the date hereof, and without regard to any subsequent termination of
the Note Purchase Agreement. As used in this Note, the following terms, unless
the context otherwise requires, have the following



meanings:

               1.1 "Affiliate" means any Person who is an "affiliate" as defined
in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange
Act of 1934, as amended.

               1.2 "Capitalized Lease Obligations" means, with respect to any
Person, all rental obligations of such Person which, under GAAP, are or will be
required to be capitalized on the books of such Person, in each case taken at
the amount thereof accounted for as indebtedness in accordance with such
principles.

               1.3 "Change of Control" shall mean (i) any merger, consolidation
or other business combination transaction (or series of related transactions) in
which the stockholders owning a majority of the voting securities of the Company
prior to such transaction do not own a majority of the voting securities of the
surviving entity, (ii) any tender offer, exchange offer or other transaction
whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as amended) (other than
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell
Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and
the Affiliates of the foregoing, provided that Affiliates shall be deemed not to
include any portfolio companies of any of the foregoing) obtains a majority of
the outstanding shares of capital stock entitled to vote in the election of
directors, (iii) any proxy contest in which a majority of the Board of Directors
of the Company (or persons appointed by such Board of Directors) prior to such
contest do not constitute a majority of the Company's Board of Directors after
such contest or (iv) any other transaction described in any stockholder rights
agreement or "poison pill," if any, to which the Company is party, which may
permit the holders of any rights or similar certificates to exercise the rights
evidenced thereby.

               1.4 "Company" shall have the meaning set forth in the recitals
hereto, and includes any corporation that shall succeed to or assume the
obligations of the Company under this Note.

               1.5 "Common Conversion Date" shall have the meaning set forth in
Section 3.1(b) hereof.

               1.6 "Common Stock" means the common stock, par value $0.001 per
share, of the Company.

               1.7 "Conversion Date" shall mean the Subsequent Closing Date.

               1.8 "Domestic Subsidiary" shall have the meaning set forth in
Section 5.10 hereof.

               1.9 "Event of Default" shall have the meaning set forth in
Section 6 hereof.


                                       2



               1.10 "GA Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP
Entities pursuant to the Purchase and Exchange Agreement.

               1.11 "GAP Entities" shall mean General Atlantic Partners 74,
L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG.

               1.12 "Guarantor" shall have the meaning set forth in the Security
Agreement.

               1.13 "Holder" shall mean the registered holder of this Note from
time to time, and in the plural, shall mean all registered holders of Notes from
time to time issued by the Company pursuant to the Note Purchase Agreement.

               1.14 "Intercreditor Agreement" shall mean the Intercreditor
Agreement, dated the date hereof, among the GAP Entities, the January Lenders,
Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore
Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital
Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures
International.

               1.15 "Interest Amount" shall have the meaning set forth in
Section 3.1 hereof.

               1.16 "Investment" means (i) the acquisition (whether for cash,
property, services, assumption of Indebtedness, securities or otherwise) of
assets (other than equipment, inventory, supplies or other assets acquired in
the ordinary course of business of the Company), capital stock, bonds, notes,
debentures, partnership, joint venture or other ownership interests or other
securities of any Person, (ii) any deposit with, or advance, loan or other
extension of credit to, or on behalf of, any Person (other than deposits made in
connection with the purchase of equipment, inventory, services, leases, supplies
or other assets in the ordinary course of business of the Company), and (iii)
any other capital contribution to or investment in any Person, including,
without limitation, any guaranty obligation incurred for the benefit of any
Person. For the sake of clarity, Investments shall include any transfer of
property or assets by the Company to any of its Subsidiaries or by any
Subsidiary of the Company to any other Subsidiary.

               1.17 "January Lenders" shall mean Permal U.S. Opportunities
Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis
Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P.

               1.18 "January Note Agreement" shall mean the Convertible Note
Purchase Agreement, dated January 16, 2004, among the January Lenders and the
Company.

               1.19 "January 2004 Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated January 16, 2003, issued by the Company to the
January Lenders pursuant to the January Note Agreement.


                                       3



               1.20 "Loan Documents" shall have the meaning set forth in the
Security Agreement.

               1.21 "Note" shall mean this note, and in the plural, shall mean
all notes issued to the Lenders pursuant to the terms of the Note Purchase
Agreement, including this Note, and all amendments, modifications and extensions
thereto.

               1.22 "Note Purchase Agreement" means that certain Convertible
Note Purchase Agreement, dated March 9, 2004, among the Company, the Holder and
the other parties thereto from time to time, and all amendments, modifications
and extensions thereto.

               1.23 "Permitted Investments" means (i) Investments in cash or
cash equivalents, (ii) accounts receivable created, acquired or made in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (iii) Investments existing on the closing date, and
listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty
obligations permitted by Section 5.3 of this Agreement, (v) loans to employees,
directors or officers of the Company in connection with the award of convertible
bonds or capital stock under a stock incentive plan, stock option plan or other
equity-based compensation plan or arrangement, (vi) other advances or loans to
employees, directors, officers or agents of the Company in the ordinary course
of business not to exceed $500,000 in the aggregate at any time outstanding;
(vii) loans, advances and investments in foreign Subsidiaries (that are not
incorporated or otherwise organized under the laws of the United States of
America or any state thereof) in an amount not to exceed $1,000,000 in the
aggregate at any time outstanding; (viii) any acquisition for which the prior
written consent of the Holders of a majority of the outstanding principal amount
of all of the Notes issued by the Company pursuant to the Note Purchase
Agreement has been obtained, (ix) other loans, advances and investments of a
nature not contemplated by the foregoing sections in an amount not to exceed
$500,000 in the aggregate at any time outstanding or (x) Investments by the
Company in the Guarantor.

               1.24 "Permitted Liens" shall have the meaning set forth in
Section 5.4.

               1.25 "Person" means any individual, firm, corporation,
partnership, trust, joint venture, joint stock company, limited liability
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.

               1.26 "Price Per Share" shall have the meaning attributed to such
term in the Series E Certificate of Determination, as filed with the Secretary
of State of the State of California.

               1.27 "Purchase and Exchange Agreement" shall mean the Convertible
Note Purchase and Exchange Agreement, dated November 18, 2003, among the
Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended.


                                       4



               1.28 "Qualified Asset Sale" means the sale, transfer or other
disposition of any of the assets of the Company or any of its Subsidiaries,
other than (a) sales of assets in the ordinary course of business, (b) sales of
assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the
sale, transfer or other disposition of assets of the Company where the proceeds
are applied to the purchase price or traded in for credit against the purchase
price of other assets, provided that any such purchase is made, or credit
issued, within 90 days of the sale, transfer or other disposition, and (d) one
or more sales of the Company's assets (other than sales otherwise included in
clauses (a), (b), and (c) immediately above) which collectively yield up to an
aggregate of one million dollars ($1,000,000) in gross proceeds to the Company
while this Note is outstanding.

               1.29 "Restricted Payment" means (a) any dividend or other
distribution (whether in cash, securities or other property) with respect to any
shares of any class of capital stock of the Company or any of its Subsidiaries
or (b) any payment (whether in cash, securities or other property), including
any sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any shares of any class
of capital stock of the Company or any Subsidiary or any option, warrant or
other right to acquire any such shares of capital stock of the Company or any
Subsidiary.

               1.30 "Security Agreement" means that certain Guaranty and
Security Agreement, of even date herewith between the Company, Compass Holding
Corp., the Lenders and the other parties thereto from time to time, and all
amendments, modifications and extensions thereto.

               1.31 "Series E Conversion Price" shall have the meaning set forth
in the Series E Certificate of Determination.

               1.32 "Series E Preferred Stock" means the Series E Preferred
Stock, par value $0.001, of the Company.

               1.33 "Subordination Agreement" shall have the meaning set forth
in Section 5.3.

               1.34 "Subsequent Closing Date" shall have the meaning set forth
in Section 2.4(e) of the Note Purchase Agreement.

               1.35 "SVB" means Silicon Valley Bank, a California chartered
bank, or any Affiliates thereof.

               1.36 "Ten Percent Holder" means, with respect to a class of
equity securities of the Company, a Person (together with such Person's
Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such
class of equity securities of the Company, as defined by Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

               1.37 "UCC" shall have the meaning set forth in Section 5.4.


                                       5



          2. Interest. Simple interest shall accrue at the rate of ten percent
(10%) per annum (or such lesser amount as shall equal the highest rate of
interest allowable under applicable law) (the "Interest Rate"), on the
outstanding principal of this Note from the date of this Note until the Maturity
Date or the date this Note is otherwise repaid. The Company shall not be
obligated to make any payments of interest which shall have accrued under this
Note prior to the Maturity Date. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. In the event that the
principal amount of this Note, any interest, or any amount payable hereunder is
not paid in full when such amount becomes due and payable, or upon the
occurrence of an Event of Default, interest shall accrue at the lesser of (a)
the initial Interest Rate plus five percent (5%) per annum or (b) the highest
rate of interest allowable under applicable law, on the balance of all amounts
outstanding until such overdue amounts are paid or the Event of Default is
cured, and such interest shall be payable on demand.

          3. Conversion.

               3.1 Conversion.

                    (a) On the Conversion Date, the principal amount of this
Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall
be automatically converted into the number of fully paid and nonassessable
shares of Series E Preferred Stock equal to the quotient obtained by dividing
(a) the entire principal amount of this Note plus the Interest Amount by (b) the
Price Per Share.

                    (b) In the event that the Conversion Date has not occurred
on or prior to August 15, 2004 (the "Common Conversion Date"), then, following
the Common Conversion Date, the principal amount of this Note plus the Interest
Amount shall be convertible, at the option of Holder and from time to time, only
into Common Stock at a conversion price per share equal to $2.18, as adjusted
for any stock dividends, stock splits or similar consolidations or subdivisions,
following the date hereof; provided, however, that Holder shall not be permitted
to convert any portion of the principal of this Note or the Interest Amount into
Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion,
the conversion would cause Holder to be a Ten Percent Holder.

               3.2 Notice of Conversion. Upon conversion of this Note as
provided in Section 3.1, Holder shall surrender this Note to the Company and
shall state the name or names in which the certificate or certificates for such
shares of Series E Preferred Stock or Common Stock, as the case may be, are to
be issued. The Person or Persons entitled to receive the shares of Series E
Preferred Stock or Common Stock, as the case may be, issuable upon such
conversion shall be treated for all purposes as the record holder or holders (a)
of such shares of Series E Preferred Stock as of the Conversion Date and (b) of
such shares of Common Stock as of the date of any conversion pursuant to Section
3.1(b).

               3.3 Delivery of Stock Certificates. Upon conversion of this Note
as provided in Section 3.1, the Company at its expense will issue and deliver to


                                       6



Holder of this Note a certificate or certificates (bearing such legends as are
required by applicable state and federal securities laws in the opinion of
counsel to the Company) for the number of full shares of Series E Preferred
Stock or Common Stock, as the case may be, issuable upon such conversion.

               3.4 Mechanics and Effect of Conversion. No fractional shares of
Series E Preferred Stock or Common Stock, as the case may be, shall be issued
upon conversion of this Note. In lieu of the Company issuing any fractional
shares to Holder upon the conversion of this Note, the Company shall pay to
Holder the amount of outstanding principal and interest that is not so
converted. Upon conversion of all amounts due under this Note, the Company shall
be released from all of its obligations under this Note.

          4. Adjustments. The number of shares of Series E Preferred Stock or
Common Stock convertible hereunder are subject to adjustment from time to time
as follows:

               4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at
any time while this Note remains outstanding and unexpired there shall be (a) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (b) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise or (c) a sale or
transfer of the Company's stock, properties or assets as, or substantially as,
an entirety to any other Person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that Holder
shall thereafter be entitled to receive by converting this Note the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon conversion of this Note would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Note had been converted immediately before such reorganization,
merger, consolidation, sale or transfer (notwithstanding that the Stockholder
Approval may not yet have been obtained), all subject to further adjustment as
provided in this Section 4. The foregoing provisions of this Section 4.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation. If the
per share consideration payable to Holder hereof for shares in connection with
any such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
Company's Board of Directors based on the amount the Holder would have otherwise
been entitled to receive had the transaction or transactions not occurred. In
all events, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions of this
Note with respect to the rights and interests of Holder after the transaction,
to the end that the provisions of this Note shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon conversion of


                                       7



this Note. The Company shall be obligated to retain and set aside, or otherwise
make fair provision for exercise of the right of the Holder to receive, the
shares of stock and/or other securities, cash or other property provided for in
this Section 4.1.

               4.2 Election of Holder upon Merger or Sale of Assets.
Notwithstanding anything to the contrary contained herein, if an event shall
occur as provided in Section 4.1 hereof that would otherwise result in the
occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first
paragraph of this Note, then the Holder may, in its sole discretion, by written
notice to the Company elect to convert the principal amount of this Note plus
the Interest Amount into the number of shares of stock or other securities or
property described in Section 4.1, in lieu of receiving payment in full of all
amounts outstanding under this Note. The number of shares of stock or other
securities or property to be issued upon such conversion shall be determined in
accordance with Section 4.1 hereof, taking into account the occurrence of such
event.

               4.3 Reclassification, Etc. If the Company shall, at any time
while this Note, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, change any of the securities as to
which conversion rights under this Note exist into the same or a different
number of securities of any other class or classes, this Note shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable with respect to the securities that were subject to the conversion
rights under this Note immediately prior to such reclassification or other
change, and the Price Per Share shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 4.

               4.4 Split, Subdivision or Combination of Shares. If the Company
at any time while this Note, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the shares of Series E Preferred
Stock or Common Stock into a different number of securities of the same class,
the Price Per Share or conversion price, as the case may be, shall be
proportionately adjusted.

               4.5 Series E Adjustments. The initial Series E Conversion Price
of the shares of Series E Preferred Stock issued upon conversion of this Note
pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on
the Conversion Date, subject to the adjustment of such Series E Conversion Price
from time to time thereafter as provided in the Series E Certificate of
Determination.

               4.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 4, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.

               4.7 No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all


                                       8



such action as may be necessary or appropriate in order to protect the rights of
Holder against impairment.

          5. Covenants. The Company covenants and agrees that until the earlier
of (i) the date on which all Obligations (as defined in the Security Agreement)
have been paid in full or (ii) the date on which all amounts outstanding under
the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b):

               5.1 Financial Statements and Other Information. The Company shall
deliver to the Holder of this Note the financial statements and other
information required to be delivered under Section 8.1 of the Note Purchase
Agreement.

               5.2 Financial Covenants. The Company shall at all times comply
with the financial and other covenants set forth in Schedule 8.5 to the Note
Purchase Agreement as if such covenants were set forth herein.

               5.3 Indebtedness. The Company shall not, and shall not permit any
Subsidiary to, issue, incur, assume, create or have outstanding any
Indebtedness, provided, however, that the foregoing shall not restrict nor
operate to prevent:

                    (a) Indebtedness in favor of the Holders under the Loan
Documents;

                    (b) Indebtedness existing on the date hereof, as set forth
on Schedule 3.22 to the Note Purchase Agreement;

                    (c) Indebtedness for accounts payable incurred in the
ordinary course of business by the Company;

                    (d) Indebtedness incurred solely for the purpose of
financing the acquisition of any equipment, machinery, software, improvements or
any other similar property, or extensions, renewals or replacements of any of
the foregoing for the same or a lesser amount; provided, that the aggregate
outstanding principal amount of all Indebtedness permitted pursuant to this
clause (d) outstanding for more than sixty (60) days after the incurrence of
such Indebtedness shall not at any time exceed $500,000;

                    (e) Indebtedness of the Company evidenced by Capitalized
Lease Obligations, provided, that in no event shall the aggregate principal
amount of Capitalized Lease Obligations permitted by this clause (e) exceed
$500,000 at any time outstanding; and

                    (f) Any extension, renewal, refinancing, refunding, or
replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and
(e) above, on such terms and conditions as are, on the whole, not materially
more onerous to the Company than the terms and conditions of such original
Indebtedness on the date of such refinancing (including that the principal
amount of such refinancing Indebtedness


                                       9



does not exceed the principal amount of, plus the amount of accrued and unpaid
interest on, the Indebtedness so refinanced (plus the amount of reasonable
premium and fees and expenses incurred in connection therewith)), provided that,
in the case of a refinancing of Indebtedness owed by the Company or any
Subsidiary to SVB, this clause (f) shall only apply to the extent consistent
with the Subordination Agreement, dated as of the date hereof, by and among SVB,
the Holders and the Company (the "Subordination Agreement").

               5.4 Liens. The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
the Company or any of its Subsidiaries, whether now owned or hereafter acquired,
or sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable), or assign any right to receive income or permit the
filing of any financing statement under the Uniform Commercial Code, as from
time to time in effect in the relevant jurisdiction (the "UCC"), or any other
similar notice of Lien under any similar recording or notice statute; provided,
that the provisions of this Section 5.4 shall not prevent the creation,
incurrence, assumption or existence of the following:

                    (a) Liens arising in the ordinary course of business by
statute in connection with worker's compensation, unemployment insurance, old
age benefits, social security obligations, statutory obligations or other
similar charges (other then Liens arising under ERISA), good faith cash deposits
in connection with tenders, contracts or leases to which the Company or any
Subsidiary is a party or other cash deposits required to be made in the ordinary
course of business, provided, that such Liens do not have a material adverse
effect on the ability of the Company to repay amounts due under the Notes;

                    (b) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due or Liens for taxes, assessments or governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP;

                    (c) Liens in respect of property or assets of the Company or
its Subsidiaries imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as carriers',
warehousemen's, materialmen's and mechanics' liens and other similar Liens
arising in the ordinary course of business, and (i) which do not in the
aggregate materially detract from the value of the Company's and its
Subsidiaries' property or assets taken as a whole or result in a material
adverse effect on the Condition of the Company or (ii) which are being contested
in good faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to any such
Lien;


                                       10



                    (d) the pledge of assets for the purpose of securing an
appeal, stay or discharge in the course of any legal proceeding, provided that
the aggregate amount of liabilities of the Company and its Subsidiaries secured
by a pledge of assets permitted under this subsection, including interest and
penalties thereon, if any, shall not be in excess of $500,000 at any one time
outstanding;

                    (e) any interest or title of a lessor under any operating
lease;

                    (f) easements, rights-of-way, restrictions and other similar
encumbrances against real property incurred in the ordinary course of business;

                    (g) the Liens existing on the date hereof identified on
Schedule 3.22 to the Note Purchase Agreement;

                    (h) Liens on cash deposited with account debtors to secure
performance by the Company or any Subsidiary in the ordinary course of business
subject to customary and reasonable terms;

                    (i) Liens upon assets of the Company or its Subsidiaries
subject to Capitalized Lease Obligations, provided, that (A) such Liens only
serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising
under such Capitalized Lease Obligation and (B) the Lien encumbering the asset
giving rise to the Capitalized Lease Obligation does not encumber any other
asset of the Company or its Subsidiaries;

                    (j) Liens placed upon equipment, machinery, software,
improvements or any other similar property, used in the ordinary course of
business of the Company or any of its Subsidiaries at the time of the
acquisition thereof by the Company or any of its Subsidiaries or within ninety
(90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above;
provided, that the Liens encumbering the equipment, machinery software,
improvements or any other similar property so acquired do not encumber any other
asset of the Company or its Subsidiaries;

                    (k) set-off rights of depository institutions; and

                    (l) Liens created by the Security Agreement (collectively
with clauses (a) through (k) hereof, the "Permitted Liens").

               5.5 Fundamental Changes. The Company will not, and will not
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (in one transaction or a series of transactions)
all or substantially all of its assets, or all or substantially all of the stock
of any of its Subsidiaries (in each case, whether now owned or hereafter
acquired), or liquidate or dissolve, except that, if at the time and immediately
after giving effect thereto no Event of Default shall have occurred and be
continuing (i) the Company or any of its Subsidiaries may, with the prior
written


                                       11



consent of the Holders, merge with or into any other Person; (ii) any
wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with
or into the Company or any other wholly-owned Subsidiary of the Company; (iii)
any Subsidiary (other than the Guarantor, and except as otherwise prohibited by
this Note) may sell, transfer, lease or otherwise dispose of its assets to the
Company or to another wholly-owned Subsidiary of the Company; and (iv) any
Subsidiary may liquidate or dissolve if the board of directors of the Company
determine in good faith that such liquidation or dissolution is in its best
interests and is not disadvantageous to the Holders.

               5.6 Restricted Payments. The Company will not, and the Company
will not permit any Subsidiary to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except that (i) any Subsidiary
may make a Restricted Payment to the Company or any of its wholly-owned
Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any
Restricted Payment required by the terms of the Note Purchase Agreement and the
other documents executed in connection therewith.

               5.7 Transactions with Affiliates. The Company will not, and the
Company will not permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions that are at prices and on terms and
conditions not less favorable to the Company or such Subsidiary than could be
obtained on an arm's length basis from unrelated third parties, (b) transactions
exclusively between the Company and the Guarantor and (c) transactions under the
agreements listed on Schedule 3.17 to the Note Purchase Agreement.

               5.8 Investments. The Company will not, and the Company will not
permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment
in any Person, except for Permitted Investments.

               5.9 Nature of Business. The Company will not, and the Company
will not permit any Subsidiary to, engage in any business other than that
conducted on the date hereof and any businesses reasonably related thereto.

               5.10 Property of Existing Domestic Subsidiaries. The Company will
not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise
organized under the laws of the United States of America or any state thereof (a
"Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease,
license, purchase or otherwise acquire any personal or real property (excluding
any material intellectual property) in excess of $50,000 for all property held
by such Subsidiary, or $250,000 in the aggregate for all property held by all
Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own
or otherwise hold any rights to any material intellectual property or (iv)
otherwise conduct any business or maintain operations.

               5.11 Formation of Subsidiaries. The Company will not, and will
not cause or permit any of its Subsidiaries to, form, acquire or permit the
existence of any


                                       12



new domestic Subsidiary, without causing such domestic Subsidiary to execute and
deliver to the Holders a secured guaranty of the Notes and related security
document, in form and substance satisfactory to the Holders.

               5.12 Books and Records. The Company shall keep proper books of
record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company and its
Subsidiaries in accordance with GAAP consistently applied.

               5.13 Inspection. The Company shall, and shall cause each of its
Subsidiaries to, permit representatives of the Holders to visit and inspect any
of its properties, to examine its corporate, financial and operating records and
make copies thereof or abstracts therefrom, and to discuss its affairs, finances
and accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested upon notice to the Company.

               5.14 Maintenance of Business. The Company shall, and shall cause
each Subsidiary to, preserve and maintain its existence. The Company shall, and
shall cause each Subsidiary to, preserve and keep in force and effect all
licenses, permits, franchises, approvals, patents, trademarks, trade names,
trade styles, copyrights, and other property rights necessary to the proper
conduct of its business, except where the failure to do so could not reasonably
be expected to have a material adverse effect on the Condition of the Company or
on the prospects of repayment of the Notes.

               5.15 Maintenance of Properties. The Company shall, and shall
cause each Subsidiary to, maintain, preserve and keep its property and equipment
in good repair, working order and condition (ordinary wear and tear excepted)
and shall from time to time make all needful and proper repairs, renewals,
replacements, additions and betterments thereto so that at all times the
efficiency thereof shall by fully preserved and maintained, except in each case
to the extent that, in the reasonable business judgment of such Person, any such
property or equipment is no longer necessary for the proper conduct of the
business of such Person.

          6. The occurrence of any one or more of the following events shall
constitute an "Event of Default":

               6.1 Failure To Pay. (i) The failure of the Company to pay any
principal due under any of the Notes when due and payable (whether by
acceleration, declaration, extension or otherwise), or (ii) the failure of the
Company to pay any other amounts due under any of the Notes when due and payable
if such failure is not cured within five (5) days of Company's receipt of notice
thereof from any of the Holders.

               6.2 Financial Covenants. The failure of Company or any of its
Subsidiaries to perform, observe or comply with any of the Financial Covenants
set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by
reference in this Note in Section 5.2.


                                       13



               6.3 Other Covenants and Agreements. The failure of Company or any
of its Subsidiaries to perform, observe or comply with any of the covenants of
this Note, the Security Agreement or any of the other Loan Documents (other than
the Financial Covenants set forth on Schedule 8.5 to the Note Purchase
Agreement, and incorporated by reference in this Note in Section 5.2), if such
failure is not cured within sixty (60) days.

               6.4 Representations and Warranties. If any representation or
warranty made by the Company or any of its Subsidiaries in the Loan Documents is
not true and correct in all material respects on the Initial Closing Date.

               6.5 Default on Other Obligations. The occurrence of any condition
or default under any other indebtedness for borrowed money of the Company or any
of its Subsidiaries with a principal amount of at least five hundred thousand
dollars ($500,000) that results in the acceleration of such indebtedness which
is not cured within sixty (60) days.

               6.6 Involuntary Bankruptcy. There shall be filed against the
Company or any of its Subsidiaries an involuntary petition or other pleading
seeking the entry of a decree or order for relief under the United States
Bankruptcy Code or any similar federal or state insolvency or similar laws
ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a
reorganization of the Company or any of its Subsidiaries or the business and
affairs of the Company or any of its Subsidiaries or (c) the appointment of a
receiver, liquidator, assignee, custodian, trustee or similar official for the
Company or any of its Subsidiaries of the property of the Company or any of its
Subsidiaries.

               6.7 Voluntary Bankruptcy. The commencement by the Company or any
of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any
federal or state insolvency or similar laws or the consent by the Company or any
of its Subsidiaries to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or similar official for the Company or
any of its Subsidiaries of any of the property of the Company or any of its
Subsidiaries or the making by the Company or any of its Subsidiaries of an
assignment for the benefit of creditors, or the failure by Company or any of its
Subsidiaries generally to pay its debts as the debts become due.

               6.8 Judgments, Awards. Any judgment or order for the payment of
money is rendered against the Company or any of its Subsidiaries in an amount in
excess of five hundred thousand dollars ($500,000) individually or in the
aggregate and either (i) enforcement proceedings are commenced by any creditor
upon such judgment or order and not stayed, or (ii) there is any period of sixty
(60) consecutive days during which such judgment has not been paid in full or a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, is not in effect.

               6.9 Attachment by Lenders. Any assets of the Company or any of
its Subsidiaries shall be attached, levied upon, seized or repossessed, or come
into the


                                       14



possession of a trustee, receiver or other custodian and a determination by any
Holder, in good faith but in its sole discretion, that the same could have a
material adverse effect on the prospect for the Holders to fully and punctually
realize the full benefits conferred on the Holders by the Loan Documents.

               6.10 Adverse Change in Financial Condition. Any event having a
material adverse effect on the business, operations, assets, properties or
condition of the Company and its Subsidiaries taken as a whole shall have
occurred and be continuing or a material adverse effect on the validity or
enforceability of this or any of the other Loan Documents or the rights or
remedies of the Holders hereunder or thereunder.

          7. Remedies. Upon and after the occurrence of an Event of Default, the
Holder shall be entitled to the exercise the rights and remedies set forth in
the Security Agreement, the other Loan Documents and under applicable law, all
such rights and remedies being cumulative and enforceable alternatively,
successively or concurrently.

          8. Prepayment. The Company may not prepay this Note prior to the
Maturity Date without the prior written consent of the Holders.

          9. Seniority.

                    (a) Except as set forth in the Subordination Agreement, the
Notes will rank senior in right of payment to all other indebtedness of the
Company, other than the GA Notes and the January 2004 Notes, with respect to
which the Notes will be pari passu in right of payment in accordance with the
Intercreditor Agreement.

                    (b) Notwithstanding anything to the contrary contained in
the Notes, this Note and the other Notes, and the terms and the conditions
hereof and thereof, are subject to the Intercreditor Agreement.

          10. Assignment. Subject to the restrictions on transfer described in
Section 12 below, the rights and obligations of the Company and Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties. The Company shall not be permitted to assign this
Note without the prior written consent of the Holders.

          11. Waiver of Notice. The Company hereby waives notice, presentment,
demand, protest and notice of dishonor.

          12. Transfer of This Note. With respect to any offer, sale or other
disposition of this Note, Holder will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such Holder's counsel, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any
federal or state law then in effect); provided, that no opinion shall be
required for any transfer to an Affiliate or if the transfer is made in
compliance with the Securities Act, so long as the transferee can make the same
representations and warranties at the time of transfer as set forth in Sections
4.5, 4.6, 4.7,


                                       15



4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly upon delivering
such written notice and opinion, if so required, Holder may sell or otherwise
dispose of this Note, all in accordance with the terms of the notice delivered
to the Company. Each Note thus transferred shall bear a legend as to the
applicable restrictions on transferability in order to ensure compliance with
the Securities Act, unless in the opinion of counsel for the Company such legend
is not required in order to ensure compliance with the Securities Act. The
Company may issue stop transfer instructions to its transfer agent in connection
with such restrictions. Notwithstanding the foregoing, the Holder shall not be
permitted to transfer this Note to any Person who is not an Affiliate until the
earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of
written notice from the Company that Stockholder Approval cannot be obtained, or
the occurrence of an actual vote of the Company's shareholders entitled to vote
(whether by written consent or at a meeting specially called for such purpose),
the result of which is a decision by a majority of the Company's shareholders
entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months
from the date hereof and (iv) the occurrence of an Event of Default. This Note
is registered as to both principal and stated interest with the Company (or its
agent) within the meaning of section 1.871-14(c)(1)(i) of the Income Tax
Regulations. Accordingly, notwithstanding anything to the contrary in this
paragraph, this Note, together with any interest thereon, may be transferred
only (i) upon surrender of the Note by the transferor to the Company (or its
agent) and the reissuance of the Note (or the issuance of a new Note) to the
transferee, or (ii) by transfer of the right to principal and interest through a
book-entry system meeting the requirements of section 1.871-14(c)(1)(i)(B) of
the Income Tax Regulations that is maintained by the Company (or its agent). In
the case of a Holder that is not a "United States person" within the meaning of
section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the
"Code"), so long as an exception under section 871(h) or section 881(c) of the
Code does not apply, the Company (or its agent) shall not withhold any U.S.
federal income tax with respect to such Holder provided that the Holder timely
provides the Company (or its agent) with a statement that meets the requirements
of section 871(h)(5) of the Code.

          13. Treatment of Note. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.

          14. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by nationally recognized courier
service or mailed by registered or certified mail, postage prepaid, to the
respective addresses of the parties as set forth on the signature pages hereto
or if sent by facsimile to the respective facsimile numbers of the parties set
forth on the signature pages hereto. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively be
deemed to have been given and received when personally delivered or three (3)
business days after deposited in the mail or one business day after sent by
courier or upon confirmation of facsimile delivery in the manner set forth
above.


                                       16



          15. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon Holder or any other Person the right to vote or to
consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company.

          16. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, excluding that body of law
relating to conflict of laws.

          17. Amendments and Waivers. No amendments or waivers of any provision
of this Note, and no consent by the Holder to any departure by the Company,
shall in any event be effective unless the same shall be in writing, and signed
by the Holders of a majority of the outstanding principal amount of all of the
Notes issued by the Company pursuant to the Note Purchase Agreement, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given.

          18. Severability. Any provision of this Note that is prohibited or
unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

          19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY
(A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF
RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION
WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY
TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY
OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN
THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER
OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE.
THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND
VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER
HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY
INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT
THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE
COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF
RIGHT TO TRIAL BY JURY. EACH OF


                                       17



THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED
IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT
LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

          20. Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except as otherwise indicated, all references herein to Sections refer to
Sections hereof.

              [the remainder of this page intentionally left blank]


                                       18



          IN WITNESS WHEREOF, the Company has caused this Note to be issued this
9th day of March, 2004.

                                          COMPANY:

                                          CRITICAL PATH, INC.,
                                          a California corporation

                                          By: /s/ William E. McGlashan, Jr.
                                              ----------------------------------
                                              Name: William E. McGlashan, Jr.
                                              Title: Chairman, Chief Executive
                                              Officer

                                              Critical Path, Inc.
                                              350 The Embarcadero
                                              San Francisco, CA 94105-1204
                                              Telecopy: (415) 541-2300
                                              Attention: Chief Financial Officer

                                              With a copy to:

                                              Pillsbury Winthrop LLP
                                              50 Fremont Street
                                              San Francisco, CA 94105
                                              Telecopy: (415) 983-1200
                                              Attention: Gregg Vignos, Esq.

Name of Holder: CRITERION CAPITAL PARTNERS, L.P.

Address: c/o Criterion Capital Management
         One Maritime Plaza, Suite 1460
         San Francisco, CA 64111
         Attention: R. Daniel Beckham

Telephone:
           -------------------------------

Facsimile:
           -------------------------------

EX-4.43

                                                                    EXHIBIT 4.43

     THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
     SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN
     REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
     SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
     TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER
     OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.

                               CRITICAL PATH, INC.

                    CONVERTIBLE SUBORDINATED PROMISSORY NOTE

$2,000,000                                             San Francisco, California
                                                       March 9, 2004

          Critical Path, Inc., a California corporation (the "Company"), the
principal office of which is located in San Francisco, California, for value
received hereby promises to pay to the order of Capital Ventures International,
or its registered assigns ("Holder"), the sum of two million dollars
($2,000,000), or such lesser amount as shall then equal the outstanding
principal amount hereof on the terms and conditions set forth hereinafter. The
outstanding principal amount hereof and all accrued and unpaid interest hereon,
as set forth below, shall be due and payable on the earlier to occur of (i)
March 9, 2008, (ii) when declared due and payable by Holder upon the occurrence
of an Event of Default (as defined below), (iii) consummation of a Qualified
Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock or Stock
Equivalents by the Company, any cash capital contribution from any third person
or any other debt or equity financing consummated by the Company after the date
of issuance of this Note which, in the case of (v), individually or in the
aggregate raises proceeds of at least forty million dollars ($40,000,000) in
cash or cash equivalents (the earliest of the events set forth in items (i)-(v)
immediately above, the "Maturity Date").

          The following is a statement of the rights of the Holder of this Note
and the conditions to which this Note is subject, and to which the Holder
hereof, by the acceptance of this Note, agrees:

          1. Definitions. Except as otherwise defined herein, each capitalized
term used herein shall have the meaning assigned to it in the Note Purchase
Agreement, as in effect on the date hereof, and without regard to any subsequent
termination of the Note Purchase Agreement. All other references to the Note
Purchase Agreement in this Note refer to the Note Purchase Agreement as in
effect on the date hereof, and without regard to any subsequent termination of
the Note Purchase Agreement. As used in this Note, the following terms, unless
the context otherwise requires, have the following



meanings:

               1.1 "Affiliate" means any Person who is an "affiliate" as defined
in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange
Act of 1934, as amended.

               1.2 "Capitalized Lease Obligations" means, with respect to any
Person, all rental obligations of such Person which, under GAAP, are or will be
required to be capitalized on the books of such Person, in each case taken at
the amount thereof accounted for as indebtedness in accordance with such
principles.

               1.3 "Change of Control" shall mean (i) any merger, consolidation
or other business combination transaction (or series of related transactions) in
which the stockholders owning a majority of the voting securities of the Company
prior to such transaction do not own a majority of the voting securities of the
surviving entity, (ii) any tender offer, exchange offer or other transaction
whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as amended) (other than
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell
Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and
the Affiliates of the foregoing, provided that Affiliates shall be deemed not to
include any portfolio companies of any of the foregoing) obtains a majority of
the outstanding shares of capital stock entitled to vote in the election of
directors, (iii) any proxy contest in which a majority of the Board of Directors
of the Company (or persons appointed by such Board of Directors) prior to such
contest do not constitute a majority of the Company's Board of Directors after
such contest or (iv) any other transaction described in any stockholder rights
agreement or "poison pill," if any, to which the Company is party, which may
permit the holders of any rights or similar certificates to exercise the rights
evidenced thereby.

               1.4 "Company" shall have the meaning set forth in the recitals
hereto, and includes any corporation that shall succeed to or assume the
obligations of the Company under this Note.

               1.5 "Common Conversion Date" shall have the meaning set forth in
Section 3.1(b) hereof.

               1.6 "Common Stock" means the common stock, par value $0.001 per
share, of the Company.

               1.7 "Conversion Date" shall mean the Subsequent Closing Date.

               1.8 "Domestic Subsidiary" shall have the meaning set forth in
Section 5.10 hereof.

               1.9 "Event of Default" shall have the meaning set forth in
Section 6 hereof.


                                       2



               1.10 "GA Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP
Entities pursuant to the Purchase and Exchange Agreement.

               1.11 "GAP Entities" shall mean General Atlantic Partners 74,
L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG.

               1.12 "Guarantor" shall have the meaning set forth in the Security
Agreement.

               1.13 "Holder" shall mean the registered holder of this Note from
time to time, and in the plural, shall mean all registered holders of Notes from
time to time issued by the Company pursuant to the Note Purchase Agreement.

               1.14 "Intercreditor Agreement" shall mean the Intercreditor
Agreement, dated the date hereof, among the GAP Entities, the January Lenders,
Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore
Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital
Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures
International.

               1.15 "Interest Amount" shall have the meaning set forth in
Section 3.1 hereof.

               1.16 "Investment" means (i) the acquisition (whether for cash,
property, services, assumption of Indebtedness, securities or otherwise) of
assets (other than equipment, inventory, supplies or other assets acquired in
the ordinary course of business of the Company), capital stock, bonds, notes,
debentures, partnership, joint venture or other ownership interests or other
securities of any Person, (ii) any deposit with, or advance, loan or other
extension of credit to, or on behalf of, any Person (other than deposits made in
connection with the purchase of equipment, inventory, services, leases, supplies
or other assets in the ordinary course of business of the Company), and (iii)
any other capital contribution to or investment in any Person, including,
without limitation, any guaranty obligation incurred for the benefit of any
Person. For the sake of clarity, Investments shall include any transfer of
property or assets by the Company to any of its Subsidiaries or by any
Subsidiary of the Company to any other Subsidiary.

               1.17 "January Lenders" shall mean Permal U.S. Opportunities
Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis
Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P.

               1.18 "January Note Agreement" shall mean the Convertible Note
Purchase Agreement, dated January 16, 2004, among the January Lenders and the
Company.

               1.19 "January 2004 Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated January 16, 2003, issued by the Company to the
January Lenders pursuant to the January Note Agreement.


                                       3



               1.20 "Loan Documents" shall have the meaning set forth in the
Security Agreement.

               1.21 "Note" shall mean this note, and in the plural, shall mean
all notes issued to the Lenders pursuant to the terms of the Note Purchase
Agreement, including this Note, and all amendments, modifications and extensions
thereto.

               1.22 "Note Purchase Agreement" means that certain Convertible
Note Purchase Agreement, dated March 9, 2004, among the Company, the Holder and
the other parties thereto from time to time, and all amendments, modifications
and extensions thereto.

               1.23 "Permitted Investments" means (i) Investments in cash or
cash equivalents, (ii) accounts receivable created, acquired or made in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (iii) Investments existing on the closing date, and
listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty
obligations permitted by Section 5.3 of this Agreement, (v) loans to employees,
directors or officers of the Company in connection with the award of convertible
bonds or capital stock under a stock incentive plan, stock option plan or other
equity-based compensation plan or arrangement, (vi) other advances or loans to
employees, directors, officers or agents of the Company in the ordinary course
of business not to exceed $500,000 in the aggregate at any time outstanding;
(vii) loans, advances and investments in foreign Subsidiaries (that are not
incorporated or otherwise organized under the laws of the United States of
America or any state thereof) in an amount not to exceed $1,000,000 in the
aggregate at any time outstanding; (viii) any acquisition for which the prior
written consent of the Holders of a majority of the outstanding principal amount
of all of the Notes issued by the Company pursuant to the Note Purchase
Agreement has been obtained, (ix) other loans, advances and investments of a
nature not contemplated by the foregoing sections in an amount not to exceed
$500,000 in the aggregate at any time outstanding or (x) Investments by the
Company in the Guarantor.

               1.24 "Permitted Liens" shall have the meaning set forth in
Section 5.4.

               1.25 "Person" means any individual, firm, corporation,
partnership, trust, joint venture, joint stock company, limited liability
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.

               1.26 "Price Per Share" shall have the meaning attributed to such
term in the Series E Certificate of Determination, as filed with the Secretary
of State of the State of California.

               1.27 "Purchase and Exchange Agreement" shall mean the Convertible
Note Purchase and Exchange Agreement, dated November 18, 2003, among the
Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended.


                                       4



               1.28 "Qualified Asset Sale" means the sale, transfer or other
disposition of any of the assets of the Company or any of its Subsidiaries,
other than (a) sales of assets in the ordinary course of business, (b) sales of
assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the
sale, transfer or other disposition of assets of the Company where the proceeds
are applied to the purchase price or traded in for credit against the purchase
price of other assets, provided that any such purchase is made, or credit
issued, within 90 days of the sale, transfer or other disposition, and (d) one
or more sales of the Company's assets (other than sales otherwise included in
clauses (a), (b), and (c) immediately above) which collectively yield up to an
aggregate of one million dollars ($1,000,000) in gross proceeds to the Company
while this Note is outstanding.

               1.29 "Restricted Payment" means (a) any dividend or other
distribution (whether in cash, securities or other property) with respect to any
shares of any class of capital stock of the Company or any of its Subsidiaries
or (b) any payment (whether in cash, securities or other property), including
any sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any shares of any class
of capital stock of the Company or any Subsidiary or any option, warrant or
other right to acquire any such shares of capital stock of the Company or any
Subsidiary.

               1.30 "Security Agreement" means that certain Guaranty and
Security Agreement, of even date herewith between the Company, Compass Holding
Corp., the Lenders and the other parties thereto from time to time, and all
amendments, modifications and extensions thereto.

               1.31 "Series E Conversion Price" shall have the meaning set forth
in the Series E Certificate of Determination.

               1.32 "Series E Preferred Stock" means the Series E Preferred
Stock, par value $0.001, of the Company.

               1.33 "Subordination Agreement" shall have the meaning set forth
in Section 5.3.

               1.34 "Subsequent Closing Date" shall have the meaning set forth
in Section 2.4(e) of the Note Purchase Agreement.

               1.35 "SVB" means Silicon Valley Bank, a California chartered
bank, or any Affiliates thereof.

               1.36 "Ten Percent Holder" means, with respect to a class of
equity securities of the Company, a Person (together with such Person's
Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such
class of equity securities of the Company, as defined by Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

               1.37 "UCC" shall have the meaning set forth in Section 5.4.


                                       5



          2. Interest. Simple interest shall accrue at the rate of ten percent
(10%) per annum (or such lesser amount as shall equal the highest rate of
interest allowable under applicable law) (the "Interest Rate"), on the
outstanding principal of this Note from the date of this Note until the Maturity
Date or the date this Note is otherwise repaid. The Company shall not be
obligated to make any payments of interest which shall have accrued under this
Note prior to the Maturity Date. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. In the event that the
principal amount of this Note, any interest, or any amount payable hereunder is
not paid in full when such amount becomes due and payable, or upon the
occurrence of an Event of Default, interest shall accrue at the lesser of (a)
the initial Interest Rate plus five percent (5%) per annum or (b) the highest
rate of interest allowable under applicable law, on the balance of all amounts
outstanding until such overdue amounts are paid or the Event of Default is
cured, and such interest shall be payable on demand.

          3. Conversion.

               3.1 Conversion.

                    (a) On the Conversion Date, the principal amount of this
Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall
be automatically converted into the number of fully paid and nonassessable
shares of Series E Preferred Stock equal to the quotient obtained by dividing
(a) the entire principal amount of this Note plus the Interest Amount by (b) the
Price Per Share.

                    (b) In the event that the Conversion Date has not occurred
on or prior to August 15, 2004 (the "Common Conversion Date"), then, following
the Common Conversion Date, the principal amount of this Note plus the Interest
Amount shall be convertible, at the option of Holder and from time to time, only
into Common Stock at a conversion price per share equal to $2.18, as adjusted
for any stock dividends, stock splits or similar consolidations or subdivisions,
following the date hereof; provided, however, that Holder shall not be permitted
to convert any portion of the principal of this Note or the Interest Amount into
Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion,
the conversion would cause Holder to be a Ten Percent Holder.

               3.2 Notice of Conversion. Upon conversion of this Note as
provided in Section 3.1, Holder shall surrender this Note to the Company and
shall state the name or names in which the certificate or certificates for such
shares of Series E Preferred Stock or Common Stock, as the case may be, are to
be issued. The Person or Persons entitled to receive the shares of Series E
Preferred Stock or Common Stock, as the case may be, issuable upon such
conversion shall be treated for all purposes as the record holder or holders (a)
of such shares of Series E Preferred Stock as of the Conversion Date and (b) of
such shares of Common Stock as of the date of any conversion pursuant to Section
3.1(b).

               3.3 Delivery of Stock Certificates. Upon conversion of this Note
as provided in Section 3.1, the Company at its expense will issue and deliver to


                                       6



Holder of this Note a certificate or certificates (bearing such legends as are
required by applicable state and federal securities laws in the opinion of
counsel to the Company) for the number of full shares of Series E Preferred
Stock or Common Stock, as the case may be, issuable upon such conversion.

               3.4 Mechanics and Effect of Conversion. No fractional shares of
Series E Preferred Stock or Common Stock, as the case may be, shall be issued
upon conversion of this Note. In lieu of the Company issuing any fractional
shares to Holder upon the conversion of this Note, the Company shall pay to
Holder the amount of outstanding principal and interest that is not so
converted. Upon conversion of all amounts due under this Note, the Company shall
be released from all of its obligations under this Note.

          4. Adjustments. The number of shares of Series E Preferred Stock or
Common Stock convertible hereunder are subject to adjustment from time to time
as follows:

               4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at
any time while this Note remains outstanding and unexpired there shall be (a) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (b) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise or (c) a sale or
transfer of the Company's stock, properties or assets as, or substantially as,
an entirety to any other Person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that Holder
shall thereafter be entitled to receive by converting this Note the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon conversion of this Note would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Note had been converted immediately before such reorganization,
merger, consolidation, sale or transfer (notwithstanding that the Stockholder
Approval may not yet have been obtained), all subject to further adjustment as
provided in this Section 4. The foregoing provisions of this Section 4.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation. If the
per share consideration payable to Holder hereof for shares in connection with
any such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
Company's Board of Directors based on the amount the Holder would have otherwise
been entitled to receive had the transaction or transactions not occurred. In
all events, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions of this
Note with respect to the rights and interests of Holder after the transaction,
to the end that the provisions of this Note shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon conversion of


                                       7



this Note. The Company shall be obligated to retain and set aside, or otherwise
make fair provision for exercise of the right of the Holder to receive, the
shares of stock and/or other securities, cash or other property provided for in
this Section 4.1.

               4.2 Election of Holder upon Merger or Sale of Assets.
Notwithstanding anything to the contrary contained herein, if an event shall
occur as provided in Section 4.1 hereof that would otherwise result in the
occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first
paragraph of this Note, then the Holder may, in its sole discretion, by written
notice to the Company elect to convert the principal amount of this Note plus
the Interest Amount into the number of shares of stock or other securities or
property described in Section 4.1, in lieu of receiving payment in full of all
amounts outstanding under this Note. The number of shares of stock or other
securities or property to be issued upon such conversion shall be determined in
accordance with Section 4.1 hereof, taking into account the occurrence of such
event.

               4.3 Reclassification, Etc. If the Company shall, at any time
while this Note, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, change any of the securities as to
which conversion rights under this Note exist into the same or a different
number of securities of any other class or classes, this Note shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable with respect to the securities that were subject to the conversion
rights under this Note immediately prior to such reclassification or other
change, and the Price Per Share shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 4.

               4.4 Split, Subdivision or Combination of Shares. If the Company
at any time while this Note, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the shares of Series E Preferred
Stock or Common Stock into a different number of securities of the same class,
the Price Per Share or conversion price, as the case may be, shall be
proportionately adjusted.

               4.5 Series E Adjustments. The initial Series E Conversion Price
of the shares of Series E Preferred Stock issued upon conversion of this Note
pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on
the Conversion Date, subject to the adjustment of such Series E Conversion Price
from time to time thereafter as provided in the Series E Certificate of
Determination.

               4.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 4, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.

               4.7 No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all


                                       8



such action as may be necessary or appropriate in order to protect the rights of
Holder against impairment.

          5. Covenants. The Company covenants and agrees that until the earlier
of (i) the date on which all Obligations (as defined in the Security Agreement)
have been paid in full or (ii) the date on which all amounts outstanding under
the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b):

               5.1 Financial Statements and Other Information. The Company shall
deliver to the Holder of this Note the financial statements and other
information required to be delivered under Section 8.1 of the Note Purchase
Agreement.

               5.2 Financial Covenants. The Company shall at all times comply
with the financial and other covenants set forth in Schedule 8.5 to the Note
Purchase Agreement as if such covenants were set forth herein.

               5.3 Indebtedness. The Company shall not, and shall not permit any
Subsidiary to, issue, incur, assume, create or have outstanding any
Indebtedness, provided, however, that the foregoing shall not restrict nor
operate to prevent:

                    (a) Indebtedness in favor of the Holders under the Loan
Documents;

                    (b) Indebtedness existing on the date hereof, as set forth
on Schedule 3.22 to the Note Purchase Agreement;

                    (c) Indebtedness for accounts payable incurred in the
ordinary course of business by the Company;

                    (d) Indebtedness incurred solely for the purpose of
financing the acquisition of any equipment, machinery, software, improvements or
any other similar property, or extensions, renewals or replacements of any of
the foregoing for the same or a lesser amount; provided, that the aggregate
outstanding principal amount of all Indebtedness permitted pursuant to this
clause (d) outstanding for more than sixty (60) days after the incurrence of
such Indebtedness shall not at any time exceed $500,000;

                    (e) Indebtedness of the Company evidenced by Capitalized
Lease Obligations, provided, that in no event shall the aggregate principal
amount of Capitalized Lease Obligations permitted by this clause (e) exceed
$500,000 at any time outstanding; and

                    (f) Any extension, renewal, refinancing, refunding, or
replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and
(e) above, on such terms and conditions as are, on the whole, not materially
more onerous to the Company than the terms and conditions of such original
Indebtedness on the date of such refinancing (including that the principal
amount of such refinancing Indebtedness


                                       9



does not exceed the principal amount of, plus the amount of accrued and unpaid
interest on, the Indebtedness so refinanced (plus the amount of reasonable
premium and fees and expenses incurred in connection therewith)), provided that,
in the case of a refinancing of Indebtedness owed by the Company or any
Subsidiary to SVB, this clause (f) shall only apply to the extent consistent
with the Subordination Agreement, dated as of the date hereof, by and among SVB,
the Holders and the Company (the "Subordination Agreement").

               5.4 Liens. The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
the Company or any of its Subsidiaries, whether now owned or hereafter acquired,
or sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable), or assign any right to receive income or permit the
filing of any financing statement under the Uniform Commercial Code, as from
time to time in effect in the relevant jurisdiction (the "UCC"), or any other
similar notice of Lien under any similar recording or notice statute; provided,
that the provisions of this Section 5.4 shall not prevent the creation,
incurrence, assumption or existence of the following:

                    (a) Liens arising in the ordinary course of business by
statute in connection with worker's compensation, unemployment insurance, old
age benefits, social security obligations, statutory obligations or other
similar charges (other then Liens arising under ERISA), good faith cash deposits
in connection with tenders, contracts or leases to which the Company or any
Subsidiary is a party or other cash deposits required to be made in the ordinary
course of business, provided, that such Liens do not have a material adverse
effect on the ability of the Company to repay amounts due under the Notes;

                    (b) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due or Liens for taxes, assessments or governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP;

                    (c) Liens in respect of property or assets of the Company or
its Subsidiaries imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as carriers',
warehousemen's, materialmen's and mechanics' liens and other similar Liens
arising in the ordinary course of business, and (i) which do not in the
aggregate materially detract from the value of the Company's and its
Subsidiaries' property or assets taken as a whole or result in a material
adverse effect on the Condition of the Company or (ii) which are being contested
in good faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to any such
Lien;


                                       10



                    (d) the pledge of assets for the purpose of securing an
appeal, stay or discharge in the course of any legal proceeding, provided that
the aggregate amount of liabilities of the Company and its Subsidiaries secured
by a pledge of assets permitted under this subsection, including interest and
penalties thereon, if any, shall not be in excess of $500,000 at any one time
outstanding;

                    (e) any interest or title of a lessor under any operating
lease;

                    (f) easements, rights-of-way, restrictions and other similar
encumbrances against real property incurred in the ordinary course of business;

                    (g) the Liens existing on the date hereof identified on
Schedule 3.22 to the Note Purchase Agreement;

                    (h) Liens on cash deposited with account debtors to secure
performance by the Company or any Subsidiary in the ordinary course of business
subject to customary and reasonable terms;

                    (i) Liens upon assets of the Company or its Subsidiaries
subject to Capitalized Lease Obligations, provided, that (A) such Liens only
serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising
under such Capitalized Lease Obligation and (B) the Lien encumbering the asset
giving rise to the Capitalized Lease Obligation does not encumber any other
asset of the Company or its Subsidiaries;

                    (j) Liens placed upon equipment, machinery, software,
improvements or any other similar property, used in the ordinary course of
business of the Company or any of its Subsidiaries at the time of the
acquisition thereof by the Company or any of its Subsidiaries or within ninety
(90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above;
provided, that the Liens encumbering the equipment, machinery software,
improvements or any other similar property so acquired do not encumber any other
asset of the Company or its Subsidiaries;

                    (k) set-off rights of depository institutions; and

                    (l) Liens created by the Security Agreement (collectively
with clauses (a) through (k) hereof, the "Permitted Liens").

               5.5 Fundamental Changes. The Company will not, and will not
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (in one transaction or a series of transactions)
all or substantially all of its assets, or all or substantially all of the stock
of any of its Subsidiaries (in each case, whether now owned or hereafter
acquired), or liquidate or dissolve, except that, if at the time and immediately
after giving effect thereto no Event of Default shall have occurred and be
continuing (i) the Company or any of its Subsidiaries may, with the prior
written


                                       11



consent of the Holders, merge with or into any other Person; (ii) any
wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with
or into the Company or any other wholly-owned Subsidiary of the Company; (iii)
any Subsidiary (other than the Guarantor, and except as otherwise prohibited by
this Note) may sell, transfer, lease or otherwise dispose of its assets to the
Company or to another wholly-owned Subsidiary of the Company; and (iv) any
Subsidiary may liquidate or dissolve if the board of directors of the Company
determine in good faith that such liquidation or dissolution is in its best
interests and is not disadvantageous to the Holders.

               5.6 Restricted Payments. The Company will not, and the Company
will not permit any Subsidiary to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except that (i) any Subsidiary
may make a Restricted Payment to the Company or any of its wholly-owned
Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any
Restricted Payment required by the terms of the Note Purchase Agreement and the
other documents executed in connection therewith.

               5.7 Transactions with Affiliates. The Company will not, and the
Company will not permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions that are at prices and on terms and
conditions not less favorable to the Company or such Subsidiary than could be
obtained on an arm's length basis from unrelated third parties, (b) transactions
exclusively between the Company and the Guarantor and (c) transactions under the
agreements listed on Schedule 3.17 to the Note Purchase Agreement.

               5.8 Investments. The Company will not, and the Company will not
permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment
in any Person, except for Permitted Investments.

               5.9 Nature of Business. The Company will not, and the Company
will not permit any Subsidiary to, engage in any business other than that
conducted on the date hereof and any businesses reasonably related thereto.

               5.10 Property of Existing Domestic Subsidiaries. The Company will
not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise
organized under the laws of the United States of America or any state thereof (a
"Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease,
license, purchase or otherwise acquire any personal or real property (excluding
any material intellectual property) in excess of $50,000 for all property held
by such Subsidiary, or $250,000 in the aggregate for all property held by all
Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own
or otherwise hold any rights to any material intellectual property or (iv)
otherwise conduct any business or maintain operations.

               5.11 Formation of Subsidiaries. The Company will not, and will
not cause or permit any of its Subsidiaries to, form, acquire or permit the
existence of any


                                       12



new domestic Subsidiary, without causing such domestic Subsidiary to execute and
deliver to the Holders a secured guaranty of the Notes and related security
document, in form and substance satisfactory to the Holders.

               5.12 Books and Records. The Company shall keep proper books of
record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company and its
Subsidiaries in accordance with GAAP consistently applied.

               5.13 Inspection. The Company shall, and shall cause each of its
Subsidiaries to, permit representatives of the Holders to visit and inspect any
of its properties, to examine its corporate, financial and operating records and
make copies thereof or abstracts therefrom, and to discuss its affairs, finances
and accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested upon notice to the Company.

               5.14 Maintenance of Business. The Company shall, and shall cause
each Subsidiary to, preserve and maintain its existence. The Company shall, and
shall cause each Subsidiary to, preserve and keep in force and effect all
licenses, permits, franchises, approvals, patents, trademarks, trade names,
trade styles, copyrights, and other property rights necessary to the proper
conduct of its business, except where the failure to do so could not reasonably
be expected to have a material adverse effect on the Condition of the Company or
on the prospects of repayment of the Notes.

               5.15 Maintenance of Properties. The Company shall, and shall
cause each Subsidiary to, maintain, preserve and keep its property and equipment
in good repair, working order and condition (ordinary wear and tear excepted)
and shall from time to time make all needful and proper repairs, renewals,
replacements, additions and betterments thereto so that at all times the
efficiency thereof shall by fully preserved and maintained, except in each case
to the extent that, in the reasonable business judgment of such Person, any such
property or equipment is no longer necessary for the proper conduct of the
business of such Person.

          6. The occurrence of any one or more of the following events shall
constitute an "Event of Default":

               6.1 Failure To Pay. (i) The failure of the Company to pay any
principal due under any of the Notes when due and payable (whether by
acceleration, declaration, extension or otherwise), or (ii) the failure of the
Company to pay any other amounts due under any of the Notes when due and payable
if such failure is not cured within five (5) days of Company's receipt of notice
thereof from any of the Holders.

               6.2 Financial Covenants. The failure of Company or any of its
Subsidiaries to perform, observe or comply with any of the Financial Covenants
set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by
reference in this Note in Section 5.2.


                                       13



               6.3 Other Covenants and Agreements. The failure of Company or any
of its Subsidiaries to perform, observe or comply with any of the covenants of
this Note, the Security Agreement or any of the other Loan Documents (other than
the Financial Covenants set forth on Schedule 8.5 to the Note Purchase
Agreement, and incorporated by reference in this Note in Section 5.2), if such
failure is not cured within sixty (60) days.

               6.4 Representations and Warranties. If any representation or
warranty made by the Company or any of its Subsidiaries in the Loan Documents is
not true and correct in all material respects on the Initial Closing Date.

               6.5 Default on Other Obligations. The occurrence of any condition
or default under any other indebtedness for borrowed money of the Company or any
of its Subsidiaries with a principal amount of at least five hundred thousand
dollars ($500,000) that results in the acceleration of such indebtedness which
is not cured within sixty (60) days.

               6.6 Involuntary Bankruptcy. There shall be filed against the
Company or any of its Subsidiaries an involuntary petition or other pleading
seeking the entry of a decree or order for relief under the United States
Bankruptcy Code or any similar federal or state insolvency or similar laws
ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a
reorganization of the Company or any of its Subsidiaries or the business and
affairs of the Company or any of its Subsidiaries or (c) the appointment of a
receiver, liquidator, assignee, custodian, trustee or similar official for the
Company or any of its Subsidiaries of the property of the Company or any of its
Subsidiaries.

               6.7 Voluntary Bankruptcy. The commencement by the Company or any
of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any
federal or state insolvency or similar laws or the consent by the Company or any
of its Subsidiaries to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or similar official for the Company or
any of its Subsidiaries of any of the property of the Company or any of its
Subsidiaries or the making by the Company or any of its Subsidiaries of an
assignment for the benefit of creditors, or the failure by Company or any of its
Subsidiaries generally to pay its debts as the debts become due.

               6.8 Judgments, Awards. Any judgment or order for the payment of
money is rendered against the Company or any of its Subsidiaries in an amount in
excess of five hundred thousand dollars ($500,000) individually or in the
aggregate and either (i) enforcement proceedings are commenced by any creditor
upon such judgment or order and not stayed, or (ii) there is any period of sixty
(60) consecutive days during which such judgment has not been paid in full or a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, is not in effect.

               6.9 Attachment by Lenders. Any assets of the Company or any of
its Subsidiaries shall be attached, levied upon, seized or repossessed, or come
into the


                                       14



possession of a trustee, receiver or other custodian and a determination by any
Holder, in good faith but in its sole discretion, that the same could have a
material adverse effect on the prospect for the Holders to fully and punctually
realize the full benefits conferred on the Holders by the Loan Documents.

               6.10 Adverse Change in Financial Condition. Any event having a
material adverse effect on the business, operations, assets, properties or
condition of the Company and its Subsidiaries taken as a whole shall have
occurred and be continuing or a material adverse effect on the validity or
enforceability of this or any of the other Loan Documents or the rights or
remedies of the Holders hereunder or thereunder.

          7. Remedies. Upon and after the occurrence of an Event of Default, the
Holder shall be entitled to the exercise the rights and remedies set forth in
the Security Agreement, the other Loan Documents and under applicable law, all
such rights and remedies being cumulative and enforceable alternatively,
successively or concurrently.

          8. Prepayment. The Company may not prepay this Note prior to the
Maturity Date without the prior written consent of the Holders.

          9. Seniority.

                    (a) Except as set forth in the Subordination Agreement, the
Notes will rank senior in right of payment to all other indebtedness of the
Company, other than the GA Notes and the January 2004 Notes, with respect to
which the Notes will be pari passu in right of payment in accordance with the
Intercreditor Agreement.

                    (b) Notwithstanding anything to the contrary contained in
the Notes, this Note and the other Notes, and the terms and the conditions
hereof and thereof, are subject to the Intercreditor Agreement.

          10. Assignment. Subject to the restrictions on transfer described in
Section 12 below, the rights and obligations of the Company and Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties. The Company shall not be permitted to assign this
Note without the prior written consent of the Holders.

          11. Waiver of Notice. The Company hereby waives notice, presentment,
demand, protest and notice of dishonor.

          12. Transfer of This Note. With respect to any offer, sale or other
disposition of this Note, Holder will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such Holder's counsel, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any
federal or state law then in effect); provided, that no opinion shall be
required for any transfer to an Affiliate or if the transfer is made in
compliance with the Securities Act, so long as the transferee can make the same
representations and warranties at the time of transfer as set forth in Sections
4.5, 4.6, 4.7,


                                       15



4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly upon delivering
such written notice and opinion, if so required, Holder may sell or otherwise
dispose of this Note, all in accordance with the terms of the notice delivered
to the Company. Each Note thus transferred shall bear a legend as to the
applicable restrictions on transferability in order to ensure compliance with
the Securities Act, unless in the opinion of counsel for the Company such legend
is not required in order to ensure compliance with the Securities Act. The
Company may issue stop transfer instructions to its transfer agent in connection
with such restrictions. Notwithstanding the foregoing, the Holder shall not be
permitted to transfer this Note to any Person who is not an Affiliate until the
earlier of (i) the obtaining of Stockholder Approval, (ii) the receipt of
written notice from the Company that Stockholder Approval cannot be obtained, or
the occurrence of an actual vote of the Company's shareholders entitled to vote
(whether by written consent or at a meeting specially called for such purpose),
the result of which is a decision by a majority of the Company's shareholders
entitled to vote to decline to grant Stockholder Approval, (iii) six (6) months
from the date hereof and (iv) the occurrence of an Event of Default. This Note
is registered as to both principal and stated interest with the Company (or its
agent) within the meaning of section 1.871-14(c)(1)(i) of the Income Tax
Regulations. Accordingly, notwithstanding anything to the contrary in this
paragraph, this Note, together with any interest thereon, may be transferred
only (i) upon surrender of the Note by the transferor to the Company (or its
agent) and the reissuance of the Note (or the issuance of a new Note) to the
transferee, or (ii) by transfer of the right to principal and interest through a
book-entry system meeting the requirements of section 1.871-14(c)(1)(i)(B) of
the Income Tax Regulations that is maintained by the Company (or its agent). In
the case of a Holder that is not a "United States person" within the meaning of
section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the
"Code"), so long as an exception under section 871(h) or section 881(c) of the
Code does not apply, the Company (or its agent) shall not withhold any U.S.
federal income tax with respect to such Holder provided that the Holder timely
provides the Company (or its agent) with a statement that meets the requirements
of section 871(h)(5) of the Code.

          13. Treatment of Note. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.

          14. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by nationally recognized courier
service or mailed by registered or certified mail, postage prepaid, to the
respective addresses of the parties as set forth on the signature pages hereto
or if sent by facsimile to the respective facsimile numbers of the parties set
forth on the signature pages hereto. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively be
deemed to have been given and received when personally delivered or three (3)
business days after deposited in the mail or one business day after sent by
courier or upon confirmation of facsimile delivery in the manner set forth
above.


                                       16



          15. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon Holder or any other Person the right to vote or to
consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company.

          16. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, excluding that body of law
relating to conflict of laws.

          17. Amendments and Waivers. No amendments or waivers of any provision
of this Note, and no consent by the Holder to any departure by the Company,
shall in any event be effective unless the same shall be in writing, and signed
by the Holders of a majority of the outstanding principal amount of all of the
Notes issued by the Company pursuant to the Note Purchase Agreement, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given.

          18. Severability. Any provision of this Note that is prohibited or
unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

          19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY
(A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF
RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION
WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY
TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY
OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN
THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER
OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE.
THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND
VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER
HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY
INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT
THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE
COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF
RIGHT TO TRIAL BY JURY. EACH OF


                                       17



THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED
IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT
LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

          20. Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except as otherwise indicated, all references herein to Sections refer to
Sections hereof.

              [the remainder of this page intentionally left blank]


                                       18



          IN WITNESS WHEREOF, the Company has caused this Note to be issued this
9th day of March, 2004.

                                          COMPANY:

                                          CRITICAL PATH, INC.,
                                          a California corporation

                                          By: /s/ William E. McGlashan, Jr.
                                              ----------------------------------
                                              Name: William E. McGlashan, Jr.
                                              Title: Chairman, Chief Executive
                                              Officer

                                              Critical Path, Inc.
                                              350 The Embarcadero
                                              San Francisco, CA 94105-1204
                                              Telecopy: (415) 541-2300
                                              Attention: Chief Financial Officer

                                              With a copy to:

                                              Pillsbury Winthrop LLP
                                              50 Fremont Street
                                              San Francisco, CA 94105
                                              Telecopy: (415) 983-1200
                                              Attention: Gregg Vignos, Esq.

Name of Holder: CAPITAL VENTURES INTERNATIONAL

Address:   c/o Heights Capital Management, Inc.
           425 California Street, Suite 1100
           San Francisco, CA 94104
           Attention: Martin Kobinger

Telephone: (415) 403-6500

Facsimile: (415) 403-6525

EX-4.44

                                                                    Exhibit 4.44

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




                           THIRD AMENDED AND RESTATED
                          REGISTRATION RIGHTS AGREEMENT

                                      among



                               CRITICAL PATH, INC.

                       GENERAL ATLANTIC PARTNERS 74, L.P.,

                       GAP COINVESTMENT PARTNERS II, L.P.,

                                  GAPSTAR, LLC,

                               GAPCO GMBH & CO. KG

                                       and

                         THE OTHER PARTIES LISTED HEREIN



                          ----------------------------
                              Dated: March 9, 2004
                          ----------------------------




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



                                TABLE OF CONTENTS



                                                                                     Page
                                                                                     ----
                                                                               

1.      Definitions...................................................................2

2.      General; Securities Subject to this Agreement.................................7
        (a)    Grant of Rights........................................................7
        (b)    Registrable Securities.................................................7
        (c)    Holders of Registrable Securities......................................7

3.      Demand Registration...........................................................8
        (a)    Request for Demand Registration........................................8
        (b)    Incidental or "Piggy-Back" Rights with Respect to a Demand Registration9
        (c)    Effective Demand Registration..........................................9
        (d)    Expenses...............................................................9
        (e)    Underwriting Procedures...............................................10
        (f)    Selection of Underwriters.............................................10

4.      Incidental or "Piggy-Back" Registration......................................11
        (a)    Request for Incidental Registration...................................11
        (b)    Expenses..............................................................11

5.      Holdback Agreements..........................................................11
        (a)    Restrictions on Public Sale by Designated Holders.....................11
        (b)    Restrictions on Public Sale by the Company............................12

6.      Registration Procedures......................................................12
        (a)    Obligations of the Company............................................12
        (b)    Seller Information....................................................15
        (c)    Notice to Discontinue.................................................15
        (d)    Registration Expenses.................................................15

7.      Indemnification; Contribution................................................16
        (a)    Indemnification by the Company........................................16
        (b)    Indemnification by Designated Holders.................................16
        (c)    Conduct of Indemnification Proceedings................................17
        (d)    Contribution..........................................................17

8.      Rule 144.....................................................................18

9.      Miscellaneous................................................................18
        (a)    Recapitalizations, Exchanges, etc.....................................18
        (b)    No Inconsistent Agreements............................................19
        (c)    Remedies..............................................................19
        (d)    Amendments and Waivers................................................19
        (e)    Notices...............................................................19
        (f)    Successors and Assigns; Third Party Beneficiaries.....................22



                                       i




                                                                                     Page
                                                                                     ----
                                                                               
        (g)    Counterparts..........................................................22
        (h)    Headings..............................................................22
        (i)    Governing Law.........................................................23
        (j)    Severability..........................................................23
        (k)    Rules of Construction.................................................23
        (l)    Entire Agreement......................................................23
        (m)    Further Assurances....................................................23
        (n)    Other Agreements......................................................23
        (o)    Effective Date and Termination........................................23




                                       ii



                           THIRD AMENDED AND RESTATED

                          REGISTRATION RIGHTS AGREEMENT

        THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated March 9,
2004 (this "Agreement"), among Critical Path, Inc., a California corporation
(the "Company"), General Atlantic Partners 74, L.P., a Delaware limited
partnership ("GAP LP"), GAP Coinvestment Partners II, L.P., a Delaware limited
partnership ("GAP Coinvestment"), GapStar, LLC, a Delaware limited liability
company ("GapStar"), GAPCO GmbH & Co. KG, a German limited partnership ("GmbH
Coinvestment"), Cenwell Limited ("Cenwell"), Campina Enterprises Limited
("Campina"), Great Affluent Limited ("Great Affluent"), Dragonfield Limited
("Dragonfield"), Lion Cosmos Limited ("Lion Cosmos"), Vectis CP Holdings, LLC, a
Delaware limited liability company ("Vectis"), Permal U.S. Opportunities Limited
("Permal"), Zaxis Equity Neutral, L.P. ("Zaxis Equity"), Zaxis Institutional
Partners, L.P. ("Zaxis Institutional"), Zaxis Offshore Limited ("Zaxis
Offshore"), Zaxis Partners, L.P. ("Zaxis Partners"), Guggenheim Portfolio
Company XIII ("Guggenheim" and collectively with Permal, Zaxis Equity, Zaxis
Institutional, Zaxis Offshore and Zaxis Partners, "Apex Capital"), Passport
Master Fund, L.P. ("Passport Capital"), Crosslink Crossover Fund IV, L.P.
("Crosslink"), Sagamore Hill Hub Fund, Ltd. ("Sagamore"), Criterion Capital
Partners, Ltd. ("Criterion Limited"), Criterion Capital Partners, Institutional
("Criterion Institutional"), Criterion Capital Partners, L.P. ("Criterion LP"
and together with Criterion Limited and Criterion Institutional, "Criterion")
and Capital Ventures International ("Heights Capital");

        WHEREAS, pursuant to the Stock and Warrant Purchase Agreement, dated
November 8, 2001, as amended from time to time (the "Stock Purchase Agreement"),
among the Company, GAP LP, GAP Coinvestment, GapStar, Cenwell, Campina and
Vectis, the Company has (i) issued and sold to GAP LP, GAP Coinvestment,
GapStar, Cenwell, Campina and Vectis, an aggregate of 2,162,582 shares of Series
D Cumulative Redeemable Convertible Participating Series D Preferred Stock, par
value $0.001 per share, of the Company, as amended from time to time (the
"Series D Preferred Stock"), (ii) issued and delivered to GAP LP, GAP
Coinvestment and GapStar an aggregate of 1,837,418 shares of Series D Preferred
Stock in exchange for a certain amount of convertible subordinated notes of the
Company and (iii) issued and sold to GAP LP, GAP Coinvestment and GapStar
warrants to purchase shares of Common Stock (as hereinafter defined) (the
"Warrants");

        WHEREAS, pursuant to the Convertible Note Purchase and Exchange
Agreement, dated November 18, 2003 (the "Convertible Note Purchase and Exchange
Agreement"), among the Company, GAP LP, GAP Coinvestment, GapStar, GAP-W, LLC, a
Delaware limited liability company, GmbH Coinvestment, Campina, Cenwell, Great
Affluent, Dragonfield and Lion Cosmos, as amended, (i) the Company has issued
and sold to GAP LP, GAP Coinvestment, GapStar and GmbH Coinvestment convertible
promissory notes (the "GA Notes") which are convertible into shares, par value
$0.001 per share, of Series E Redeemable Convertible Preferred Stock of the
Company (the "Series E Preferred Stock") and (ii) Campina, Cenwell, Great
Affluent, Dragonfield and Lion Cosmos agreed upon the satisfaction of certain
conditions to exchange their CK Sub Notes (as hereinafter defined) for shares of
Series E Preferred Stock;




        WHEREAS, pursuant to the Convertible Note Purchase Agreement, dated
January 16, 2004, among the Company, Permal, Zaxis Equity, Zaxis Institutional,
Zaxis Offshore, Zaxis Partners and Passport Capital (the "January Convertible
Note Agreement"), the Company has issued and sold to Permal, Zaxis Equity, Zaxis
Institutional, Zaxis Offshore, Zaxis Partners and Passport Capital convertible
promissory notes (the "January 2004 Notes") which are convertible into shares of
Series E Preferred Stock;

        WHEREAS, pursuant to the Convertible Note Purchase Agreement, dated
March 9, 2004, among the Company, Apex Capital, Crosslink, Sagamore, Criterion
and Heights Capital (the "March Convertible Note Agreement" and, together with
the January Convertible Note Agreement, the "Convertible Note Agreements"), the
Company has issued and sold to Apex Capital, Crosslink, Sagamore, Criterion and
Heights Capital convertible promissory notes in the principal amount of up to
$18,500,000 (the "March 2004 Notes" and, collectively with the GA Notes and the
January 2004 Notes, the "Notes") which are convertible into shares of Series E
Preferred Stock; and

        WHEREAS, in order to induce (i) each of GAP LP, GAP Coinvestment,
GapStar, GmbH Coinvestment, Apex Capital, Passport Capital, Crosslink, Sagamore,
Criterion and Heights Capital to purchase the Notes and (ii) Campina, Cenwell,
Great Affluent, Dragonfield and Lion Cosmos to exchange the CK Sub Notes for
shares of Series E Preferred Stock, the Company has agreed to grant registration
rights with respect to the Registrable Securities (as hereinafter defined) as
set forth in this Agreement:

        NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:

        1. Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:

               "Affiliate" shall mean any Person who is an "affiliate" as
defined in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act.

               "Agreement" means this Agreement as the same may be amended,
supplemented or modified in accordance with the terms hereof.

               "Amended and Restated Stockholders Agreement" shall mean the
Amended and Restated Stockholders Agreement, dated the date hereof, among the
Company, GAP LP, GAP Coinvestment, GapStar, GmbH Coinvestment and the Persons
listed therein as "Coinvestors."

               "Apex Capital" has the meaning set forth in the preamble to this
Agreement.

               "Apex Stockholders" means Apex Capital, Passport Capital,
Crosslink, Sagamore, Criterion and Heights Capital and any Affiliate thereof
that, after the date hereof, acquires Registrable Securities.


                                       2


               "Approved Underwriter" has the meaning set forth in Section 3(f)
of this Agreement.

               "Board of Directors" means the Board of Directors of the Company.

               "Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in the State of New York are authorized or
required by law or executive order to close.

               "Campina" has the meaning set forth in the preamble to this
Agreement.

               "Cenwell" has the meaning set forth in the preamble to this
Agreement.

               "Coinvestor Stockholders" means Cenwell, Campina, Great Affluent,
Dragonfield, Lion Cosmos and any Affiliate thereof that, after the date hereof,
acquires Registrable Securities.

               "CK Sub Notes" means the 53/4% Convertible Subordinated Notes due
April 1, 2005 issued by the Company in the principal face amount of thirty-two
million seven hundred ninety-five thousand dollars ($32,795,000), pursuant to
the Company's Indenture, dated March 31, 2000.

               "Commission" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act.

               "Common Stock" means the Common Stock, par value $0.001 per
share, of the Company or any other capital stock of the Company into which such
stock is reclassified or reconstituted and any other common stock of the
Company.

               "Company" has the meaning set forth in the preamble to this
Agreement.

               "Company Underwriter" has the meaning set forth in Section 4(a)
of this Agreement.

               "Conversion" has the meaning set forth in the Convertible Note
Agreements.

               "Conversion and Exchange" has the meaning set forth in the
Convertible Note Purchase and Exchange Agreement.

               "Convertible Note Purchase and Exchange Agreement" has the
meaning set forth in the recitals to this Agreement.

               "Convertible Note Agreements" has the meaning set forth in the
recitals to this Agreement.

               "Criterion" has the meaning set forth in the preamble to this
Agreement.

               "Crosslink" has the meaning set forth in the preamble to this
Agreement.


                                       3


               "Daily Trade Amount" means, (a) as to each of the General
Atlantic Stockholders, the Coinvestor Stockholders, the Vectis Stockholders and
the Apex Stockholders (other than Passport Capital, Crosslink, Sagamore,
Criterion and Heights Capital), the greater of (i) with respect to any date a
proposed sale pursuant to a Registration Statement is to be executed, 20% of the
daily trading volume of the Common Stock on the Nasdaq National Market System on
the date a proposed trade is to take place and (ii) 20% of the average daily
trading volume of the Common Stock on the Nasdaq National Market for the five
trading days immediately preceding such date, (b) as to Passport Capital, the
greater of (i) 6.7% of the daily trading volume of the Common Stock on the
Nasdaq National Market System on the date a proposed trade is to take place and
(ii) 6.7% of the average daily trading volume of the Common Stock on the Nasdaq
National Market for the five trading days immediately preceding such date, (c)
as to Crosslink, the greater of (i) 8.9% of the daily trading volume of the
Common Stock on the Nasdaq National Market System on the date a proposed trade
is to take place and (ii) 8.9% of the average daily trading volume of the Common
Stock on the Nasdaq National Market for the five trading days immediately
preceding such date, (d) as to Sagamore, the greater of (i) 5.3% of the daily
trading volume of the Common Stock on the Nasdaq National Market System on the
date a proposed trade is to take place and (ii) 5.3% of the average daily
trading volume of the Common Stock on the Nasdaq National Market for the five
trading days immediately preceding such date, (e) as to Criterion, the greater
of (i) 6.2% of the daily trading volume of the Common Stock on the Nasdaq
National Market System on the date a proposed trade is to take place and (ii)
6.2% of the average daily trading volume of the Common Stock on the Nasdaq
National Market for the five trading days immediately preceding such date and
(f) as to Heights Capital, the greater of (i) 3.6% of the daily trading volume
of the Common Stock on the Nasdaq National Market System on the date a proposed
trade is to take place and (ii) 3.6% of the average daily trading volume of the
Common Stock on the Nasdaq National Market for the five trading days immediately
preceding such date; provided, however, that for the purpose of calculating the
Daily Trade Amount, a block trade effected by a party outside the Nasdaq
National Market System shall be disregarded for purposes of calculating the
amount disposed of by the party and the daily trading volume. The Daily Trade
Amount shall apply to each such stockholder severally and not jointly, shall not
be aggregated among or between such stockholders, and such stockholders shall
not be required hereby to coordinate their sales or dispositions of Common
Stock.

               "Demand Registration" has the meaning set forth in Section 3(a)
of this Agreement.

               "Designated Holder" means each of the General Atlantic
Stockholders, the Coinvestor Stockholders, the Vectis Stockholders and the Apex
Stockholders and any transferee of any of them to whom Registrable Securities
have been transferred in accordance with Section 9(f) of this Agreement, other
than a transferee to whom Registrable Securities have been transferred pursuant
to a Registration Statement under the Securities Act or Rule 144 (or any
successor rule thereto).

               "Dragonfield" has the meaning set forth in the recitals to this
Agreement.


                                       4


               "Exchange" has the meaning set forth in the Convertible Note
Purchase and Exchange Agreement.

               "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.

               "GA Notes" has the meaning set forth in the recitals to this
Agreement.

               "GAP Coinvestment" has the meaning set forth in the preamble to
this Agreement.

               "GAP LLC" means General Atlantic Partners, LLC, a Delaware
limited liability company and the general partner of GAP LP and the managing
member of GapStar, and any successor to such entity.

               "GAP LP" has the meaning set forth in the preamble to this
Agreement.

               "GapStar" has the meaning set forth in the preamble to this
Agreement.

               "General Atlantic Stockholders" means GAP LP, GAP Coinvestment,
GapStar, GmbH Coinvestment and any Affiliate of GAP LLC that, after the date
hereof, acquires Registrable Securities.

               "GmbH Coinvestment" means GAPCO GmbH & Co. KG, a German limited
partnership.

               "Great Affluent" has the meaning set forth in the recitals to
this Agreement.

               "Heights Capital" has the meaning set forth in the preamble to
this Agreement.

               "Holders' Counsel" has the meaning set forth in Section 6(a)(i)
of this Agreement.

               "Incidental Registration" has the meaning set forth in Section
4(a) of this Agreement.

               "Indemnified Party" has the meaning set forth in Section 7(c) of
this Agreement.

               "Indemnifying Party" has the meaning set forth in Section 7(c) of
this Agreement.

               "Initiating Holders" has the meaning set forth in Section 3(a) of
this Agreement.

               "Inspector" has the meaning set forth in Section 6(a)(vii) of
this Agreement.

               "January Convertible Note Agreement" has the meaning set forth in
the recitals to this Agreement.

               "January 2004 Notes" has the meaning set forth in the recitals to
this Agreement.


                                       5


               "Liability" has the meaning set forth in Section 7(a) of this
Agreement.

               "Lion Cosmos" has the meaning set forth in the recitals to this
Agreement.

               "March Convertible Note Agreement" has the meaning set forth in
the recitals to this Agreement.

               "March 2004 Notes" has the meaning set forth in the recitals to
this Agreement.

               "NASD" means the National Association of Securities Dealers, Inc.

               "Passport Capital" has the meaning set forth in the preamble to
this Agreement.

               "Person" means any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, limited liability company, government (or an
agency or political subdivision thereof) or other entity of any kind, and shall
include any successor (by merger or otherwise) of such entity.

               "Public Offering" means any public offering of the shares of
Common Stock of the Company pursuant to an effective Registration Statement
filed under the Securities Act.

               "Records" has the meaning set forth in Section 6(a)(vii) of this
Agreement.

               "Registrable Securities" means each of the following: (a) any and
all shares of Common Stock issued or issuable upon conversion of shares of
Series D Preferred Stock or exercise of the Warrants, and, subject to
Stockholder Approval, any and all shares of Common Stock issued or issuable upon
conversion of shares of Series E Preferred Stock, (b) if the Subsequent Closing
does not occur by August 15, 2004, the shares of Common Stock issued upon
conversion of the January 2004 Notes and the March 2004 Notes, (c) any other
shares of Common Stock acquired or owned by any of the Designated Holders after
the date hereof if such Designated Holder is an Affiliate of the Company and (d)
any shares of Common Stock issued or issuable to any of the Designated Holders
with respect to the Registrable Securities by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise and any shares of Common
Stock or voting common stock issuable upon conversion, exercise or exchange
thereof.

               "Registration Expenses" has the meaning set forth in Section 6(d)
of this Agreement.

               "Registration Statement" means a Registration Statement filed
pursuant to the Securities Act.

               "Rights Offering" has the meaning set forth in the Convertible
Note Purchase and Exchange Agreement.

               "Sagamore" has the meaning set forth in the preamble to this
Agreement.


                                       6


               "Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder.

               "Series D Preferred Stock" has the meaning set forth in the
recitals to this Agreement.

               "Series E Preferred Stock" has the meaning set forth in the
recitals to this Agreement.

               "Stock Purchase Agreement" has the meaning set forth in the
recitals to this Agreement.

               "Stockholder Approval" has the meaning set forth in the
Convertible Note Purchase and Exchange Agreement.

               "Valid Business Reason" has the meaning set forth in Section 3(a)
of this Agreement.

               "Vectis" has the meaning set forth in the preamble of this
Agreement.

               "Vectis Stockholders" means Vectis and any Affiliate thereof
that, after the date hereof, acquires Registrable Securities.

               "Warrants" has the meaning set forth in the recitals to this
Agreement.

        2. General; Securities Subject to this Agreement.

               (a) Grant of Rights. The Company hereby grants registration
rights to the Designated Holders upon the terms and conditions set forth in this
Agreement.

               (b) Registrable Securities. For the purposes of this Agreement,
Registrable Securities will cease to be Registrable Securities, when (i) a
Registration Statement covering such Registrable Securities has been declared
effective under the Securities Act by the Commission and such Registrable
Securities have been disposed of pursuant to such effective Registration
Statement, (ii) (x) the entire amount of the Registrable Securities owned by a
Designated Holder may be sold in a single sale, in the opinion of counsel
satisfactory to the Company and such Designated Holder, each in their reasonable
judgment, without any limitation as to volume pursuant to Rule 144 (or any
successor provision then in effect) under the Securities Act and (y) such
Designated Holder owning such Registrable Securities owns less than one percent
(1%) of the outstanding shares of Common Stock on a fully diluted basis, or
(iii) the Registrable Securities are proposed to be sold or distributed by a
Person not entitled to the registration rights granted by this Agreement.

               (c) Holders of Registrable Securities. A Person is deemed to be a
holder of Registrable Securities whenever such Person owns of record Registrable
Securities, or holds an option to purchase, or a security convertible into or
exercisable or exchangeable for, Registrable Securities whether or not such
acquisition or conversion has actually been effected. If the Company receives
conflicting instructions, notices or elections from two or more Persons with


                                       7


respect to the same Registrable Securities, the Company may act upon the basis
of the instructions, notice or election received from the registered owner of
such Registrable Securities. Registrable Securities issuable upon exercise of an
option or upon conversion of another security shall be deemed outstanding for
the purposes of this Agreement.

        3. Demand Registration.

               (a) Request for Demand Registration. At any time after the
earliest of (i) the expiration or consummation of the exercise of the right of
the General Atlantic Stockholders and the Coinvestor Stockholders (or their
respective permitted transferees) to purchase those shares of Series E Preferred
Stock offered in the Rights Offering but not acquired by holders of shares of
the Company's Common Stock, (ii) the termination of the Rights Offering and the
occurrence of the special meeting to seek Stockholder Approval and (iii) August
15, 2004, if the Conversion and Exchange and the Conversion have not occurred on
or prior to such date, each of (A) the General Atlantic Stockholders, (B) the
Coinvestor Stockholders, (C) Apex Capital, (D) Passport Capital, (E) Crosslink,
(F) Sagamore, (G) Criterion and (H) Heights Capital (the "Initiating Holders"),
may each make a written request to the Company to register, and the Company
shall register, under the Securities Act and on an appropriate registration
statement form as reasonably determined by the Company and approved by the
Initiating Holders (a "Demand Registration"), the number of Registrable
Securities stated in such request; provided, however, that the Company shall not
be obligated to effect more than one such Demand Registration for the General
Atlantic Stockholders (subject to Section 3(e)(ii) below), more than one such
Demand Registration for the Coinvestor Stockholders (subject to Section 3(e)(ii)
below), more than one such Demand Registration for Apex Capital (subject to
Section 3(e)(ii) below), more than one such Demand Registration for Passport
Capital (subject to Section 3(e)(ii) below), more than one such Demand
Registration for Crosslink (subject to Section 3(e)(ii) below), more than one
such Demand Registration for Sagamore (subject to Section 3(e)(ii) below), more
than one such Demand Registration for Criterion (subject to Section 3(e)(ii)
below) and more than one such Demand Registration for Heights Capital (subject
to Section 3(e)(ii) below). If following receipt of a written request for a
Demand Registration the Board of Directors, in its good faith judgment,
determines that any registration of Registrable Securities should not be made or
continued because it would materially interfere with any material financing,
acquisition, corporate reorganization or merger or other material transaction
involving the Company (a "Valid Business Reason"), the Company may (x) postpone
filing a Registration Statement relating to a Demand Registration until such
Valid Business Reason no longer exists, but in no event for more than ninety
(90) days, and (y) in case a Registration Statement has been filed relating to a
Demand Registration, if the Valid Business Reason has not resulted from actions
taken by the Company, the Company, upon the approval of a majority of the Board
of Directors, such majority to include at least one Director appointed by the
General Atlantic Stockholders, may cause such Registration Statement to be
withdrawn and its effectiveness terminated or may postpone amending or
supplementing such Registration Statement. The Company shall give written notice
of its determination to postpone or withdraw a Registration Statement and of the
fact that the Valid Business Reason for such postponement or withdrawal no
longer exists, in each case, promptly after the occurrence thereof.
Notwithstanding anything to the contrary contained herein, the Company may not
postpone or withdraw a filing under this Section 3(a) more than once in any
twelve (12) month period. Each request for a Demand Registration by the
Initiating


                                       8


Holders shall state the amount of the Registrable Securities proposed to be sold
and the intended method of disposition thereof.

               (b) Incidental or "Piggy-Back" Rights with Respect to a Demand
Registration. Each of the Designated Holders (other than Initiating Holders
which have requested a registration under Section 3(a)) may offer its or his
Registrable Securities under any Demand Registration pursuant to this Section
3(b). Within five (5) days after the receipt of a request for a Demand
Registration from an Initiating Holder, the Company shall (i) give written
notice thereof to all of the Designated Holders (other than Initiating Holders
which have requested a registration under Section 3(a)) and (ii) subject to
Section 3(e), include in such registration all of the Registrable Securities
held by such Designated Holders from whom the Company has received a written
request for inclusion therein within ten (10) days of the receipt by such
Designated Holders of such written notice referred to in clause (i) above. Each
such request by such Designated Holders shall specify the number of Registrable
Securities proposed to be registered. The failure of any Designated Holder to
respond within such 10 day period referred to in clause (ii) above shall be
deemed to be a waiver of such Designated Holder's rights under this Section 3
with respect to such Demand Registration. Any Designated Holder may waive its
rights under this Section 3 prior to the expiration of such 10-day period by
giving written notice to the Company, with a copy to the Initiating Holders. If
a Designated Holder sends the Company a written request for inclusion of part or
all of such Designated Holder's Registrable Securities in a registration, such
Designated Holder shall not be entitled to withdraw or revoke such request
without the prior written consent of the Company in its sole discretion unless,
as a result of facts or circumstances arising after the date on which such
request was made relating to the Company or to market conditions, such
Designated Holder reasonably determines that participation in such registration
would have a material adverse effect on such Designated Holder.

               (c) Effective Demand Registration. The Company shall use all
commercially reasonable efforts to cause any such Demand Registration to be
filed not later than thirty (30) days after it receives a request under Section
3(a) hereof and to become and remain effective as soon as practicable thereafter
but, in any event, not later than ninety (90) days (or, if the Company is
eligible to effect such registration on Form S-3, sixty (60) days) after such
filing. A registration shall not constitute a Demand Registration unless it has
become effective and remains continuously effective until the earlier of the
date (i) on which all Registrable Securities registered in the Demand
Registration are sold and (ii) that is the second anniversary of the
effectiveness of the Registration Statement relating to such Demand
Registration; provided, however, that a registration shall not constitute a
Demand Registration if (x) after such Demand Registration has become effective,
such registration or the related offer, sale or distribution of Registrable
Securities thereunder is interfered with by any stop order, injunction or other
order or requirement of the Commission or other governmental agency or court for
any reason not attributable to the Initiating Holders and such interference is
not thereafter eliminated or (y) the conditions specified in the underwriting
agreement, if any, entered into in connection with such Demand Registration are
not satisfied or waived, other than by reason of a failure by the Initiating
Holder.

               (d) Expenses. The Company shall pay all Registration Expenses in
connection with a Demand Registration, whether or not such Demand Registration
becomes



                                       9


effective, except for an underwritten Demand Registration pursuant to Section
3(e)(i)(y) below, as to which each participating Designated Holder shall bear
its pro rata portion of expenses based on the number of shares of Common Stock
registered pursuant thereto.

               (e) Underwriting Procedures.

                        (i) If (x) any of the Initiating Holders so elects for
itself or (y) with respect to any given trading day, a Designated Holder
proposes to sell or dispose of more than the Daily Trade Amount and the
Company's board of directors determines in good faith that it is necessary for
an orderly distribution to be made pursuant to a firm commitment underwritten
offering, then the Company shall use all commercially reasonable efforts to
cause such Demand Registration to be in the form of, and such Designated Holder
or Designated Holders shall be obligated to sell or dispose of its or their
Registrable Securities pursuant to, a firm commitment underwritten offering and
the managing underwriter or underwriters selected for such offering shall be the
Approved Underwriter selected in accordance with Section 3(f). In connection
with any Demand Registration under this Section 3 involving an underwritten
offering, none of the Registrable Securities held by any Designated Holder
making a request for inclusion of such Registrable Securities pursuant to
Section 3(b) hereof shall be included in such underwritten offering unless such
Designated Holder accepts the terms of the offering as agreed upon by the
Company, the Initiating Holders and the Approved Underwriter, and then only in
such quantity as will not, in the opinion of the Approved Underwriter,
jeopardize the success of such offering by the Initiating Holders. If the
Approved Underwriter advises the Company in its reasonable opinion that the
aggregate amount of such Registrable Securities requested to be included in such
offering is sufficiently large to have a material adverse effect on the success
of such offering, then the Company shall include in such registration only the
aggregate amount of Registrable Securities that the Approved Underwriter
believes may be sold without any such material adverse effect and shall reduce
the amount of Registrable Securities to be included in such registration by
removing from such registration securities owned, first by the Company and
second by the Designated Holders (including the Initiating Holders) pro rata
based on the number of Registrable Securities owned by each such Designated
Holder.

                        (ii) If an Initiating Holder makes a request for a
Demand Registration and, pursuant to Section 3(e)(i) above, the Approved
Underwriter advises the Company to reduce the aggregate amount of Registrable
Securities requested to be included in such offering such that less than
seventy-five percent (75%) of the Registrable Securities requested to be
included by any Initiating Holder are ultimately included in and sold pursuant
to such Demand Registration, the Initiating Holder shall have the right to
require the Company to effect an additional Demand Registration; provided,
however, that in no event shall the aggregate number of Demand Registrations to
be effected by the Company for any one Initiating Holder exceed two (2).

               (f) Selection of Underwriters. If any Demand Registration of
Registrable Securities is in the form of an underwritten offering, the Company
shall select and obtain an investment banking firm of national reputation to act
as the managing underwriter of the offering (the "Approved Underwriter");
provided, however, that the Approved Underwriter shall, in any case, also be
approved by the Initiating Holders.


                                       10


        4. Incidental or "Piggy-Back" Registration.

               (a) Request for Incidental Registration. If at any time the
Company proposes to file a Registration Statement under the Securities Act with
respect to an offering by the Company for its own account (other than a
Registration Statement on Form S-4 or S-8 or any successor thereto) or for the
account of any stockholder of the Company other than the Designated Holders,
then the Company shall give written notice of such proposed filing to each of
the Designated Holders at least twenty (20) days before the anticipated filing
date, and such notice shall describe the proposed registration and distribution
and offer such Designated Holders the opportunity to register the number of
Registrable Securities as each such Designated Holder may request (an
"Incidental Registration"). The Company shall use all commercially reasonable
efforts (within twenty (20) days of the notice provided for in the preceding
sentence) to cause the managing underwriter or underwriters in the case of a
proposed underwritten offering (the "Company Underwriter") to permit each of the
Designated Holders who have requested in writing to participate in the
Incidental Registration to include its or his Registrable Securities in such
offering on the same terms and conditions as the securities of the Company or
the account of such other stockholder, as the case may be, included therein. In
connection with any Incidental Registration under this Section 4(a) involving an
underwritten offering, the Company shall not be required to include any
Registrable Securities in such underwritten offering unless the Designated
Holders thereof accept the terms of the underwritten offering as agreed upon
between the Company, such other stockholders, if any, and the Company
Underwriter, and then only in such quantity as the Company Underwriter believes
will not jeopardize the success of the offering by the Company. If the Company
Underwriter determines that the registration of all or part of the Registrable
Securities which the Designated Holders have requested to be included would
materially adversely affect the success of such offering, then the Company shall
be required to include in such Incidental Registration, to the extent of the
amount that the Company Underwriter believes may be sold without causing such
adverse effect, first, all of the securities to be offered for the account of
the Company or on the account of the selling stockholder that caused the
registration statement that has triggered the Incidental Registration to be
filed, as the case may be; second, the Registrable Securities to be offered for
the account of the Designated Holders pursuant to this Section 4, pro rata based
on the number of Registrable Securities owned by each such Designated Holder;
and third, any other securities requested to be included in such offering.

               (b) Expenses. The Company shall bear all Registration Expenses in
connection with any Incidental Registration pursuant to this Section 4, whether
or not such Incidental Registration becomes effective.

        5. Holdback Agreements.

               (a) Restrictions on Public Sale by Designated Holders. To the
extent (i) requested (A) by the Company or the Initiating Holders, as the case
may be, in the case of a non-underwritten public offering and (B) by the
Approved Underwriter or the Company Underwriter, as the case may be, in the case
of an underwritten public offering and (ii) all of the Company's officers,
directors and holders in excess of one percent (1%) of its outstanding capital
stock execute agreements identical to those referred to in this Section 5(a),
each Designated Holder agrees (x) not to effect any public sale or distribution
of any Registrable


                                       11


Securities or of any securities convertible into or exchangeable or exercisable
for such Registrable Securities, including a sale pursuant to Rule 144 under the
Securities Act, or offer to sell, contract to sell (including without limitation
any short sale), grant any option to purchase or enter into any hedging or
similar transaction with the same economic effect as a public sale any
Registrable Securities and (y) not to make any request for a Demand Registration
under this Agreement, during the ninety (90) day period or such shorter period,
if any, mutually agreed upon by such Designated Holder and the requesting party
beginning on the effective date of the Registration Statement (except as part of
such registration) for such public offering. No Designated Holder of Registrable
Securities subject to this Section 5(a) shall be released from any obligation
under any agreement, arrangement or understanding entered into pursuant to this
Section 5(a) unless all other Designated Holders of Registrable Securities
subject to the same obligation are also released. All Designated Holders of
Registrable Securities shall be automatically released from any obligations
under any agreement, arrangement or understanding entered into pursuant to this
Section 5(a) immediately upon the expiration of the 90 day period, and in any
case, on the date that is two years from the date of this Agreement.

               (b) Restrictions on Public Sale by the Company. The Company
agrees not to effect any public sale or distribution of any of its securities,
or any securities convertible into or exchangeable or exercisable for such
securities (except pursuant to registrations on Form S-4 or S-8 or any successor
thereto), during the period beginning on the effective date of any Registration
Statement in which the Designated Holders of Registrable Securities are
participating and ending on the earlier of (i) the date on which all Registrable
Securities registered on such Registration Statement are sold and (ii) 120 days
after the effective date of such Registration Statement (except as part of such
registration).

        6. Registration Procedures.

               (a) Obligations of the Company. Whenever registration of
Registrable Securities has been requested pursuant to Section 3 or Section 4 of
this Agreement, the Company shall use all commercially reasonable efforts to
effect the registration and sale of such Registrable Securities in accordance
with the intended method of distribution thereof as quickly as practicable, and
in connection with any such request, the Company shall, as expeditiously as
possible:

                        (i) prepare and file with the Commission a Registration
Statement on any form for which the Company then qualifies or which counsel for
the Company shall deem appropriate and which form shall be available for the
sale of such Registrable Securities in accordance with the intended method of
distribution thereof, and cause such Registration Statement to become effective;
provided, however, that (x) before filing a Registration Statement or prospectus
or any amendments or supplements thereto, the Company shall provide counsel
selected by the Designated Holders holding a majority of the Registrable
Securities being registered in such registration ("Holders' Counsel") with an
adequate opportunity to review and comment on such Registration Statement and
each prospectus included therein (and each amendment or supplement thereto) to
be filed with the Commission, subject to such documents being under the
Company's control, and (y) the Company shall notify the Holders' Counsel and
each seller of Registrable Securities of any stop order issued or threatened by
the Commission and take all action required to prevent the entry of such stop
order or to remove it if entered;


                                       12


                        (ii) prepare and file with the Commission such
amendments and supplements to such Registration Statement and the prospectus
used in connection therewith as may be necessary to keep such Registration
Statement effective for the lesser of (x) 120 days and (y) such shorter period
which will terminate when all Registrable Securities covered by such
Registration Statement have been sold, and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
Registration Statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such Registration
Statement;

                        (iii) furnish to each seller of Registrable Securities,
prior to filing a Registration Statement, at least one copy of such Registration
Statement as is proposed to be filed, and thereafter such number of copies of
such Registration Statement, each amendment and supplement thereto (in each case
including all exhibits thereto), and the prospectus included in such
Registration Statement (including each preliminary prospectus) and any
prospectus filed under Rule 424 under the Securities Act as each such seller may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such seller;

                        (iv) register or qualify such Registrable Securities
under such other securities or "blue sky" laws of such jurisdictions as any
seller of Registrable Securities may request, and to continue such qualification
in effect in such jurisdiction for as long as permissible pursuant to the laws
of such jurisdiction, or for as long as any such seller requests or until all of
such Registrable Securities are sold, whichever is shortest, and do any and all
other acts and things which may be reasonably necessary or advisable to enable
any such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller; provided, however, that the Company
shall not be required to (x) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 6(a)(iv), (y) subject itself to taxation in any such jurisdiction or (z)
consent to general service of process in any such jurisdiction;

                        (v) notify each seller of Registrable Securities at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, upon discovery that, or upon the happening of any event as a
result of which, the prospectus included in such Registration Statement contains
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading and the
Company shall promptly prepare a supplement or amendment to such prospectus and
furnish to each seller of Registrable Securities a reasonable number of copies
of such supplement to or an amendment of such prospectus as may be necessary so
that, after delivery to the purchasers of such Registrable Securities, such
prospectus shall not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading;

                        (vi) enter into and perform customary agreements
(including an underwriting agreement containing representations, warranties,
covenants and indemnities for securities law matters and otherwise in customary
form with the Approved Underwriter or Company Underwriter, if any, selected as
provided in Section 3 or Section 4, as the case may be) and take such other
actions as are prudent and reasonably required in order to expedite or


                                       13


facilitate the disposition of such Registrable Securities, including causing its
officers to participate in "road shows" and other information meetings organized
by the Approved Underwriter or Company Underwriter;

                        (vii) make available at reasonable times for inspection
by any seller of Registrable Securities, any managing underwriter participating
in any disposition of such Registrable Securities pursuant to a Registration
Statement, Holders' Counsel and any attorney, accountant or other agent retained
by any such seller or any managing underwriter (each, an "Inspector" and
collectively, the "Inspectors"), all financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries
(collectively, the "Records") as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause the Company's and its
subsidiaries' officers, directors and employees, and the independent public
accountants of the Company, to supply all information reasonably requested by
any such Inspector in connection with such Registration Statement. Records that
the Company determines, in good faith, to be confidential and which it notifies
the Inspectors are confidential shall not be disclosed by the Inspectors (and
the Inspectors shall confirm their agreement in writing in advance to the
Company if the Company shall so request) unless (x) the disclosure of such
Records is necessary, in the Company's judgment, to avoid or correct a
misstatement or omission in the Registration Statement, (y) the release of such
Records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction after exhaustion of all appeals therefrom or (z) the
information in such Records was known to the Inspectors on a non-confidential
basis prior to its disclosure by the Company or has been made generally
available to the public. Each seller of Registrable Securities agrees that it
shall, upon learning that disclosure of such Records is sought in a court of
competent jurisdiction, give notice to the Company and allow the Company, at the
Company's expense, to undertake appropriate action to prevent disclosure of the
Records deemed confidential;

                        (viii) if such sale is pursuant to an underwritten
offering, obtain a "cold comfort" letter dated the effective date of the
Registration Statement and the date of the closing under the underwriting
agreement from the Company's independent public accountants in customary form
and covering such matters of the type customarily covered by "cold comfort"
letters as the managing underwriter reasonably requests;

                        (ix) furnish, at the request of any seller of
Registrable Securities on the date such securities are delivered to the
underwriters for sale pursuant to such registration or, if such securities are
not being sold through underwriters, on the date the Registration Statement with
respect to such securities becomes effective, an opinion, if reasonably
available, dated such date, of counsel representing the Company for the purposes
of such registration, addressed to the underwriters, if any, and to the seller
making such request, covering such legal matters with respect to the
registration in respect of which such opinion is being given as the
underwriters, if any, and such seller may reasonably request and are customarily
included in such opinions;

                        (x) comply with all applicable rules and regulations of
the Commission, and make available to its security holders, as soon as
reasonably practicable but no later than fifteen (15) months after the effective
date of the Registration Statement, an earnings statement covering a period of
twelve (12) months beginning after the effective date of the


                                       14


Registration Statement, in a manner which satisfies the provisions of Section
11(a) of the Securities Act and Rule 158 thereunder;

                        (xi) cause all such Registrable Securities to be listed
on each securities exchange on which similar securities issued by the Company
are then listed, provided that the applicable listing requirements are
satisfied;

                        (xii) cooperate with each seller of Registrable
Securities and each underwriter participating in the disposition of such
Registrable Securities and their respective counsel in connection with any
filings required to be made with the NASD; and

                        (xiii) take all other steps reasonably necessary to
effect the registration of the Registrable Securities contemplated hereby.

               (b) Seller Information. The Company may require each seller of
Registrable Securities as to which any registration is being effected to
furnish, and such seller shall furnish, to the Company such information
regarding the distribution of such securities as the Company may from time to
time reasonably request in writing.

               (c) Notice to Discontinue. Each Designated Holder agrees that,
not more than two times in any 12-month period, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
6(a)(v), such Designated Holder shall, for a total period not longer than 90
days during each such 12-month period (inclusive of any delay pursuant to a
Valid Business Reason under Section 3(a) or period during which the Designated
Holder is unable to dispose of Registrable Securities under the Registration
Statement pursuant to a notice by the Company under Section 6(a)(v) hereof),
forthwith discontinue disposition of Registrable Securities pursuant to the
Registration Statement covering such Registrable Securities until such
Designated Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 6(a)(v) and, if so directed by the Company,
such Designated Holder shall deliver to the Company (at the Company's expense)
all copies, other than permanent file copies then in such Designated Holder's
possession, of the prospectus covering such Registrable Securities which is
current at the time of receipt of such notice. If the Company shall give any
such notice, the Company shall extend the period during which such Registration
Statement shall be maintained effective pursuant to this Agreement (including,
without limitation, the period referred to in Section 6(a)(ii)) by the number of
days during the period from and including the date of the giving of such notice
pursuant to Section 6(a)(v) to and including the date when sellers of such
Registrable Securities under such Registration Statement shall have received the
copies of the supplemented or amended prospectus contemplated by and meeting the
requirements of Section 6(a)(v).

               (d) Registration Expenses. The Company shall pay all expenses
arising from or incident to its performance of, or compliance with, this
Agreement, including, without limitation, (i) Commission, stock exchange and
NASD registration and filing fees, (ii) all fees and expenses incurred in
complying with securities or "blue sky" laws (including reasonable fees, charges
and disbursements of counsel to any underwriter incurred in connection with
"blue sky" qualifications of the Registrable Securities as may be set forth in
any underwriting agreement), (iii) all printing, messenger and delivery expenses
and (iv) the fees, charges and


                                       15


expenses of counsel to the Company and of its independent public accountants and
any other accounting fees, charges and expenses incurred by the Company
(including, without limitation, any expenses arising from any "cold comfort"
letters or any special audits incident to or required by any registration or
qualification) and any reasonable legal fees, charges and expenses incurred by
one counsel for the General Atlantic Stockholders. All of the expenses described
in the preceding sentence of this Section 6(d) are referred to herein as
"Registration Expenses." The Designated Holders of Registrable Securities sold
pursuant to a Registration Statement shall bear the expense of any underwriter's
discount or commission relating to registration and sale of such Designated
Holders' Registrable Securities.

        7. Indemnification; Contribution.

               (a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Designated Holder, its partners, directors,
officers, affiliates and each Person who controls (within the meaning of Section
15 of the Securities Act) such Designated Holder from and against any and all
losses, claims, damages, liabilities and expenses (including reasonable costs of
investigation) (each, a "Liability" and collectively, "Liabilities"), arising
out of or based upon any untrue, or allegedly untrue, statement of a material
fact contained in any Registration Statement, prospectus or preliminary
prospectus (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) or arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances under which such statements were made, except insofar as
such Liability arises out of or is based upon any untrue statement or alleged
untrue statement or omission or alleged omission contained in such Registration
Statement, preliminary prospectus or final prospectus in reliance and in
conformity with information concerning such Designated Holder furnished in
writing to the Company by such Designated Holder expressly for use therein,
including, without limitation, the information furnished to the Company pursuant
to Section 7(b). The Company shall also provide customary indemnities to any
underwriters of the Registrable Securities, their officers, directors and
employees and each Person who controls such underwriters (within the meaning of
Section 15 of the Securities Act) to the same extent as provided above with
respect to the indemnification of the Designated Holders of Registrable
Securities.

               (b) Indemnification by Designated Holders. In connection with any
Registration Statement in which a Designated Holder is participating pursuant to
Section 3 or Section 4 hereof, each such Designated Holder shall promptly
furnish to the Company in writing such information with respect to such
Designated Holder as the Company may reasonably request or as may be required by
law for use in connection with any such Registration Statement or prospectus and
all information required to be disclosed in order to make the information
previously furnished to the Company by such Designated Holder not materially
misleading or necessary to cause such Registration Statement not to omit a
material fact with respect to such Designated Holder necessary in order to make
the statements therein not misleading. Each Designated Holder agrees to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, any underwriter retained by
the Company and each Person who controls the Company or such underwriter (within
the meaning of Section 15 of the Securities Act) to the same extent as the
foregoing indemnity from the Company to the Designated Holders, but only if such
statement or alleged statement or omission


                                       16


or alleged omission was made in reliance upon and in conformity with information
with respect to such Designated Holder furnished in writing to the Company by
such Designated Holder expressly for use in such Registration Statement or
prospectus, including, without limitation, the information furnished to the
Company pursuant to this Section 7(b); provided, however, that the total amount
to be indemnified by such Designated Holder pursuant to this Section 7(b) shall
be limited to the net proceeds (after deducting the underwriters' discounts and
commissions) received by such Designated Holder in the offering to which the
Registration Statement or prospectus relates.

               (c) Conduct of Indemnification Proceedings. Any Person entitled
to indemnification hereunder (the "Indemnified Party") agrees to give prompt
written notice to the indemnifying party (the "Indemnifying Party") after the
receipt by the Indemnified Party of any written notice of the commencement of
any action, suit, proceeding or investigation or threat thereof made in writing
for which the Indemnified Party intends to claim indemnification or contribution
pursuant to this Agreement; provided, however, that the failure so to notify the
Indemnifying Party shall not relieve the Indemnifying Party of any Liability
that it may have to the Indemnified Party hereunder (except to the extent that
the Indemnifying Party is materially prejudiced or otherwise forfeits
substantive rights or defenses by reason of such failure). If notice of
commencement of any such action is given to the Indemnifying Party as above
provided, the Indemnifying Party shall be entitled to participate in and, to the
extent it may wish, jointly with any other Indemnifying Party similarly
notified, to assume the defense of such action at its own expense, with counsel
chosen by it and reasonably satisfactory to such Indemnified Party. The
Indemnified Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be paid by the Indemnified Party unless (i) the Indemnifying Party
agrees to pay the same, (ii) the Indemnifying Party fails to assume the defense
of such action with counsel reasonably satisfactory to the Indemnified Party or
(iii) the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party and such parties
have been advised by such counsel that either (x) representation of such
Indemnified Party and the Indemnifying Party by the same counsel would be
inappropriate under applicable standards of professional conduct or (y) there
may be one or more legal defenses available to the Indemnified Party which are
different from or additional to those available to the Indemnifying Party. In
any of such cases, the Indemnifying Party shall not have the right to assume the
defense of such action on behalf of such Indemnified Party, it being understood,
however, that the Indemnifying Party shall not be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all Indemnified Parties. No Indemnifying Party shall be liable for
any settlement entered into without its written consent, which consent shall not
be unreasonably withheld. No Indemnifying Party shall, without the consent of
such Indemnified Party, effect any settlement of any pending or threatened
proceeding in respect of which such Indemnified Party is a party and indemnity
has been sought hereunder by such Indemnified Party, unless such settlement
includes an unconditional release of such Indemnified Party from all liability
for claims that are the subject matter of such proceeding.

               (d) Contribution. If the indemnification provided for in this
Section 7 from the Indemnifying Party is unavailable to an Indemnified Party
hereunder in respect of any Liabilities referred to herein, then the
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a


                                       17


result of such Liabilities in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and Indemnified Party in connection
with the actions which resulted in such Liabilities, as well as any other
relevant equitable considerations. The relative faults of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact, has been made by, or relates to information supplied by, such Indemnifying
Party or Indemnified Party, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such action. The amount
paid or payable by a party as a result of the Liabilities referred to above
shall be deemed to include, subject to the limitations set forth in Sections
7(a), 7(b) and 7(c), any legal or other fees, charges or expenses reasonably
incurred by such party in connection with any investigation or proceeding;
provided that the total amount to be contributed by such Designated Holder shall
be limited to the net proceeds (after deducting the underwriters' discounts and
commissions) received by such Designated Holder in the offering.

               The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 7(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.

        8. Rule 144. The Company covenants that it shall (a) file any reports
required to be filed by it under the Exchange Act and (b) take such further
action as each Designated Holder may reasonably request (including providing any
information necessary to comply with Rule 144 under the Securities Act), all to
the extent required from time to time to enable such Designated Holder to sell
Registrable Securities without registration under the Securities Act within the
limitation of the exemptions provided by (i) Rule 144 under the Securities Act,
as such rule may be amended from time to time or (ii) any similar rules or
regulations hereafter adopted by the Commission. The Company shall, upon the
request of any Designated Holder, deliver to such Designated Holder a written
statement as to whether it has complied with such requirements.

        9. Miscellaneous.

               (a) Recapitalizations, Exchanges, etc. The provisions of this
Agreement shall apply to the full extent set forth herein with respect to (i)
the shares of Common Stock, (ii) any and all shares of voting common stock of
the Company into which the shares of Common Stock are converted, exchanged or
substituted in any recapitalization or other capital reorganization by the
Company and (iii) any and all equity securities of the Company or any successor
or assign of the Company (whether by merger, consolidation, sale of assets or
otherwise) which may be issued in respect of, in conversion of, in exchange for
or in substitution of, the shares of Common Stock and shall be appropriately
adjusted for any stock dividends, splits, reverse splits, combinations,
recapitalizations and the like occurring after the date hereof. The Company
shall use all commercially reasonable efforts to cause any successor or assign
(whether by merger, consolidation, sale of assets or otherwise) to enter into a
new registration rights agreement with the Designated Holders on terms
substantially the same as this Agreement as a condition of any such transaction.


                                       18


               (b) No Inconsistent Agreements. The Company shall not enter into
any agreement with respect to its securities that is inconsistent with the
rights granted to the Designated Holders in this Agreement or grant any
additional registration rights to any Person or with respect to any securities
which are not Registrable Securities which are prior in right to or inconsistent
with the rights granted in this Agreement.

               (c) Remedies. The Designated Holders, in addition to being
entitled to exercise all rights granted by law, including recovery of damages,
shall be entitled to specific performance of their rights under this Agreement.
The Company agrees that monetary damages would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of this
Agreement and hereby agrees to waive in any action for specific performance the
defense that a remedy at law would be adequate.

               (d) Amendments and Waivers. Except as otherwise provided herein,
the provisions of this Agreement may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given unless consented to in writing by (i) the Company and (ii) the General
Atlantic Stockholders, Coinvestor Stockholders, Vectis Stockholders and Apex
Stockholders holding Registrable Securities representing (after giving effect to
any adjustments) at least a majority of the aggregate number of Registrable
Securities owned by all of the General Atlantic Stockholders, Coinvestor
Stockholders, Vectis Stockholders and Apex Stockholders; provided, however, that
to the extent any amendment or waiver shall adversely affect any of such
stockholders, such amendment or waiver shall require the prior written consent
of each stockholder so adversely affected. Any such written consent shall be
binding upon the Company and all of the Designated Holders.

               (e) Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be made
by registered or certified first-class mail, return receipt requested,
telecopier, courier service or personal delivery:

                      (i)    if to the Company:

                             Critical Path, Inc.
                             350 The Embarcadero
                             San Francisco, CA 94105-1204
                             Telecopy: (415) 541-2300
                             Attention: Chief Financial Officer

                             with a copy to:

                             Pillsbury Winthrop LLP
                             50 Fremont Street
                             San Francisco, CA  94105
                             Telecopy:  (415) 983-1200
                             Attention: Gregg F. Vignos, Esq.


                                       19


                      (ii)   if to the General Atlantic Stockholders:

                             c/o General Atlantic Service Company
                             3 Pickwick Plaza
                             Greenwich, CT  06830
                             Telecopy:  (203) 622-8818
                             Attention: Matthew Nimetz
                                        Thomas J. Murphy

                             with a copy to:

                             Paul, Weiss, Rifkind, Wharton & Garrison LLP
                             1285 Avenue of the Americas
                             New York, NY 10019-6064
                             Telecopy:  (212) 757-3990
                             Attention:  Douglas A. Cifu, Esq.

                      (iii)  if to Campina, Great Affluent, Dragonfield or Lion
                      Cosmos:

                             c/o 7th Floor
                             Cheung Kong Center
                             2 Queen's Road Central
                             Hong Kong
                             Telecopy:  (852) 2845-2057
                             Attention:  Mr. Edmond Ip

                      (iv)   if to Cenwell:

                             c/o 22nd Floor
                             Hutchison House
                             10 Harcourt Road
                             Hong Kong
                             Telecopy:  (852) 2128-1778
                             Attention: Company Secretary

                      (v)    if to Vectis:

                             c/o Vectis Group, LLC
                             117 Greenwich Street
                             San Francisco, CA 94111
                             Telecopy: 415-352-5310
                             Attention: Matthew Hobart


                                       20


                             with a copy to:

                             Kirkland & Ellis
                             153 East 53rd Street
                             New York, NY 10022-4675
                             Telecopy: 212-446-4900
                             Attention: Michael Movsovich, Esq.

                      (vi)   if to Apex Capital:

                             Apex Capital, LLC
                             25 Orinda Way, Suite 300
                             Orinda, CA 94563
                             Telecopy:  (925) 253-1809
                             Attention: Adam Fiore, General Counsel

                      (vii)  if to Passport Capital:

                             Passport Capital, LLC
                             One Sansome Street, 39th Floor
                             San Francisco, CA 94104
                             Telecopy:  (415) 399-7608
                             Attention: John Burbank, Managing Partner

                      (viii) if to Crosslink:

                             Crosslink Capital
                             Two Embarcadero Center, Suite 2200
                             San Francisco, CA 94111
                             Telecopy:  (415) 617-1801
                             Attention: Jason Sanders

                      (ix)   if to Sagamore:

                             Sagamore Hill Hub Fund, Ltd.
                             c/o Sagamore Hill Capital Management
                             10 Glenville Street, 3rd Floor
                             Greenwich, CT 06831
                             Telecopy:  (203) 422-7214
                             Attention: Legal Department

                      (x)    if to Criterion:

                             Criterion Capital Management
                             One Maritime Plaza, Suite 1460
                             San Francisco, CA 94111
                             Telecopy:___________________


                                       21


                             Attention: R. Daniel Beckham

                      (xi)   if to Heights Capital:

                             Capital Ventures International
                             c/o Heights Capital Management, Inc.
                             425 California Street, Suite 1100
                             San Francisco, CA 94104
                             Telecopy:  (415) 403-6525
                             Attention: Martin Kobinger

                      (xii)  if to any other Designated Holder, at its address
                             as it appears on the record books of the Company.

        All such notices, demands and other communications shall be deemed to
have been duly given when delivered by hand, if personally delivered; when
delivered by courier, if delivered by commercial courier service; five (5)
Business Days after being deposited in the mail, postage prepaid, if mailed; and
when receipt is mechanically acknowledged, if telecopied. Any party may by
notice given in accordance with this Section 9(e) designate another address or
Person for receipt of notices hereunder.

               (f) Successors and Assigns; Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of the parties hereto as hereinafter provided. The Demand
Registration rights and related rights of the General Atlantic Stockholders, the
Coinvestor Stockholders or the Apex Stockholders contained in Section 3 hereof
shall be (i) with respect to any Registrable Security that is transferred to an
Affiliate of a General Atlantic Stockholder, a Coinvestor Stockholder or an Apex
Stockholder, automatically transferred to such Affiliate and (ii) with respect
to any Registrable Security that is transferred in all cases to a non-Affiliate,
transferred only with the consent of the Company which consent shall not be
unreasonably withheld, conditioned or delayed. The incidental or "piggy-back"
registration rights of the Designated Holders contained in Sections 3(b) and 4
hereof and the other rights of each of the Designated Holders with respect
thereto shall be, with respect to any Registrable Security, automatically
transferred to any Person who is the transferee of such Registrable Security so
long as such transferee agrees to be bound by this Agreement. All of the
obligations of the Company hereunder shall survive any such transfer. Except as
provided in Section 7, no Person other than the parties hereto and their
successors and permitted assigns is intended to be a beneficiary of this
Agreement.

               (g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

               (h) Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.


                                       22


               (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.

               (j) Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.

               (k) Rules of Construction. Unless the context otherwise requires,
references to sections or subsections refer to sections or subsections of this
Agreement.

               (l) Entire Agreement. This Agreement is intended by the parties
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto
with respect to the subject matter contained herein. There are no restrictions,
promises, representations, warranties or undertakings with respect to the
subject matter contained herein, other than those set forth or referred to
herein. Subject to Section 9(o), upon the Subsequent Closing (as defined in the
Convertible Note Purchase and Exchange Agreement and the Convertible Note
Agreements), this Agreement shall supersede all prior agreements and
understandings among the parties with respect to such subject matter.

               (m) Further Assurances. Each of the parties shall execute such
documents and perform such further acts as may be reasonably required or
desirable to carry out or to perform the provisions of this Agreement.

               (n) Other Agreements. Nothing contained in this Agreement shall
be deemed to be a waiver of, or release from, any obligations any party hereto
may have under, or any restrictions on the transfer of Registrable Securities or
other securities of the Company imposed by, any other agreement including, but
not limited to, the Stock Purchase Agreement, the Convertible Note Purchase and
Exchange Agreement, the Convertible Note Agreements or the Amended and Restated
Stockholders Agreement.

               (o) Effective Date and Termination. Subject to the provisions of
this Section 9(o), this Agreement shall become effective immediately following
the Subsequent Closing. If the Subsequent Closing does not occur and the
obligation to consummate the Conversion and the Exchange and the Conversion has
been terminated pursuant to Article IX of the Convertible Note Purchase and
Exchange Agreement or Article IX of the Convertible Note Agreements, then this
Agreement shall become effective as of the date of such termination; provided,
however, that Registrable Securities shall not include any shares of Common
Stock issued or issuable upon conversion of the Series E Preferred Stock.

              [the remainder of this page intentionally left blank]


                                       23


        IN WITNESS WHEREOF, the undersigned have executed, or have caused to be
executed, this Amended and Restated Registration Rights Agreement on the date
first written above.

                             CRITICAL PATH, INC.



                             By:     /s/ William E. McGlashan
                                    --------------------------------------------
                                    Name: William E. McGlashan
                                    Title: Chairman, Chief Executive Officer



   SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT




                             GENERAL ATLANTIC PARTNERS 74, L.P.

                                    By:     GENERAL ATLANTIC PARTNERS, LLC,
                                            its General Partner

                                    By:      /s/ Steven A. Denning
                                            ------------------------------------
                                            Name: Steven A. Denning
                                            Title: A Managing Member

                             GAP COINVESTMENT PARTNERS II, L.P.

                             By:     /s/ Steven A. Denning
                                    --------------------------------------------
                                    Name: Steven A. Denning
                                    Title: A General Partner

                             GAPSTAR, LLC

                                    By:     GENERAL ATLANTIC PARTNERS, LLC,
                                            its Managing Member

                                    By:      /s/ Steven A. Denning
                                            ------------------------------------
                                            Name: Steven A. Denning
                                            Title: A Managing Member

                             GAPCO GMBH & CO. KG

                                    By:     GAPCO MANAGEMENT GMBH,
                                            its General Partner

                                    By:      /s/ Steven A. Denning
                                            ------------------------------------
                                            Name: Steven A. Denning
                                            Title: A Managing Director


   SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT



                             VECTIS CP HOLDINGS, LLC,
                             a Delaware limited liability company

                             By:    VECTIS GROUP, LLC
                                    its Managing Member

                             By:     /s/ Matthew T. Hobart
                                    --------------------------------------------
                                    Name: Matthew T. Hobart
                                    Title: Managing Director


   SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT



                             CENWELL LIMITED

                             By:     /s/ Ip Tak Chuen, Edmond
                                    --------------------------------------------
                                    Name: Ip Tak Chuen, Edmond
                                    Title: Authorised Person

                             CAMPINA ENTERPRISES LIMITED

                             By:     /s/ Ip Tak Chuen, Edmond
                                    --------------------------------------------
                                    Name: Ip Tak Chuen, Edmond
                                    Title: Director

                             GREAT AFFLUENT LIMITED

                             By:     /s/ Ip Tak Chuen, Edmond
                                    --------------------------------------------
                                    Name: Ip Tak Chuen, Edmond
                                    Title: Director

                             DRAGONFIELD LIMITED

                             By:     /s/ Paul Yee Wan, Ezra
                                    --------------------------------------------
                                    Name: Paul Yee Wan, Ezra
                                    Title: Authorised Person

                             LION COSMOS LIMITED

                             By:     /s/ Paul Yee Wan, Ezra
                                    --------------------------------------------
                                    Name: Paul Yee Wan, Ezra
                                    Title: Director


   SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT



                             PERMAL U.S. OPPORTUNITIES LIMITED

                             By:    Apex Capital, LLC, its Authorized Investment
                                    Advisor

                                    By: /s/ Sanford J. Colen
                                       -----------------------------------------
                                    Name: Sanford J. Colen
                                    Title: Manager and Principal

                             ZAXIS PARTNERS, L.P.

                             By:    Apex Capital, LLC, its General Partner

                                    By: /s/ Sanford J. Colen
                                       -----------------------------------------
                                       Name: Sanford J. Colen
                                       Title: Manager and Principal

                             ZAXIS EQUITY NEUTRAL, L.P.

                             By:    Apex Capital, LLC, its General Partner

                                    By: /s/ Sanford J. Colen
                                       -----------------------------------------
                                       Name: Sanford J. Colen
                                       Title: Manager and Principal

                             ZAXIS OFFSHORE LIMITED

                             By:    Apex Capital, LLC, its Authorized Investment
                                    Advisor

                                    By: /s/ Sanford J. Colen
                                       -----------------------------------------
                                       Name: Sanford J. Colen
                                       Title: Manager and Principal


   SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT



                             ZAXIS INSTITUTIONAL PARTNERS, L.P.

                             By:  Apex Capital, LLC, its General Partner

                                    By: /s/ Sanford J. Colen
                                       -----------------------------------------
                                       Name: Sanford J. Colen
                                       Title: Manager and Principal

                             GUGGENHEIM PORTFOLIO COMPANY XIII

                             By:  Apex Capital, LLC, its Authorized Investment
                                  Advisor


                                    By: /s/ Sanford J. Colen
                                       -----------------------------------------
                                       Name: Sanford J. Colen
                                       Title: Manager and Principal


   SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT



                             PASSPORT MASTER FUND, LP



                             By:     /s/ John Burbank
                                    --------------------------------------------
                                    Name: John Burbank
                                    Title: Managing Partner


   SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT






                             CROSSLINK CROSSOVER FUND IV, L.P.

                             By:    Crossover Fund IV Management, L.L.C.,
                                    its General Partner

                                    By: /s/ Michael J. Stark
                                       -----------------------------------------
                                       Name: Michael J. Stark
                                       Title: Managing Member


   SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT



                             SAGAMORE HILL HUB FUND, LTD.

                             By:    Sagamore Hill Capital Management L.P.,
                                    Investment Manager


                                    By: /s/ Steven H. Bloom
                                       -----------------------------------------
                                       Name: Steven H. Bloom
                                       Title:  President


   SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT



                             CAPITAL VENTURES INTERNATIONAL

                             By:    Heights Capital Management, Inc., an
                                    authorized signatory

                                    By: /s/ Martin Kobinger
                                       -----------------------------------------
                                       Name: Martin Kobinger
                                       Title: Investment Manager


   SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT



                             CRITERION CAPITAL PARTNERS, LTD.

                             By:    Derivatives Portfolio Management, an
                                    authorized signatory

                                    By: /s/ Guy J. Castranova
                                       -----------------------------------------
                                       Name: Guy J. Castranova
                                       Title:  Chief Operating Officer

                             CRITERION CAPITAL PARTNERS, INSTITUTIONAL

                             By:    Criterion Capital Partners, LLC, an
                                    authorized signatory

                                    By: /s/ R. Daniel Beckham
                                       -----------------------------------------
                                       Name: R. Daniel Beckham
                                       Title:  Chief Operating Officer

                             CRITERION CAPITAL PARTNERS, L.P.

                             By:    Criterion Capital Partners, LLC, an
                                    authorized signatory

                                    By: /s/ R. Daniel Beckham
                                       -----------------------------------------
                                       Name: R. Daniel Beckham
                                       Title:  Chief Operating Officer


   SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT

EX-4.45

                                                                  Exhibit 4.45

                            NOTE AMENDMENT AGREEMENT

This NOTE AMENDMENT AGREEMENT (this "Amendment") is made on March 12, 2004 by
and among Critical Path, Inc., a California corporation (the "Company") and the
undersigned holders (each, a "Holder" and collectively, the "Holders") of the
Notes (as hereinafter defined). All capitalized terms not otherwise defined in
this Amendment or by reference to another agreement shall have the respective
meanings assigned thereto in the Notes.

                                    RECITALS:

A. During the years 2002 and 2003, the Holders purchased a 5-3/4% Convertible
Subordinated Note Due April 1, 2005 (collectively, the "Notes") in the
respective face principal amount set forth in the Schedule on the terms and
subject to the Indenture, dated March 31, 2000, between the Company and State
Street Bank and Trust Company of California, N.A.

B. Pursuant to that certain Convertible Note Purchase and Exchange Agreement,
dated November 18, 2003, among the Company, General Atlantic Partners 74, L.P.,
GAP Coinvestment Partners II, L.P., GapStar, LLC, GAP-W, LLC, GAPCO GmbH & Co.
KG, and the Holders, as amended by the Amendment to Convertible Note Purchase
and Exchange Agreement dated January 16, 2004 and the Amendment No. 2 to
Convertible Note Purchase and Exchange Agreement dated March 9, 2004 (the
"Purchase Agreement"), the Holders agreed to exchange the Notes for
approximately 21.9 million shares of Series E Redeemable Convertible Preferred
Stock of the Company (the "Series E Preferred Stock") subject to Stockholder
Approval (as defined in the Purchase Agreement).

C. The Company and the Holders have agreed to amend the terms of the Notes in
the event that the Stockholder Approval (as defined in the Purchase Agreement)
is not obtained on its first attempt and, in any event, by August 15, 2004.

                                    AGREEMENT

NOW, THEREFORE, for adequate mutual consideration given and received, subject to
the fulfillment of the conditions precedent (the "Conditions Precedent") and the
conditions subsequent (the "Conditions Subsequent"), respectively, provided in
Sections 2 and 3 hereof, the Company and the Holders do hereby agree to the
following amendments.

1. Amendment to the Notes. Notwithstanding anything in the Notes to the
contrary, the Notes are hereby amended as follows:

      (a) Each reference to "April 1, 2005" of the Notes is deleted in its
entirety and substituted with "April 1, 2006."


                                       1

      (b) The end of the first sentence of the Notes which reads "and to pay
interest thereon, from March 31, 2000, or from the most recent Interest Payment
Date (as defined below) to which interest has been paid or duly provided for,
semi-annually in arrears on April 1 and October 1 in each year (each, an
"Interest Payment Date"), commencing October 1, 2000, at the rate of 5-3/4% per
annum, until the principal hereof is due, and at a rate of 5-3/4% per annum on
any overdue principal and premium, if any, and, to the extent permitted by law,
on any overdue interest" is deleted in its entirety and the following
substituted therefor:

            "and to pay interest thereon, from March 31, 2000, or from the most
            recent Interest Payment Date (as defined below) to which interest
            has been paid or duly provided for, semi-annually in arrears on
            April 1 and October 1 in each year (each, an "Interest Payment
            Date"), commencing October 1, 2000, at the rate of 5-3/4% per annum
            for the period from March 31, 2000 to March 31, 2005 and at the rate
            of 7-1/2% per annum from April 1, 2005 until the principal hereof is
            due, and at the interest rate then in effect on any overdue
            principal and premium, if any, and, to the extent permitted by law,
            on any overdue interest. Any such interests shall be paid by the
            Company in cash without any deduction or setoff."

2. Conditions Precedent.

      (a) The Company does not obtain the Stockholder Approval (as defined in
the Purchase Agreement) on its first attempt and in any event by August 15,
2004; and

      (b) The Company shall, on the earlier of (i) the date of the special
meeting of the Company's stockholders pursuant to which the Company does not
obtain the Stockholder Approval or (ii) August 15, 2004, pay USD100,000 to the
Holders or their nominees on a pro-rata basis in accordance with the percentage
set out in the third column of the Schedule hereto against their respective
names, and in such manner and to such accounts as designated by the respective
Holders.

3. Conditions Subsequent. The Company shall (a) on June 30, 2005 pay USD700,000
and (b) on September 30, 2005 pay USD700,000, to the Holders or their nominees
on a pro-rata basis in accordance with the percentage set out in the third
column of the Schedule hereto against their respective names, and in such manner
and to such accounts as designated by the respective Holders.

4. Term of Amendment. This Amendment shall become effective upon the fulfillment
of all the Conditions Precedent. The Company shall promptly notify the Holders
in writing upon fulfillment of all the Conditions Precedent.

5. Termination. This Amendment shall become null and void and be of no force or
effect (except as provided in Section 6 hereof) in the event that (i) any of the
Conditions


                                       2

Precedent is not fulfilled by August 15, 2005, (ii) any of the Conditions
Subsequent is not fulfilled by September 30, 2005; or (iii) the Company receives
an opinion in connection with the audit report of its independent accountants
for the fiscal year ended December 31, 2003 which is qualified or contains a
going concern qualification, and the parties hereby acknowledge that this
Amendment shall not prejudice any interests and rights of the parties under the
Notes or otherwise.

6. Option To Purchase Notes Upon Rights Offering. As soon as reasonably
practicable after consummation of the Rights Offering (as defined in the
Purchase Agreement) pursuant to which at least 80% of the rights distributed
thereto are purchased, the Company shall submit to the Company's board of
directors for its consideration, the existing option, pursuant to that certain
Repurchase Option Agreement, dated December 15, 2003, among the Company and the
Holders, to repurchase up to 10,930,000 shares of Series E Preferred Stock held
by the Holders. Notwithstanding the provisions of Sections 4 and 5 hereof, the
obligations under this Section 6 shall become effective on the date hereof and
shall survive the termination of any other provision of this Amendment.

7. Representations and Warranties of the Company.

      The Company hereby represents and warrants to each of the Holders that :-

      (a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
the corporate power and authority to execute, deliver and perform its
obligations under this Amendment.

      (b) The execution, delivery and performance by the Company of this
Amendment and the transactions contemplated hereby have been duly authorized by
all necessary corporate action of the Company; do not contravene the terms of
the Articles of Incorporation or the By-laws; do not violate, conflict with or
result in any breach or contravention of the law applicable to the Company.

      (c) No approval, consent, compliance, exemption, authorization or other
action by, or notice to, or filing with, any governmental authority or any other
person is necessary or required in connection with the execution, delivery or
performance by, or enforcement against, the Company of this Amendment or the
transactions contemplated hereby.

      (d) This Amendment has been duly executed and delivered by the Company,
and this Amendment will constitute the legal, valid and binding obligations of
the Company, enforceable against the Company in accordance with its terms.

8. Representations and Warranties of the Holders. Each of the Holders hereby
represents and warrants, severally and not jointly, to the Company that it is
the beneficial owner of the Notes and that this Amendment has been duly
authorized, validly executed and constitutes legal, valid and binding
obligations of the Holders, enforceable against the Holders in accordance with
its terms.


                                       3

9. Delivery of Annual Business Plan to Holders. Upon the effectiveness of this
Amendment pursuant to Section 4 hereof, subject to the receipt of a
non-disclosure agreement executed by the Holders, the Company shall deliver to
the Holders a budget and business plan (the "Business Plan") for each
forthcoming fiscal year, 30 calendar days prior to the beginning of any
forthcoming fiscal quarter, as such Business Plan may be revised and updated by
the Company. The Holders shall have 15 business days (excluding Saturdays) to
review the Business Plan and to provide comments, suggestions and direction
(collectively, "Input") to the Company with respect to the Business Plan. During
the first 10 business days (excluding Saturday(s)), the Holders may request that
the Company make a presentation of the Business Plan to the Holders and make
management available by telephone during reasonable business hours to discuss
the Business Plan and answer any reasonable questions the Holders may have in
connection with the Business Plan. The Company agrees that it shall review and
consider any Input received from the Holders in connection with any Business
Plan when revising and updating such Business Plan, which shall be subject to
the approval of the board of directors. The obligations of the Company under
this Section 9 shall terminate upon payment of all principal and accrued
interest under the Notes.

10. Indemnity

      The Company agrees to indemnify and keep the Holders fully indemnified
against all costs, expenses, loss and damages in connection with or arising out
of any claim, proceedings, demand and/or actions of any third party regarding
any terms of this Amendment and any payment of the Company to the Holders
hereunder.

11. Additional Actions and Documentation.

      The Holders and the Company hereby agree to cooperate with one another and
take such reasonable actions and execute such additional documents and
instruments as may be reasonably necessary or appropriate to effectuate the
provisions of this Amendment in the event the Company does not obtain the
Stockholder Approval (as defined in the Purchase Agreement).

12. Miscellaneous.

      (a) Except as specifically amended hereby, all the provisions of the Notes
shall remain unamended and in full force and effect.

      (b) This Amendment may be executed in any number of counterparts, each of
which shall be deemed an original hereof, and all such counterparts shall
constitute but one and the same instrument.

      (c) This Amendment shall be governed by and construed and interpreted in
accordance with the laws of the State of New York.

      (d) All notices, demands and other communications provided for or
permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:


                                       4

                  if to the Company:

                  Critical Path, Inc.
                  350 The Embarcadero
                  San Francisco, CA  94105
                  Telecopy:  (415) 541-2500
                  Attention:  Chief Financial Officer

                  if to Campina Enterprises Limited, Great Affluent Limited,
                  Dragonfield Limited or Lion Cosmos Limited

                  c/o 7th Floor
                  Cheung Kong Center
                  2 Queen's Road Central
                  Hong Kong
                  Telecopy:  (852) 2845-2057
                  Attention:  Mr. Edmond Ip

                  if to Cenwell Limited
                  22nd Floor
                  Hutchison House
                  10 Harcourt Road
                  Hong Kong
                  (852) 2128-1778
                  Attention:  Company Secretary

All such notices, demands and other communications shall be deemed to have been
duly given when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial courier service; five (5) Business Days
after being deposited in the mail, postage prepaid, if mailed; and when receipt
is mechanically acknowledged, if telecopied. Any party may by notice given in
accordance with this Section 12(d) designate another address or Person for
receipt of notices hereunder.


                                       5

IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the date
first written above.


                                        CRITICAL PATH, INC.,
                                        a California corporation


                                        By: /s/   Michael J. Zukerman
                                            ------------------------------------
                                            Name:  Michael J. Zukerman
                                            Title: Senior Vice President and
                                                   General Counsel


                                       1

                                        HOLDERS:

                                        CAMPINA ENTERPRISES LIMITED





                                        By: /s/   Ip Tak Chuen, Edmond
                                            ------------------------------------
                                            Name:  Ip Tak Chuen, Edmond
                                            Title: Director


                                        CENWELL LIMITED





                                        By: /s/ Ip Tak Chuen, Edmond
                                            ------------------------------------
                                            Name:  Ip Tak Chuen, Edmond
                                            Title: Authorised Person


                                        GREAT AFFLUENT LIMITED


                                        By: /s/   Ip Tak Chuen, Edmond
                                            ------------------------------------
                                            Name:  Ip Tak Chuen, Edmond
                                            Title: Director


                                       2

                                        DRAGONFIELD LIMITED


                                        By: /s/   Pau Yee Wan, Ezra
                                            ------------------------------------
                                            Name:  Pau Yee Wan, Ezra
                                            Title: Authorised Person


                                        LION COSMOS LIMITED


                                        By: /s/   Pau Yee Wan, Ezra
                                            ------------------------------------
                                            Name:  Pau Yee Wan, Ezra
                                            Title: Director


                                       3

                                    SCHEDULE




          Holder                         Face Principal Amount        Percentage

                                                                
Campina Enterprises Limited                     $5,085,000              15.51%

Cenwell Limited                                 $4,670,000              14.24%

Great Affluent Limited                         $19,375,000              59.08%

Dragonfield Limited                             $1,000,000               3.05%

Lion Cosmos Limited                             $2,665,000               8.13%

Total:                                         $32,795,000                100%

EX-4.46

                                                                    EXHIBIT 4.46

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF
ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 BELOW, MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE
OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF
THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS
EXEMPT FROM REGISTRATION.

                            WARRANT TO PURCHASE STOCK

Company: Critical Path, Inc., a California corporation
Number of Shares: 100,000
Class of Stock: Common Stock
Warrant Price: $2.07 per Share
Issue Date: March 12, 2004
Expiration Date: March 12, 2011

THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for other
good and valuable consideration, SILICON VALLEY BANK ("Holder") is entitled to
purchase the number of fully paid and nonassessable shares of the class of
securities (the "Shares") of the company (the "Company") at the Warrant Price
all as set forth above and as adjusted pursuant to Article 2 of this Warrant,
subject to the provisions and upon the terms and conditions set forth in this
Warrant.

ARTICLE 1.        EXERCISE.

                  1.1.     Method of Exercise. Holder may exercise this Warrant
by delivering a duly executed Notice of Exercise, in substantially the form
attached hereto as Appendix 1, to the principal office of the Company. Unless
Holder is exercising the conversion right set forth in Article 1.2, Holder shall
also deliver to the Company a check, wire transfer (to an account designated by
the Company), or other from of payment acceptable to the Company, for the
aggregate Warrant Price for the Shares being purchased.

                  1.2.     Conversion Right. In lieu of exercising this Warrant
as specified in Article 1.1, Holder may from time to time convert this Warrant,
in whole or in part, into a number of Shares determined by dividing (i) the
aggregate fair market value of the Shares or other securities otherwise issuable
upon exercise of this Warrant minus the aggregate Warrant Price of such Shares
by (ii) the fair market value of one Share. The fair market value of the Shares
shall be determined pursuant to Article 1.3.

                  1.3.     Fair Market Value. If the Company's common stock is
traded in a public market and the shares are common stock, the fair market value
of each Share shall be the closing price of a Share reported for the business
day immediately before Holder delivers its Notice of Exercise to the Company (or
in the instance where the Warrant is exercised immediately prior to the
effectiveness of the Company's initial public offering, the "price to public"
per share price specified in the final prospectus relating to such offering). If
the Company's common stock is traded in a public market and the Shares are
preferred stock, the fair market value of a Share shall be the closing price of
a share of the Company's common stock reported for the business day immediately
before Holder delivers its Notice of Exercise to the Company (or, in the
instance where the Warrant is exercised immediately prior to the effectiveness
of the Company's initial public offering, the initial "price to public" per
share price specified in the final prospectus relating to such offering), in
both cases, multiplied by the number of shares of the Company's common stock
into which a Share is convertible. If the Company's common stock is not traded
in a public market, the Board of Directors of the Company shall determine fair
market value in its reasonable good faith judgment.



                  1.4.     Delivery of Certificate and New Warrant. Promptly
after Holder exercises or converts this Warrant and, if applicable, the Company
receives payment of the aggregate Warrant Price, the Company shall deliver to
Holder certificates for the Shares acquired and, if this Warrant has not been
fully exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.

                  1.5.     Replacement of Warrants. On receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of loss, theft or destruction, on
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company or, in the case of mutilation, surrender and cancellation of this
Warrant, the Company shall execute and deliver to Holder, in lieu of this
Warrant, a new warrant of like tenor.

                  1.6.     Treatment of Warrant Upon Acquisition of Company.

                           1.6.1    "Acquisition". For the purpose of this
Warrant, "Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.

                           1.6.2    Treatment of Warrant at Acquisition.

                           (a)      Upon the written request of the Company,
Holder agrees that, in the event of an Acquisition that is not an asset sale and
in which the sole consideration is cash and the per-share value of the Company's
common stock at the time of such sale is at least ten times the Warrant Price,
either (i) Holder shall exercise its conversion or purchase right under this
Warrant and such exercise will be deemed effective immediately prior to the
consummation of such Acquisition or (ii) if Holder elects not to exercise the
Warrant, this Warrant will expire upon the consummation of such Acquisition. The
Company shall provide Holder with written notice of its request relating to the
foregoing (together with such reasonable information as Holder may request in
connection with such contemplated Acquisition giving rise to such notice), which
is to be delivered to Holder not less than thirty (30) days prior to the closing
of the proposed Acquisition.

                           (b)      Upon the written request of the Company,
Holder agrees that, in the event of an Acquisition that is an "arms length" sale
of all or substantially all of the Company's assets (and only its assets) to a
third party that is not an Affiliate (as defined below) of the Company (a "True
Asset Sale"), either (i) Holder may exercise its conversion or purchase right
under this Warrant and such exercise will be deemed effective immediately prior
to the consummation of such Acquisition or (ii) if Holder elects not to exercise
the Warrant, this Warrant will continue until the Expiration Date if the Company
continues as a going concern following the closing of any such True Asset Sale.
The Company shall provide Holder with written notice of its request relating to
the foregoing (together with such reasonable information as Holder may request
in connection with such contemplated Acquisition giving rise to such notice),
which is to be delivered to Holder not less than thirty (30) days prior to the
closing of the proposed Acquisition.

                           (c)      Upon the closing of any Acquisition other
than those particularly described in subsections (a) and (b) above, the
successor entity shall assume the obligations of this Warrant, and this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price and/or number of Shares
shall be adjusted accordingly.

As used herein "Affiliate" shall mean any person or entity that owns or controls
directly or indirectly ten (10) percent or more of the stock of Company, any
person or entity that controls or is controlled by or is under common control
with such persons or entities, and each of such person's or entity's officers,
directors, joint venturers or partners, as applicable.

                                       2


ARTICLE 2.        ADJUSTMENTS TO THE SHARES.

                  2.1.     Stock Dividends, Splits, Etc. If the Company declares
or pays a dividend on the Shares payable in its common stock or other
securities, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date on which the dividend occurred. If the Company subdivides the
Shares by reclassification or otherwise into a greater number of shares or takes
any other action which increase the amount of stock into which the Shares are
convertible, the number of shares purchasable hereunder shall be proportionately
increased and the Warrant Price shall be proportionately decreased. If the
outstanding shares are combined or consolidated, by reclassification or
otherwise, into a lesser number of shares, the Warrant Price shall be
proportionately increased and the number of Shares shall be proportionately
decreased.

                  2.2.     Reclassification, Exchange, Combinations or
Substitution. Upon any reclassification, exchange, combination, substitution or
other event that results in a change of the number and/or class of the
securities issuable upon exercise or conversion of this Warrant, Holder shall be
entitled to receive, upon exercise or conversion of this Warrant, the number and
kind of securities and property that Holder would have received for the Shares
if this Warrant had been exercised immediately before such reclassification,
exchange, combination, substitution or other event. Such an event shall include
any automatic conversion of the outstanding or issuable securities of the
Company of the same class or series as the Shares to common stock pursuant to
the terms of the Company's Articles of Incorporation upon the closing of a
registered public offering of the Company's common stock. The Company or its
successor shall promptly issue to Holder an amendment to this Warrant setting
forth the number and kind of such new securities or other property issuable upon
exercise or conversion of this Warrant as a result of such reclassification,
exchange, combination, substitution or other event that results in a change of
the number and/or class of securities issuable upon exercise or conversion of
this Warrant. The amendment to this Warrant shall provide for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Article 2 including, without limitation, adjustments to the Warrant
Price and to the number of securities or property issuable upon exercise of the
new Warrant. The provisions of this Article 2.2 shall similarly apply to
successive reclassifications, exchanges, substitutions, or other events.

                  2.3.     Adjustments for Diluting Issuances. The Warrant Price
and the number of Shares issuable upon exercise of this Warrant or, if the
Shares are Preferred Stock, the number of shares of common stock issuable upon
conversion of the Shares, shall be subject to adjustment, from time to time in
the manner set forth in the Company's Articles or Certificate of Incorporation
as if the Shares were issued and outstanding on and as of the date of any such
required adjustment. The provisions set forth for the Shares in the Company's
Articles of Incorporation relating to the above in effect as of the Issue Date
may not be amended, modified or waived without the prior written consent of
Holder unless such amendment, modification or waiver affects the rights
associated with the Shares in the same manner as such amendment, modification or
waiver affects the rights associated with all other shares of the same series
and class as the Shares granted to the Holder.

                  2.4.     No Impairment. The Company shall not, by amendment of
its Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Article 2 and in taking all such action as may be necessary or appropriate
to protect Holder's rights under this Article against impairment.

                  2.5.     Fractional Shares. No fractional Shares shall be
issuable upon exercise or conversion of the Warrant, and the number of Shares to
be issued shall be rounded down to the nearest whole Share. If a fractional
share interest arises upon any exercise or conversion of the Warrant, the
Company shall eliminate such fractional share interest by paying Holder the
amount computed by multiplying the fractional interest by the fair market value
of a full Share.

                                       3


                  2.6.     Certificate as to Adjustments. Upon each adjustment
of the Warrant Price, the Company shall promptly notify Holder in writing and,
at the Company's expense, promptly compute such adjustment and furnish Holder
with a certificate of its Chief Financial Officer setting forth such adjustment
and the facts upon which such adjustment is based. The Company shall, upon
written request, furnish Holder with a certificate setting forth the Warrant
Price in effect upon the date thereof and the series of adjustments leading to
such Warrant Price.

ARTICLE 3.        REPRESENTATIONS AND COVENANTS OF THE COMPANY.

                  3.1.     Representations and Warranties. The Company
represents and warrants to the Holder as follows:

                           (a)      The initial Warrant Price referenced on the
first page of this Warrant is not greater than (i) the price per share at which
the Shares were last issued in an arms-length transaction in which the Shares
were sold and (ii) the fair market value of the Shares as of the date of this
Warrant.

                           (b)      All Shares which may be issued upon the
exercise of the purchase right represented by this Warrant, and all securities,
if any, issuable upon conversion of the Shares, shall upon issuance be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws.

                           (c)      The Capitalization Table previously provided
to Holder remains true and complete as of the Issue Date.

                  3.2.     Notice of Certain Events. If the Company proposes at
any time (i) to declare any dividend or distribution upon any of its stock,
whether in cash, property, stock or other securities and whether or not a
regular cash dividend, (ii) to offer for sale additional shares of any class or
series of the Company's stock, (iii) to effect any reclassification or
recapitalization of any of its stock, (iv) to merge or consolidate with or into
any other corporation, or sell, lease, license or convey all or substantially
all of its assets, or liquidate, dissolve or wind up, or (v) to offer holders of
registration rights the opportunity to participate in an underwritten public
offering of the company's securities for cash, then, in connection with each
such event, the Company shall give Holder: (1) at least 30 days prior written
notice of the date on which a record will be taken for such dividend,
distribution or subscription rights (and specifying the date on which the
holders of common stock will be entitled thereto) or for determining rights to
vote (if any) in respect of the matters referred to in (i) and (ii) above; (2)
in the case of the matters referred to in (iii) and (iv) above at least 30 days
prior written notice of the date when the same will take place (and specifying
the date on which the holders of common stock will be entitled to exchange their
common stock for securities or other property deliverable upon the occurrence of
such event); and (3) in the case of the matter referred to in (v) above, the
same notice as is given to the holders of such registration rights.

                  3.3.     Registration Under Securities Act of 1933, as amended
(the "Act"). The Company agrees that the Shares (or, if the Shares are
convertible into common stock of the Company, such common stock) shall have
certain incidental, or "Piggyback," and Form S-3 registration rights pursuant to
and as set forth in the Company's Investor Rights Agreement or similar
agreement. The provisions set forth in the Company's Investors' Right Agreement
or similar agreement relating to the above in effect as of the Issue Date may
not be amended, modified or waived without the prior written consent of Holder
unless such amendment, modification or waiver affects the rights associated with
the Shares in the same manner as such amendment, modification or waiver affects
the rights associated with all other shares of the same series and class as the
Shares granted to the Holder.

                  3.4.     No Shareholder Rights. Except as provided in this
Warrant, the Holder will not have any rights as a shareholder of the Company
until the exercise of this Warrant.

                                       4


ARTICLE 4.        REPRESENTATIONS, WARRANTIES OF THE HOLDER. THE HOLDER
REPRESENTS AND WARRANTS TO THE COMPANY AS FOLLOWS:

                  4.1.     Purchase for Own Account. This Warrant and the
securities to be acquired upon exercise of this Warrant by the Holder will be
acquired for investment for the Holder's account, not as a nominee or agent, and
not with a view to the public resale or distribution within the meaning of the
Act. Holder also represents that the Holder has not been formed for the specific
purpose of acquiring this Warrant or the Shares.

                  4.2.     Disclosure of Information. The Holder has received or
has had full access to all the information it considers necessary or appropriate
to make an informed investment decision with respect to the acquisition of this
Warrant and its underlying securities. The Holder further has had an opportunity
to ask questions and receive answers from the Company regarding the terms and
conditions of the offering of this Warrant and its underlying securities and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to the Holder or to which the
Holder has access.

                  4.3.     Investment Experience. The Holder understands that
the purchase of this Warrant and its underlying securities involves substantial
risk. The Holder has experience as an investor in securities of companies in the
development stage and acknowledges that the Holder can bear the economic risk of
such Holder's investment in this Warrant and its underlying securities and has
such knowledge and experience in financial or business matters that the Holder
is capable of evaluating the merits and risks of its investment in this Warrant
and its underlying securities and/or has a preexisting personal or business
relationship with the Company and certain of its officers, directors or
controlling persons of a nature and duration that enables the Holder to be aware
of the character, business acumen and financial circumstances of such persons.

                  4.4.     Accredited Investor Status. The Holder is an
"accredited investor" within the meaning of Regulation D promulgated under the
Act.

                  4.5.     No Registration. The Holder understands that this
Warrant and the Shares issuable upon exercise or conversion hereof have not been
registered under the Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of the Holder's
investment intent as expressed herein. The Holder understands that this Warrant
and the Shares issued upon any exercise or conversion hereof must be held
indefinitely unless subsequently registered under the Act and qualified under
applicable state securities laws, or unless exemption from such registration and
qualification are otherwise available.

ARTICLE 5.        MISCELLANEOUS.

                  5.1.     Term. This Warrant is exercisable in whole or in part
at any time and from time to time on or before the Expiration Date (except as
otherwise expressly provided in Sections 1.6 and 1.7 hereof).

                  5.2.     Legends. This Warrant and the Shares (and the
securities issuable, directly or indirectly, upon conversion of the Shares, if
any) shall be imprinted with a legend in substantially the following form:

                  THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE
                  NOT BEEN REGISTERED UNDER THE ACT, OR THE SECURITIES
                  LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE
                  PROVISIONS OF ARTICLE 5 BELOW, MAY NOT BE OFFERED,
                  SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
                  HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID
                  ACT AND APPLICABLE STATE SECURITIES LAW OR, IN THE
                  OPINION OF

                                  5


                  LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO
                  THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
                  TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM
                  REGISTRATION.

                  5.3.     Compliance with Securities Laws on Transfer. This
Warrant and the Shares issuable upon exercise of this Warrant (and the
securities issuable, directly or indirectly, upon conversion of the
Shares, if any) may not be transferred or assigned in whole or in part
without compliance with applicable federal and state securities laws
by the transferor and the transferee (including, without limitation,
the delivery of investment representation letters and legal opinions
reasonably satisfactory to the Company, as reasonably requested by the
Company). The Company shall not require Holder to provide an opinion
of counsel if the transfer is to Silicon Valley Bancshares (Holder's
parent company) or any other affiliate of Holder. Additionally, the
Company shall also not require an opinion of counsel if there is no
material question as to the availability of current information as
referenced in Rule 144(c), Holder represents that it has complied with
Rule 144(d) and (e) in reasonable detail, the selling broker
represents that it has complied with Rule 144(f), and the Company is
provided with a copy of Holder's notice of proposed sale.

                  5.4.     Transfer Procedure. Upon receipt by Holder of the
executed Warrant, Holder will transfer all of this Warrant to Silicon
Valley Bancshares, Holder's parent company, by execution of an
Assignment substantially in the form of Appendix 2. Subject to the
provisions of Article 5.3 and upon providing Company with written
notice, Silicon Valley Bancshares and any subsequent Holder may
transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the Shares issuable directly or
indirectly, upon conversion of the Shares, if any) to any transferee,
provided, however, in connection with any such transfer, Silicon
Valley Bancshares or any subsequent Holder will give the Company
notice of the portion of the Warrant being transferred with the name,
address and taxpayer identification number of the transferee and
Holder will surrender this Warrant to the Company for reissuance to
the transferee(s) (and Holder if applicable). The Company may refuse
to transfer this Warrant or the Shares to any person who directly
competes with the Company, unless, in either case, the stock of the
Company is publicly traded.

                  5.5.     Notices. All notices and other communications from
the Company to the Holder, or vice versa, shall be deemed delivered
and effective when given personally or mailed by first-class
registered or certified mail, postage prepaid, at such address as may
have been furnished to the Company or the Holder, as the case may (or
on the first business day after transmission by facsimile) be, in
writing by the Company or such holder from time to time. Effective
upon receipt of the fully executed Warrant and the initial transfer
described in Article 5.4 above, all notices to the Holder shall be
addressed as follows until the Company receives notice of a change of
address in connection with a transfer or otherwise:

                           Silicon Valley Bancshares
                           Attn: Treasury Department
                           3003 Tasman Drive, HA 200
                           Santa Clara, CA 95054
                           Telephone: 408-654-7400
                           Facsimile: 408-496-2405

         Notice to the Company shall be addressed as follows until the Holder
receives notice of a change in address:

                           _________________________
                           Attn:____________________
                           _________________________
                           _________________________
                           Telephone:  (___) _______________
                           Facsimile:  (___) _______________

                                  6


                  5.6.     Waiver. This Warrant and any term hereof
may be changed, waived, discharged or terminated only by an instrument
in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought.

                  5.7.     Attorneys' Fees. In the event of any
dispute between the parties concerning the terms and provisions of
this Warrant, the party prevailing in such dispute shall be entitled
to collect from the other party all costs incurred in such dispute,
including reasonable attorneys' fees.

                  5.8.     Automatic Conversion upon Expiration. In
the event that upon the Expiration Date the fair market value of one
Share (or other security issuable upon the exercise hereof) as
determined in accordance with Section 1.3 above is greater than the
Exercise Price in effect on such date, then this Warrant shall
automatically be deemed on and as of such date to be converted
pursuant to Section 1.2 above as to all Shares (or such other
securities) for which it shall not previously have been exercised or
converted, and the Company shall promptly deliver a certificate
representing the Shares (or such other securities) issued upon such
conversion to the Holder.

                  5.9.     Counterparts. This Warrant may be executed
in counterparts, all of which together shall constitute one and the
same agreement.

                                  7


                  5.10.    Governing Law. This Warrant shall be
governed by and construed in accordance with the laws of the State of
California, without giving effect to its principles regarding
conflicts of law.

                                    "HOLDER"

                                    Silicon Valley Bank

                                    By: /s/ Brian Harrison
                                       -------------------------------------
                                    Name:  Brian Harrison
                                           ----------------------------------
                                           (Print)
                                    Title: Vice President

                                    "COMPANY"
                                    Critical Path, Inc.
                                    a California corporation

                                    By: /s/ William E. McGlashan, Jr.
                                       -------------------------------------

                                    Name: /s/ William E. McGlashan, Jr.
                                         -----------------------------------
                                           (Print)
                                    Title: Chairman of the Board,
                                           President or Vice President

                                    By: /s/ James A. Clark
                                       -------------------------------------

                                    Name:  James A. Clark
                                           ----------------------------------
                                           (Print)
                                    Title: Chief Financial Officer,
                                           Secretary, Assistant Treasurer
                                           or Assistant Secretary

                                  8


                                   APPENDIX 1

                               NOTICE OF EXERCISE

         1.       Holder elects to purchase ___________ shares of the
Common/Series ______ Preferred [strike one] Stock of _________________
pursuant to the terms of the attached Warrant, and tenders payment of
the purchase price of the shares in full.

                  [or]

         1.       Holder elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This
conversion is exercised for _____________________ of the Shares
covered by the Warrant.

         [Strike paragraph that does not apply.]

         2.       Please issue a certificate or certificates
representing the shares in the name specified below:

                           ___________________________________________
                                    Holders Name

                           ___________________________________________

                           ___________________________________________
                                    (Address)

         3.       By its execution below and for the benefit of the
Company, Holder hereby restates each of the representations and
warranties in Article 4 of the Warrant as the date hereof.

                                    HOLDER:

                                    By:_____________________________________

                                    Name:___________________________________

                                    Title:__________________________________

                                    (Date):_________________________________

                                  9


                              APPENDIX 2

                              ASSIGNMENT

For value received, Silicon Valley Bank hereby sells, assigns and
transfers unto

                           Name:      Silicon Valley Bancshares
                           Address:   3003 Tasman Drive (HA-200)
                                      Santa Clara, CA 95054

                           Tax ID:    91-1962278

that certain Warrant to Purchase Stock issued by Critical Path, Inc.
(the "Company"), on March 11, 2004 (the "Warrant") together with all
rights, title and interest therein.

                                    SILICON VALLEY BANK

                                    By:_____________________________________

                                    Name:___________________________________

                                    Title:__________________________________

Date: [insert Issue Date] ________________

By its execution below, and for the benefit of the Company, Silicon
Valley Bancshares makes each of the representations and warranties set
forth in Article 4 of the Warrant as of the date hereof.

                                    SILICON VALLEY BANCSHARES

                                    By:_____________________________________

                                    Name:___________________________________

                                    Title:__________________________________

                                  10

EX-10.42

                                                                   EXHIBIT 10.42

                        AMENDMENT TO EMPLOYMENT AGREEMENT
                              AND RELEASE OF CLAIMS

         This Amendment to Employment Agreement and Release of Claims
("Agreement") is made by and between CRITICAL PATH, INC. (the "Company"), and
Bernard Harguindeguy ("Employee") (collectively referred to herein as the
"Parties") and dated as of May 16, 2003.

         WHEREAS, Employee has been employed by the Company pursuant to an
Employment Agreement by and between the Parties dated as of January 14, 2002
("Employment Agreement");

         WHEREAS, Employee and Company hereby agree to terminate certain terms
and conditions of such Employment Agreement, and amend and replace in its
entirety that certain Employment Agreement; and

         WHEREAS, Employee and Company hereby agree to the terms and conditions
of a modified employment relationship going forward;

         NOW THEREFORE, in consideration of the mutual promises made herein, the
Company and Employee hereby agree as follows:

1.       Modification of Employment. Employee's full-time employment as
Executive Vice President and Chief Marketing Officer, including all payment of
regular base salary and eligibility for bonuses, will terminate as of May 16,
2003 ("Effective Date"), and the Employment Agreement shall thereafter be null
and void and have no further force and effect, except as specifically
contemplated and described herein. As of the Effective Date, Employee's services
to the Company shall continue as General Manager, Identity Management, reporting
to Bill McGlashan. As of the Effective Date, Employee shall provide services in
this capacity and shall be compensated in accordance with a new Compensation
Plan ("Plan"), as mutually identified, agreed and determined by the Parties, no
later than June 20, 2003. Such Plan shall be appended to this Agreement in the
form of EXHIBIT A hereto, as soon as such Plan is finalized and shall thereafter
be incorporated by reference and form a part of this Agreement. The failure for
any reason to finalize the plan shall not affect any provision of this Agreement
or the validity of any release given hereunder.. Employee shall continue to be
covered by all employee health and welfare benefit plans pursuant to the terms
and conditions of the Employment Agreement other than Paid Time Off which ceased
accruing as of January 2003. Employee's right to continued indemnification under
the Employment Agreement shall terminate as of the Effective Date.

2.       Consideration. Upon the Effective Date, the Company agrees to pay
Employee three-hundred thousand dollars and zero cents ($300,000.00), which
equals twelve (12) month's salary at the Employee's then current base salary and
will be paid less all the



applicable withholdings, in accordance with the Company's standard payroll
practices (the "Employment Agreement Amount").

3.       Vesting of Stock Options. As of the Effective Date, you shall continue
to vest in all previously granted options to purchase shares of Company common
stock in accordance with the applicable vesting schedules found in each Stock
Option Agreement and as provided in the Employment Agreement. Nothing in this
Agreement is intended to otherwise supersede or modify the terms and conditions
of the Company's Stock Option Plans or any agreements issued in connection with
those plans including any provision contained in any agreement (including the
Employment Agreement) for accelerated vesting and/or any change of control
arrangement.

4.       Benefits. Employee shall continue to receive all applicable health and
welfare benefit plans as previously provided. Nothing in this Agreement is
intended to supercede or modify the terms and conditions of the Company's health
benefits plans. The other benefits provided for under the Employment Agreement
which shall continue under this Agreement shall include reimbursement for
amounts used for the lease of an automobile, parking and commute fuel expenses.

5.       Payment of Salary. On the Effective Date, Company shall pay Employee
for final earned but unpaid salary through the Effective Date. Company will
continue to reimburse Employee for approved business related expenses incurred
in accordance with the current Company travel and expense policies applicable to
Employee and properly submitted. In addition, Company shall pay Employee any
salary, variable compensation or other amounts as agreed in the Plan. However,
if the Plan is not agreed upon, Employee shall have no claim for salary, wages
or any other amounts due other than as expressly set forth in this Agreement.

6.       Release of Claims.

         a.       Civil Code Section 1542. In connection with all releases given
under this Agreement ("Release"), Employee expressly waives any rights or
benefits under Section 1542 of the California Civil Code, or any other
equivalent statute. California Civil Code Section 1542 (or similar state
statutes), provides as follows:

                  A GENERAL RELEASE DOES NOT EXTEND TO
                  CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
                  SUSPECT TO EXIST IN HIS FAVOR AT THE TIME
                  OF EXECUTING THE RELEASE, WHICH IF KNOWN
                  BY HIM MUST HAVE MATERIALLY AFFECTED HIS
                  SETTLEMENT WITH THE DEBTOR.

Without limiting the generality of the foregoing, Employee fully understands
that if any fact, with respect to any matter, covered by this Release is found
hereafter to be other



than or different from the facts now believed by him to be true, he expressly
agrees that this Release shall be and remain effective, notwithstanding such
difference in the facts.

         b.       Release. Employee agrees that the Employment Agreement Amount
represents adequate consideration for the purpose of this Release and such
Employment Agreement Amount constitutes settlement in full of all outstanding
obligations owed to Employee by the Company under the Employment Agreement.
Except for the promises or obligations made or undertaken in this Agreement and
in exchange for the payments and other consideration provided hereunder,
Employee, on behalf of himself, and his respective heirs, family members,
executors, and assigns, hereby fully and forever releases, acquits, and
discharges the Company and its respective officers, directors, employees,
investors, shareholders, administrators, affiliates, divisions, subsidiaries,
predecessor and successor corporations, and assigns, from, and agrees not to sue
concerning, any claim, duty, obligation or cause of action relating to any
matters of any kind, whether presently known or unknown, suspected or
unsuspected, that he or she may possess arising from any omissions, acts or
facts that have occurred up until the Effective Date, including, without
limitation, any and all claims relating to or arising from Employee's employment
relationship with the Company and the termination or modification of that
relationship; any and all claims relating to, or arising from, Employee's right
to purchase, or actual purchase of shares of stock of the Company, including,
without limitation, any claims for rights of rescission, personal tax
liabilities, fraud, misrepresentation, breach of fiduciary duty, breach of duty
under applicable state corporate law, and securities fraud under any state or
federal law; any and all claims for wrongful discharge of employment, wages or
other compensation, including but not limited to bonuses and commissions; breach
of contract, both express and implied; breach of a covenant of good faith and
fair dealing, both express and implied; negligent or intentional infliction of
emotional distress; negligent or intentional misrepresentation; negligent or
intentional interference with contract or prospective economic advantage;
defamation; negligence; personal injury; discrimination, disability
discrimination; violation of public policy; retaliation; harassment; any tort
claims, including wrongful discharge, assault; battery; harassment; invasion of
privacy; false imprisonment; and conversion; any and all claims for violation of
any federal, state or municipal statute, including, but not limited to, Title
VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age
Discrimination in Employment Act of 1967, the Americans with Disabilities Act of
1990, the Fair Labor Standards Act, the California Fair Employment and Housing
Act, and Labor Code section 201, et seq., and all as may be amended from time to
time; any and all claims arising out of any other laws and regulations relating
to employment or employment discrimination; and any and all claims for
attorneys' fees and costs. This release extends to any and all administrative or
criminal charges whether before the Division of Labor Standards, Equal
Employment Opportunity Commission or the Department of Fair Employment and
Housing or any other court or agency to which Employee currently is or shall
later become a party. Should Employee ever become a party to any such
proceeding, he shall immediately ask any such administrative agency or court to
withdraw any such charge as to him.



         The parties acknowledge and agree that all potential or actual disputes
between them with respect to the Employment Agreement have been fully and
finally settled to their complete satisfaction, leaving no disputes,
controversies, claims or grievances of any kind between them. The parties
therefore covenant and agree that, except as may be compelled by legal process,
they will not raise or in any way pursue any claims which are being released and
discharged in this Agreement in any forum of any kind, including, without
limitation, the federal, state or local courts, or federal, state or local
agencies or offices of any kind, be they administrative, regulatory, judicial,
quasi-judicial, or otherwise. The parties further agree that, except as
compelled by legal process, they will not aid, assist, abet or in any way
encourage any third party to in any way pursue any claims which are being
released and discharged in this Agreement. Except pursuant to formal process
with appropriate prior notice to Company's counsel, the parties further agree
that they will not provide documents, information or testimony to any
prospective or actual claimant against one another. The Parties represent and
warrant that they have not, to date, discussed with any third party the
possibility of that third party pursuing claims against the other party; that
they have not encouraged any such pursuit of claims. If either Party at any time
commences or in any manner seeks relief against any of the other Party through
any suit or other legal proceeding, then that Party shall pay in addition to any
other damages caused thereby, all attorneys' fees and costs incurred by the
other Party in defending or otherwise responding to said suit or proceeding.

         Employee agrees that the release set forth in this section shall be and
remain in effect in all respects as a complete general release as to the matters
released. Employee understands and agrees that this Release extinguishes all
claims by the Employee as of the Effective Date whether known or unknown and
foreseen or unforeseen.

         c.       Acknowledgment of Waiver of Claims under ADEA. To the extent
applicable, Employee further acknowledges that he is waiving and releasing any
rights he may have under the Age Discrimination in Employment Act of 1967
("ADEA") and that this waiver and release is knowing and voluntary. Employee and
the Company agree that this waiver and release does not apply to any rights or
claims that may arise under ADEA after the Effective Date. Employee acknowledges
that the consideration given for this waiver and release Agreement is in
addition to anything of value to which Employee was already entitled. To the
extent the ADEA is applicable to Employee, Employee further acknowledges that he
or she has been advised by this writing, as required by the ADEA, that (a) he or
she has the right to and should consult with an attorney prior to executing this
Agreement (although he or she may execute this Agreement voluntarily earlier);
(b) he or she has at least forty-five (45) days within which to consider this
Agreement; (c) Employee has been advised that a roster of all individuals
affected by the current reduction in force plan of the Company is immediately
available to Employee upon request from the Human Resources department; (d) he
or she has seven (7) days following the execution of this Agreement to revoke
the Agreement by sending a written notice to the Company to the attention of
General Counsel, Critical Path, Inc., 350 The Embarcadero, 6th Floor, San
Francisco, California 94105-1204; and (e) this Agreement shall not be effective
until the revocation period has expired, which shall be the eighth day after it
is signed by Employee and Company.



7.       Confidentiality. Employee understands and agrees that because of his
former senior executive level position with the Company, comments by him
concerning the Company, its plans, prospects, its personnel or any other aspect
of the Company's past or future performance could be understood as being based
on substantial information not available to the public. Accordingly, Employee
agrees to continue to remain in compliance with all terms and conditions of all
Confidentiality Agreements (as defined in Section 8) executed by Employee and
not to otherwise comment on such aspects of the Company after the Effective
Date. In addition, the terms of this Agreement are highly confidential and the
Parties hereto each agree to use their best efforts to maintain in confidence
the existence of this Agreement, the contents and terms of this Agreement, and
the consideration for this Agreement (hereinafter collectively referred to as
"Settlement Information"). Each Party hereto agrees to take every reasonable
precaution to prevent disclosure of any Settlement Information to third parties,
and each agrees that there will be no publicity, directly or indirectly,
concerning any Settlement Information, except where such disclosure is required
by law and as required the by the regulations promulgated under the Securities
and Exchange Act of 1934, as amended. The Parties hereto agree to take every
precaution to disclose Settlement Information only to those employees, officers,
directors, attorneys, accountants, governmental entities, and family members who
have a reasonable need to know of such Settlement Information.

8.       Proprietary Information and Inventions Agreement and/or Non-Disclosure
Agreement. Employee acknowledges and is reminded of, and affirms his agreement
to abide by, the terms and conditions of a previously executed Proprietary
Information and Inventions Agreement and/or a Non-Disclosure Agreement (together
the "Confidentiality Agreement") between the Parties. Employee further agrees
and understands that he may not disclose to any person or entity any
confidential information in violation of the Confidentiality Agreement, whether
directly or indirectly, or use or misuse such information in any way. A copy of
this Confidentiality Agreement shall be made available to Employee upon request.

9.       Insider Trading. Employee acknowledges that Employee may continue to be
considered an "Affiliate" of the Company as such meaning is defined under the
U.S. Securities and Exchange Act of 1934, as amended, for a certain period after
the Effective Date and that such Employee's trading activities and conduct will
continue to be governed by the terms of the Company Insider Trading Policy.

10.      Intentionally Deleted.

11.      Arbitration. The Parties agree that any and all future disputes or
claims arising out of the terms of this Agreement, their interpretation, its
breach, and any of the matters herein released, shall be subject to binding
arbitration in San Francisco County, California, before the American Arbitration
Association under its Employment Dispute Resolution Rules. In addition to
arbitration, the Company is entitled to enforce the terms of this Agreement by
seeking injunctive relief in any court of competent jurisdiction. The Parties
agree that the prevailing party in any arbitration shall be entitled to
injunctive


relief in any court of competent jurisdiction to enforce the arbitration award.
The Company shall bear the costs of the arbitration except that Employee may be
required to pay costs to the same extent as in a civil action filed in the State
of California, unless the arbitrator orders otherwise. Parties agree that the
prevailing party in any claim for injunctive relief shall pay each of their own
attorney's fees and costs.

12.      Non-Disparagement. Each party agrees to refrain from any defamation,
libel or slander of the other, or tortious interference with the contracts and
relationships of the other. Employee agrees that he or she will refrain from
disparaging the Company's business and any and all of its past or present
officers, director or other employees.

13.      Authority. The Company represents and warrants that the undersigned has
the authority to act on behalf of the Company and to bind the Company and all
who may claim through it to the terms and conditions of this Agreement. Employee
represents and warrants that he or she has the capacity to act on his or her own
behalf and on behalf of all who might claim through him or her to bind them to
the terms and conditions of this Agreement. Each Party warrants and represents
that there are no liens, or claims of lien, or assignments in law or equity or
otherwise of or against any of the claims or causes of action released herein.

14.      No Representations. Neither party has relied upon any representations
or statements made by the other party hereto which are not specifically set
forth in this Agreement.

15.      Severability. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision. Such provision shall be modified by the court so as to be rendered
enforceable insofar as possible consistent with the intent of the Parties to all
remaining portions of the Agreement.

16.      Entire Agreement. This Agreement represents the entire agreement and
understanding between the Company and Employee concerning Employee's employment
with and separation from the Company, and supersedes and replaces any and all
prior agreements and understandings, whether oral or written, concerning
Employee's relationship with the Company and his or her compensation by the
Company, except for (i) the Confidentiality Agreement (as defined herein), (ii)
any prior agreement or understanding to indemnify Employee as against third
party claims which may arise in connection with Employee's service as an
executive officer, including but not limited to employee's Indemnification
Agreement and (iii) employee's stock option agreements and the provisions of any
other agreement related to such stock option agreements. Parole evidence shall
be inadmissible to show agreement by and between the Parties as to any term or
condition contrary to or in addition to the terms and conditions hereof,
including without limitation any intermediate drafts of this Agreement. Any and
all such prior agreements and understandings with respect to the subject matter
herein, including agreements for compensation, including bonuses and
commissions, are also hereby terminated and of no further force and effect, and
Employee hereby expressly disclaims



any and all rights in connection with any previous agreements, if any, whether
oral or written.

17.      No Oral Modification. This Agreement may only be amended in writing
signed by Employee and the Chief Executive Officer or Chief Financial Officer of
the Company.

18.      Governing Law. This Agreement shall be governed by the laws of the
State of California. Both Parties submit to jurisdiction in California and
further agree that any cause of action arising under this Agreement shall be
brought before an arbitrator in a court in San Francisco County, California.

19.      Counterparts. This Agreement may be executed in counterparts, and each
counterpart shall have the same force and effect as an original and shall
constitute an effective, binding agreement on the part of each of the
undersigned.

20.      Voluntary Execution of Agreement. This Agreement is executed
voluntarily and without any duress or undue influence on the part or behalf of
the Parties hereto, with the full intent of releasing all claims. Employee
acknowledges that: (a) he or she has read this Agreement; (b) has been
represented in the preparation, negotiation, and execution of this Agreement by
legal counsel of his or her own choice or that he or she has voluntarily
declined to seek such counsel; (c) understands the terms and consequences of
this Agreement and of the releases it contains; (d) is fully aware of the legal
and binding effect of this Agreement.

         IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date set forth on the first page of this Agreement.

Dated: As of May 16, 2003           By /s/ Paul H. Bartlett
                                      ------------------------------------
                                      Name:  Paul H. Bartlett
                                      Title: Chief Financial Officer & EVP of
                                             Corporate Development

Dated: As of May 16, 2003           By /s/ Bernard Harguindeguy
                                      ------------------------------------
                                           Bernard Harguindeguy

EX-10.43

                                                                   EXHIBIT 10.43

                            INCENTIVE BONUS AGREEMENT

         This Incentive Bonus Agreement (the "Agreement"), effective as of
October 23, 2003 ("Effective Date"), is by and between Bernard Harguindeguy
("Harguindeguy") and Critical Path, Inc. ("CP") (each a "Party"; together the
"Parties").

         A.       CP is currently pursuing options relating to a possible sale
(the "Sale") to a third party (the "Buyer") of a portion of its products and
related assets and business constituting its Identity Management business (the
"Business").

         B.       Harguindeguy is willing to assist CP in consummating a Sale as
requested by CP.

         NOW, THEREFORE, in consideration of the foregoing premises and the
covenants, representations, conditions and agreements contained herein, the
Parties hereby agree as follows:

         1.       Mr. Harguindeguy will fully cooperate with any potential Buyer
in regards to due diligence efforts, and the identification of employees who may
transition out of CP to the Buyer's employ.

         2.       Subject to the conditions specified herein, within 30 days
after the close of a Sale in which Harguindeguy has fully cooperated, made
material contributions and played an active and positive role in closing,
Harguindeguy will be paid a bonus based on the net proceeds received by the CP
for the Sale in accordance with the schedule attached hereto as Exhibit A.

         3.       At the request of CP or a Buyer, Harguindeguy agrees to remain
employed by the Buyer for a period of 6 months after the close of the Sale to
assist in the transition of the Business to the Buyer, provided he is reasonably
compensated for such services in an amount no less than an annual base salary of
$200,000, paid in a manner to be determined by the Buyer.

         4.       The Parties acknowledge and agree that this Agreement is not
an employment contract and that Harguindeguy has the right to resign and the CP
has the right to terminate his employment at any time, for any reason, with or
without cause. Harguindeguy acknowledges and agrees that this Agreement does not
purport to set forth or modify any of the terms and conditions of his
employment, and that as an employee of CP he has obligations to CP which are not
set forth in this Agreement.

         5.       The terms and conditions contained herein constitute the
entire agreement between the Parties and supersede all other previous and
contemporaneous agreements and understandings, whether oral or written, between
the Parties hereto with respect to the subject matter hereof. This Agreement,
and all disputes arising out of or related thereto, shall be governed by and
construed under the laws of the State of California without reference to
conflict of laws principles. No amendment or modification of this Agreement, nor
waiver of any rights under this Agreement, shall be valid unless in writing
signed by each Party. The waiver of a breach of any term hereof shall in no way
be construed as a waiver of any term or other breach hereof. If any provision of
this Agreement is held by a court of competent jurisdiction to be contrary to
law the remaining provisions of this Agreement shall remain in full force and
effect.

                                   Page 1 of 2



         IN WITNESS WHEREOF, the Parties have executed this Agreement effective
as of the date first written above.

Bernard Harguindeguy                       CRITICAL PATH, INC.

By: /s/ Bernard Harguindeguy               By: /s/ Michael J. Zukerman
   -----------------------------                ------------------------------

Name: Bernard Harguindeguy                 Name:  Michael J. Zukerman

                                           Title: SVP and General Counsel

Date: October 23, 1999                     Date:  October 23, 1999

                                   Page 2 of 2

EX-10.44

                                                                   EXHIBIT 10.44

                        AMENDMENT TO EMPLOYMENT AGREEMENT

         This Amendment to Employment Agreement and Release of Claims
("Agreement") is made by and between CRITICAL PATH, INC. (the "Company"), and
Paul H. Bartlett ("Executive") (collectively referred to herein as the
"Parties") and dated as of August 31, 2003 (the "Effective Date").

         WHEREAS, Executive has been employed by the Company pursuant to a
signed Offer Letter dated April 8, 2002 ("Employment Agreement") under which he
was hired as EVP, Corporate Development;

         WHEREAS, in February 2003, Executive was appointed Chief Financial
Officer and on August 1, 2003 Executive was appointed Chief Operating Officer;

         WHEREAS, Executive is, at the request of the Company, relocating to
Dublin, Ireland; and

         WHEREAS, in Executive and Company hereby agree to amend certain terms
and conditions of such Employment Agreement;

         NOW THEREFORE, in consideration of the mutual promises made herein, the
Company and Executive hereby agree as follows:

1.       Modification of Position. Executive is and shall be Chief Operating
Officer and Chief Financial Officer, shall report to the Chairman and Chief
Executive Officer (the "CEO") and shall serve on an at-will basis at the
pleasure of the CEO and the Company's Board of Directors.

2.       Location of Employment. As of September 1, 2003, Executive shall
relocate to the Company's Dublin, Ireland offices. It is presently anticipated
that the Employee shall continue to work out of the Dublin, Ireland office until
no later than June 30, 2004.

3.       Compensation. As of September 1, 2003, Executive's base salary shall be
$200,000.

4.       Reimbursement of Expenses. Until the first to occur of (a) June 30,
2004 or (b) until (i) Executives employment is terminated and (ii) Executive
obtains other full time employment, the Company shall reimburse (or directly pay
to the vendor) for reasonable expenses as follows:

         A.       Housing Allowance not to exceed $217 per day, or $6,500 per
                  month.

         B.       Meals and Incidentals Allowance not to exceed $100 per day, or
                  $3,000 per month.

         C.       Health Insurance Coverage (through August 31, 2004) that may
                  be used in both Ireland and the US.



         D.       Qualifying moving expenses not to exceed $25,000 per move (up
                  to 2 moves, California to Ireland and Ireland to California).

         E.       Airline Tickets (2 sets of round trip airline tickets for 5
                  people between San Francisco, California and Dublin, Ireland),

5.       Tax Equalization. Depending on the length of your stay in the host
country, and a combination of other factors, you may incur additional foreign
tax liabilities as a result of this international assignment. It is the
Company's intention to minimize your tax cost (within certain limitations) to an
amount approximately equal to what you would have paid had you not received
allowances for working overseas. To this end, the Company will use best efforts
to work with you and its tax advisors to achieve tax equalization for the tax
year the assignment begins through the end of the calendar year after your
assignment ends. Tax equalization is limited to income associated with your
international assignment. While an assignee is equalized on personal and salary
income, certain items, such as the tax on the gain of the sale of a home, will
not be included. Income tax on any income earned outside of the assignment will
be your responsibility.

6.       Amendment of Employment Agreement. The following provisions shall be
added to Executive's Employment Agreement. All capitalized terms shall have the
meaning given to them in the Employment Agreement:

A.       If, prior to a Change of Control, Executive's employment is terminated
by the Company other than for Cause), or if Executive resigns for Good Reason,
then the Company will provide Executive with salary continuation until the first
to occur of (i) nine (9) months following Executive's termination date, or (ii)
Executive obtains other regular employment; provided, however that to the extent
that such other employment is for a salary less than $270,000 per year ($22,500
per month), such salary continuation shall continue for the remainder such nine
(9) month period to the extent of the difference between $22,500 per month and
the salary from such other employment.

B.       Notwithstanding anything set forth to the contrary in the Change of
Control Severance Agreement dated as of May 29, 2003 between the Company and
Executive (the "C of C Agreement"), it is understood and agreed that the
Executive's annual base salary referred to in Section 4(a)(1) of the C of C
Agreement shall be deemed to be $270,000 for purposes of such Section.

6.       Governing Law. This Agreement shall be governed by the internal laws of
the State of California without reference to its conflict of laws rules.



         IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date set forth on the first page of this Agreement.

Dated: As of August 31, 2003              By /s/ William E. McGlashan, Jr.
                                            ----------------------------------
                                            Name:  William E. McGlashan, Jr.
                                            Title: Chairman and CEO

Dated: As of August 31, 2003              By /s/ Paul H. Bartlett
                                            ----------------------------------
                                                 Paul H. Bartlett, Personally

EX-10.45

                                                                   EXHIBIT 10.45

                           PAUL H. BARTLETT RELOCATION
                        SUMMARY OF EXPENSE REIMBURSEMENT

DESCRIPTION OF QUALIFYING REIMBURSEABLE EXPENSES

         1.       Housing Allowance. Qualifying expenses under this category
                  will be limited to monthly rental costs associated with one
                  (1) temporary primary residence for the Paul H. Bartlett
                  ("Employee") and his family in Dublin, Ireland.

         2.       Meals and Incidentals Allowance. Qualifying expenses under
                  this category will be limited to school tuition for the
                  Employee's children in Dublin, Ireland, not to exceed $10,000
                  per twelve-month period and the use of an automobile and
                  related insurance, not to exceed $15,000 per twelve-month
                  period.

         3.       Other Qualifying Expenses. Qualifying expenses include:
                  Airline Tickets (2 sets of round trip airline tickets for 5
                  people between San Francisco, California and Dublin, Ireland),
                  health insurance coverage for the Employee and his family for
                  use in both Ireland and the United States.

         4.       Business Expenses. Qualifying expenses include reasonable
                  business expenses pursuant to the applicable Critical Path,
                  Inc. Travel and Entertainment Policy.

         5.       Moving Expenses. Qualifying expenses include all Deductible
                  Expenses allowed under I.R.C. Section 217, not to exceed
                  $50,000 per twelve-month period. Such reasonable expenses of
                  moving household goods and personal effects from the former
                  residence to the new residence include, but are not limited
                  to:

                  -        Packing, crating and postage charges

                  -        Fees associated with connecting or disconnecting
                           utilities

                  -        Transportation and lodging for yourself and members
                           of your household while traveling from the former
                           residence to the new place of residence, including
                           expenses the day you arrive. This does NOT include
                           expenses for meals.

                  -        Parking fees and tolls

DESCRIPTION OF THE PROCESS FOR REIMBURSEMENT

The Employee will need to establish/allocate two separate accounts to facilitate
the reimbursement process during his temporary relocation: (1) a primary bank
account in Ireland funded upon relocation for the purpose of funding all living
expenses during the



relocation period ("IRE Capital Account"), and (2) a primary bank account in
the United States for the purpose of receiving salary, if applicable,
reimbursement of qualifying expenses in the United States ("US Bank Account").
Expenses should be reimbursed as follows:

         1.       Housing Allowance. Expenses should be funded out of the
                  Employee's IRE Capital Account and reimbursed from the United
                  States into the Employee's US Bank Account.

         2.       Meals and Incidentals Allowance. Expenses should be funded out
                  of the Employee's IRE Capital Account and reimbursed from the
                  United States into the Employee's US Bank Account. As it
                  relates to qualifying automobile expenses, they will be paid
                  by Critical Path Ireland and they should be refunded by the
                  Employee prior to the end of each calendar year and
                  subsequently reimbursed to the Employee's US Bank Account by
                  Critical Path, Inc.

         3.       Other Qualifying Expenses. Expenses should be funded out of
                  the Employee's IRE Capital Account and reimbursed from the
                  United States into the Employee's US Bank Account.

         4.       Business Expenses. Credit card and cash qualifying business
                  expenses should be reimbursed from the United States into the
                  Employee's US Bank Account.

         5.       Personal Expenses. Credit card and cash personal expenses
                  should be paid for by the Employee through the Employee's IRE
                  Capital Account.

         6.       Moving Expenses. Expenses should be funded out of the
                  Employee's IRE Capital Account and reimbursed from the United
                  States into the Employee's US Bank Account.

The Parties have executed this Summary Of Expense Reimbursement as of the date
set forth on the first page of this Agreement.

Dated: As of August 31, 2003            By /s/ William E. McGlashan, Jr.
                                          --------------------------------
                                        Name:  William E. McGlashan, Jr.
                                        Title: Chairman and CEO

Dated: As of August 31, 2003           By /s/ Paul H. Bartlett
                                         ---------------------------------
                                         Paul H. Bartlett, Personally

EX-10.46

                                                                   EXHIBIT 10.46

                        AMENDMENT TO EMPLOYMENT AGREEMENT
                              AND RELEASE OF CLAIMS

         This Amendment to Employment Agreement and Release of Claims
("Agreement") is made by and between CRITICAL PATH, INC. (the "Company"), and
Paul H. Bartlett ("Executive") (collectively referred to herein as the
"Parties") and dated as of November 24, 2003 (the "Effective Date").

         WHEREAS, Executive has been employed by the Company pursuant to a
signed Offer Letter dated April 8, 2002 (the "Employment Agreement), and
subsequently amended as of August 31, 2003 (the "August 31 Amendment") and has
signed a Change of Control Severance Agreement dated as of May, 29, 2003 (the "C
of C Agreement") (collectively, the "Amended Employment Agreements");

         WHEREAS, Executive and Company hereby agree to amend and/or terminate
certain terms and conditions of such Amended Employment Agreements; and

         WHEREAS, Executive and Company hereby agree to the terms and conditions
of a modified employment relationship going forward;

         NOW THEREFORE, in consideration of the mutual promises made herein, the
Company and Executive hereby agree as follows:

1.       Modification and Termination of Employment. Effective immediately,
Executive shall no longer have the responsibilities or the title of Chief
Financial Officer. Executive shall continue to be Chief Operating Officer.
However, Executive's employment shall terminate no later than June 30, 2004;
during the period from the date of this Agreement to June 30, 2004, Executive's
duties shall principally consist of transitional responsibilities, and other
duties as requested from time to time by the CEO. Executive's employment shall
continue to be an at-will relationship as provided under the Amended Employment
Agreements.

2.       Payment of Salary; Salary Continuation; Reimbursement of Expenses. As
of December 1, all payment of regular base salary and eligibility for general
executive bonuses will terminate. Commencing December 1, 2003 Executive shall be
paid the salary continuation amounts as contemplated under Section 6. A. of the
August 31 Amendment, less all applicable withholdings in accordance with the
Company's standard payroll practices (the "Severance Amount"). No other salary
or general executive bonuses are due or payable to the Executive now or at any
future time, except as specifically contemplated or described in this agreement
or the Amended Employment Agreements. In the event that Executive's employment
is terminated by the Company earlier than June 30, 2004, then Executive shall
receive a lump sum payment equal to the remaining Severance Amount pro-rated
from the date of early termination. In the event that Executive's employment is
terminated by Executive earlier than June 30, 2004,


Executive shall continue to receive the Severance Amount as salary continuation
subject to the limitations contained in Section 6 A. (ii) of the August 31
Amendment pertaining to other employment.

It is understand and agreed between the parties that no Involuntary Termination
(as such term is defined in the C of C Agreement) of Executive has occurred by
virtue of this Agreement or otherwise, and that, solely for purposes of
determining any benefits due Executive under the C of C Agreement, Executive's
Involuntary Termination shall not be deemed to occur earlier than June 30, 2004,
except in the case of a termination for Cause (as defined in the C of C
Agreement).

Company will continue to reimburse Executive for approved business related
expenses (including those contemplated in the August 31 Amendment) and incurred
in accordance with the current Company travel and expense policies applicable to
Executive and properly submitted.

3.       Stock Options. As of the Effective Date, Executive shall continue to
vest in all previously granted options to purchase shares of Company common
stock in accordance with the applicable vesting schedules found in each Stock
Option Agreement and as provided in the Amended Employment Agreement. Except as
provided below, nothing in this Agreement is intended to otherwise supersede or
modify the terms and conditions of the Company's Stock Option Plans or any
agreements issued in connection with those plans including any provision
contained in any agreement (including the Amended Employment Agreement) for
accelerated vesting and/or any change of control arrangement. Notwithstanding
the foregoing, it shall be recommended to the compensation committee of the
Board of Directors of the Company that (i) Executive's Option grant dated April
24, 2003 in the amount of 250,000 shares (on an as-adjusted for split basis)
shall be fully vested and exercisable as of the date of Executive's termination
of employment, and (ii) Executive shall have a period of eighteen (18) months
from the last day of his employment in which to exercise his previously granted
options.

4.       Benefits. Executive shall continue to be covered by all employee health
and welfare benefit plans pursuant to the terms and conditions of the Amended
Employment Agreement. Nothing in this Agreement is intended to supercede or
modify the terms and conditions of the Company's health and benefits plans.

5.       Release of Claims.

         a.       Civil Code Section 1542. In connection with all releases given
under this Agreement ("Release"), Executive expressly waives any rights or
benefits under Section 1542 of the California Civil Code, or any other
equivalent statute, which provides as follows:

                  A GENERAL RELEASE DOES NOT EXTEND TO
                  CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
                  SUSPECT TO EXIST IN HIS FAVOR AT THE TIME



                  OF EXECUTING THE RELEASE, WHICH IF KNOWN
                  BY HIM MUST HAVE MATERIALLY AFFECTED HIS
                  SETTLEMENT WITH THE DEBTOR.

         b.       Release. Executive agrees that the acceleration of vesting and
extended time to exercise hereunder and the Severance Amount constitute
settlement in full of all outstanding obligations owed to Executive by the
Company under the Amended Employment Agreement. Except for the promises or
obligations made or undertaken in this Agreement and in exchange for the
payments and other consideration provided hereunder, Executive, on behalf of
himself, and his respective heirs, family members, executors, and assigns,
hereby fully and forever releases, acquits, and discharges the Company and its
respective officers, directors, employees, investors, shareholders, affiliates,
divisions, subsidiaries, predecessor and successor corporations, and assigns,
from, and agrees not to sue concerning, any claim, duty, obligation or cause of
action relating to any matters of any kind, whether presently known or unknown,
suspected or unsuspected, that he or she may possess arising from any omissions,
acts or facts that have occurred or may occur through and including the last day
of Executive's employment.

         The foregoing release shall include, without limitation, any and all
claims relating to or arising from Executive's employment relationship with the
Company and the termination or modification of that relationship; any and all
claims relating to, or arising from, Executive's right to purchase, or actual
purchase of shares of stock of the Company, including, without limitation, any
claims for rights of rescission, personal tax liabilities, fraud,
misrepresentation, breach of fiduciary duty, breach of duty under applicable
state corporate law, and securities fraud under any state or federal law; any
and all claims for wrongful discharge of employment, wages or other
compensation, including but not limited to bonuses and commissions; breach of
contract, both express and implied; breach of a covenant of good faith and fair
dealing, both express and implied; negligent or intentional infliction of
emotional distress; negligent or intentional misrepresentation; negligent or
intentional interference with contract or prospective economic advantage;
defamation; negligence; personal injury; discrimination, disability
discrimination; violation of public policy; retaliation; harassment; any tort
claims, including wrongful discharge, assault; battery; harassment; invasion of
privacy; false imprisonment; and conversion; any and all claims for violation of
any federal, state or municipal statute, including, but not limited to, Title
VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age
Discrimination in Employment Act of 1967, the Americans with Disabilities Act of
1990, the Fair Labor Standards Act, the California Fair Employment and Housing
Act, and Labor Code section 201, et seq., and all as may be amended from time to
time; any and all claims arising out of any other laws and regulations relating
to employment or employment discrimination; and any and all claims for
attorneys' fees and costs. This release extends to any and all administrative or
criminal charges whether before the Division of Labor Standards, Equal
Employment Opportunity Commission or the Department of Fair Employment and
Housing or any other court or agency to which Executive currently is or shall
later become a party. Should Executive ever become a



party to any such proceeding, he shall immediately ask any such administrative
agency or court to withdraw any such charge as to him.

         The parties acknowledge and agree that all potential or actual disputes
between them with respect to the Amended Employment Agreement have been fully
and finally settled to their complete satisfaction, leaving no disputes,
controversies, claims or grievances of any kind between them. The parties
therefore covenant and agree that, except as may be compelled by legal process,
they will not raise or in any way pursue any claims which are being released and
discharged in this Agreement in any forum of any kind, including, without
limitation, the federal, state or local courts, or federal, state or local
agencies or offices of any kind, be they administrative, regulatory, judicial,
quasi-judicial, or otherwise. The parties further agree that, except as
compelled by legal process, they will not aid, assist, abet or in any way
encourage any third party to in any way pursue any claims which are being
released and discharged in this Agreement.

         Executive agrees that the release set forth in this section shall be
and remain in effect in all respects as a complete general release as to the
matters released. Executive understands and agrees that this Release
extinguishes all claims by the Executive as of the Effective Date whether known
or unknown and foreseen or unforeseen.

         c.       Acknowledgment of Waiver of Claims under ADEA. To the extent
applicable, Executive further acknowledges that he is waiving and releasing any
rights he may have under the Age Discrimination in Employment Act of 1967
("ADEA") and that this waiver and release is knowing and voluntary. Executive
and the Company agree that this waiver and release does not apply to any rights
or claims that may arise under ADEA after the Effective Date. Executive
acknowledges that the consideration given for this waiver and release Agreement
is in addition to anything of value to which Executive was already entitled. To
the extent the ADEA is applicable to Executive, Executive further acknowledges
that he or she has been advised by this writing, as required by the ADEA, that
(a) he or she has the right to and should consult with an attorney prior to
executing this Agreement (although he or she may execute this Agreement
voluntarily earlier); (b) he or she has at least forty-five (45) days within
which to consider this Agreement; (c) he or she has seven (7) days following the
execution of this Agreement to revoke the Agreement by sending a written notice
to the Company to the attention of General Counsel, Critical Path, Inc., 350 The
Embarcadero, 6th Floor, San Francisco, California 94105-1204; and (d) this
Agreement shall not be effective until the revocation period has expired, which
shall be the eighth day after it is signed by Executive and Company.

6.       Confidentiality. Executive understands and agrees that the terms of
this Agreement are confidential and the Parties hereto each agree to use their
best efforts to maintain in confidence the existence of this Agreement, the
contents and terms of this Agreement, and the consideration for this Agreement
(hereinafter collectively referred to as "Settlement Information"). Each Party
hereto agrees to take every reasonable precaution to prevent disclosure of any
Settlement Information to third parties, and each agrees that there will be no
publicity, directly or indirectly, concerning any Settlement Information, except
where such disclosure is required by law and as required by the



regulations promulgated under the Securities and Exchange Act of 1934, as
amended. The Parties hereto agree to take every precaution to disclose
Settlement Information only to those employees, officers, directors, attorneys,
accountants, governmental entities, and family members who have a reasonable
need to know of such Settlement Information.

7.       No Representations. Neither party has relied upon any representations
or statements made by the other party hereto which are not specifically set
forth in this Agreement.

8.       Severability. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision. Such provision shall be modified by the court so as to be rendered
enforceable insofar as possible consistent with the intent of the Parties to all
remaining portions of the Agreement.

9.       Entire Agreement. This Agreement represents the entire agreement and
understanding between the Company and Executive concerning Executive's
employment with the Company, and supersedes and replaces any and all prior
agreements and understandings, whether oral or written, concerning Executive's
relationship with the Company and his or her compensation by the Company, except
for (i) the Amended Employment Agreement, to the extent not expressly modified
hereunder, (ii) any prior agreement or understanding to indemnify Executive as
against third party claims which may arise in connection with Executive's
service as an executive officer, including but not limited to employee's
Indemnification Agreement and (iii) employee's stock option agreements and the
provisions of any other agreement related to such stock option agreements. This
Agreement may only be amended in writing signed by Executive and the Chief
Executive Officer or Chief Financial Officer of the Company. Any term of the
Amended Employment Agreement not expressly amended hereunder shall remain in
full force and effect. In the event of any conflict between the terms of the
Amended Employment Agreement and this Amendment, this Amendment shall control.

10.      Governing Law. This Agreement shall be governed by the laws of the
State of California, without regard to its conflicts of laws principles.

11.      Voluntary Execution of Agreement. This Agreement is executed
voluntarily and without any duress or undue influence on the part or behalf of
the Parties hereto, with the full intent of releasing all claims. Executive
acknowledges that: (a) he or she has read this Agreement; (b) has been
represented in the preparation, negotiation, and execution of this Agreement by
legal counsel of his or her own choice or that he or she has voluntarily
declined to seek such counsel; (c) understands the terms and consequences of
this Agreement and of the releases it contains; (d) is fully aware of the legal
and binding effect of this Agreement.

         IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date set forth on the first page of this Agreement.



Dated: As of November 24, 2003       By /s/ William E. McGlashan, Jr.
                                       ------------------------------
                                     Name:  William E. McGlashan, Jr.
                                     Title: Chairman and CEO

Dated: As of November 24, 2003       By /s/ Paul H. Bartlett
                                       ------------------------------
                                            Paul H. Bartlett

EX-10.47

                                                                   EXHIBIT 10.47

       Amendment No. 1 to First Amended and Restated Employment Agreement

         This Amendment No. 1 (this "Amendment"), dated as of September 1, 2003
amends that certain First Amended and Restated Employment Agreement dated as of
January 7, 2002 (the "Agreement") by and between William E. McGlashan, Jr.
("Executive") and Critical Path, Inc. (the "Company"). All capitalized terms
used herein and not defined shall have the meanings assigned to them in the
Agreement.

                                    RECITALS

     1.  Executive desires to voluntarily reduce his base salary to $300,000 per
         annum.

     2.  The Compensation Committee of the Board of Directors of the Company
         have determined that it is in the best interests of the Company to
         accept Executive's voluntary salary reduction and to amend the
         Agreement to reflect the terms of such reduction as stated herein.

         NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agrees as follows:

1.       Section 4 of the Agreement is hereby amended to provide that
Executive's base salary shall henceforth be $300,000 per annum.

2.       Such salary reduction shall be effective until such time as (i) the
Company is EBITDA profitable or (ii) has secured additional working capital
funding proceeds of at least $15,000,000 through an asset sale, an equity-based
financing (including convertible debt), or a combination thereof. Upon the
occurrence of any such event, Executive's base salary shall revert to the amount
in effect immediately prior to this reduction ($405,000).

3.       Notwithstanding anything set forth to the contrary in the Change of
Control Severance Agreement dated as of May 29, 2003 between the Company and
Executive, it is understood and agreed that the Executive's annual base salary
referred to in Section 4(a)(1) of such agreement shall be deemed to be $405,000
for purposes of such Section.

4.       This Amendment and the Agreement constitute the entire understanding
between the parties with respect to the subject matter contained herein. Except
as modified herein, all other terms and conditions of the Agreement shall remain
in full force and effect.

IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the Effective Date.

                                            CRITICAL PATH, INC.

 /s/ William E. McGlashan, Jr.               /s/ Michael J. Zukerman
- ------------------------------------        -----------------------------------
William E. McGlashan, Jr.                   Name: Michael Zukerman
                                            Title: SVP

EX-10.48

                                                                   EXHIBIT 10.48

[CRITICAL PATH LOGO]

February 4, 2004

Mr. James Clark
3075 Welwyn Place
Walnut Creek, CA 94598

Dear Jim,

On behalf of Critical Path, Inc. (the "Company"), I am pleased to offer you the
position of Executive Vice President, Chief Financial Officer. Speaking for
myself, as well as other members of the Company's management team, we are all
very impressed with your credentials and we look forward to your future success
in this position.

The terms of your employment with the Company are set forth below:

POSITION          You will be an Executive Vice President, Chief Financial
                  Officer for the Company, reporting to William E. McGlashan,
                  Jr., Chief Executive Officer, working out of the Company's
                  offices in San Francisco, CA, or from your home office. This
                  is an exempt position.

                  You agree to the best of your ability and experience that you
                  will at all times loyally and conscientiously perform all of
                  the duties and obligations required of and from you pursuant
                  to the express and implicit terms hereof, and to the
                  reasonable satisfaction of the Company. During the term of
                  your employment, you further agree that you will devote all of
                  your business time and attention to the business of the
                  Company.

START DATE        Subject to fulfillment of any conditions imposed by this
                  letter agreement, you will commence this new position with the
                  Company on a date to be determined. Kim Trask of our Human
                  Resources Department will contact you regarding your new hire
                  orientation.

COMPENSATION      Your base salary will be $250,000.00 on an annualized basis.
                  Your salary will be payable in two equal payments per month
                  pursuant to the Company's regular payroll practices. Your base
                  salary will be increased to $300,000.00 once the Company is
                  EBITDA profitable.

BONUS             You will be eligible to participate in the 2004 Critical Path
                  Bonus Plan, once finalized and approved by our Board of
                  Directors, at 30% of base salary, on a prorated basis based on
                  your date of hire.

REVIEW            Your base salary will be reviewed annually as part of the
                  Company's salary review process. However, nothing in this
                  provision changes the at-will nature of the employment
                  relationship.

BENEFITS          The Company offers you and your eligible dependents generous
                  Medical, Dental, and Vision benefits. You will also receive
                  Short-term Disability, Long-term Disability, and Life
                  Insurance. In addition, the Company offers employees the
                  opportunity to participate in its Flexible Spending Account,
                  Employee Assistance Program, 401(k) Plan, and

                                                             Critical Path, Inc.

                                                                          Page 1



                  Employee Stock Purchase Plan. A complete overview of benefits
                  will be presented to you on or around your date of hire.

PAID TIME OFF     Members of the executive staff are not eligible to accrue
                  Paid Time Off (PTO). You should schedule time off for the year
                  based on your tenure with the Company and the number of days
                  allowed per year according to our policy, a copy of which will
                  be given to you at orientation. If you should leave the
                  Company for any reason, you will not receive any PTO payout on
                  your final paycheck.

STOCK OPTIONS     In connection with the commencement of your employment, the
                  Company will recommend that the Board Compensation Committee
                  grant you an option to purchase 350,000 shares of the
                  Company's Common Stock ("Shares") with an exercise price equal
                  to the closing price of Critical Path's stock on the last
                  trading day prior to the date of Grant. These Shares will vest
                  over four years, with 12.5% vesting on your six-month
                  anniversary with the Company, and 1/48th of the original grant
                  amount vesting monthly thereafter. Vesting will, of course,
                  depend on your continued employment with the Company. These
                  Shares will be subject to the terms of the applicable Company
                  Stock Option Plan and the Stock Option Agreement between you
                  and the Company.

                  In the event of a Change of Control of the Company, any
                  unvested Shares originally granted will vest immediately
                  should your employment be terminated without Cause or if you
                  terminate your employment for Good Reason, each such event
                  occurring within six (6) months of such Change of Control, all
                  as such terms are defined in Appendix A.

SEVERANCE         To the extent you are terminated for any reason without Cause
                  (as defined on Appendix A), you will receive, upon
                  termination, a severance payment equal to six (6) months base
                  salary.

PROOF OF RIGHT TO WORK

                  For purposes of federal immigration law, you will be required
                  to provide to the Company documentary evidence of your
                  identity and eligibility for employment in the United States.
                  A list of acceptable documents is available for your
                  reference. Please have your identity and employment
                  eligibility document(s) with you for your new hire
                  orientation.

PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT

                  Your acceptance of this offer and commencement of employment
                  with the Company is contingent upon the execution and
                  submission of the Company's Proprietary Information and
                  Inventions Agreement ("Proprietary Agreement"), a copy of
                  which has been provided to you with this offer letter.

AT-WILL EMPLOYMENT

                  Notwithstanding the Company's obligation described herein,
                  your employment with the Company will be on an "at-will"
                  basis, meaning that either you or the Company may terminate
                  your employment at any time for any reason or no reason,
                  without further obligation or liability.

DISPUTE RESOLUTION PROCEDURE

                  You and the Company ("the parties") agree that any dispute
                  arising out of or related to the employment relationship
                  between them, including the termination of that relationship
                  and any allegations of unfair or discriminatory treatment
                  arising under state or federal law or otherwise, that cannot
                  be resolved through the Company's informal grievance
                  procedure, shall be resolved by final and binding arbitration
                  in San Francisco, California, except where the law
                  specifically forbids the use of arbitration as a final and
                  binding remedy. The following dispute resolution shall apply:

                  (a) The complainant shall provide the other party with a
                      written statement of the claim identifying any supporting
                      witnesses or documents and the requested relief.

                                                             Critical Path, Inc.

                                                                          Page 2


                  (b) The respondent shall furnish a statement of the relief, if
                      any, that it is willing to provide, and identify
                      supporting witnesses or documents. If the matter is not
                      resolved, the parties shall submit the dispute to
                      nonbinding mediation, paid for by the Company, before a
                      mediator to be selected by the parties.

                  (c) If the matter is not resolved through mediation, the
                      parties agree that the dispute shall be resolved by
                      binding arbitration. If the parties are unable to jointly
                      select an arbitrator, they will obtain a list of
                      arbitrators in San Francisco County, California, from the
                      Federal Mediation and Conciliation Service and select an
                      arbitrator by striking names from that list.

                  (d) The arbitrator shall have the authority to determine
                      whether the conduct complained of in section (a) of this
                      section violates the complainant's rights and, if so, to
                      grant any relief authorized by law; subject to the
                      exclusions of section (g) below. The arbitrator shall not
                      have the authority to modify, change, or refuse to enforce
                      the terms of any employment agreement between the parties,
                      or change any lawful policy or benefit plan.

                  (e) The Company shall bear the costs of the arbitration if you
                      prevail. If the Company prevails, you will pay half the
                      cost of the arbitration or $500, whichever is less. Each
                      party shall pay its own attorney's fees, unless the
                      arbitrator orders otherwise pursuant to applicable law.

                  (f) ARBITRATION SHALL BE THE EXCLUSIVE FINAL REMEDY FOR ANY
                      DISPUTE BETWEEN THE PARTIES, SUCH AS DISPUTES INVOLVING
                      CLAIMS FOR DISCRIMINATION OR HARASSMENT (SUCH AS CLAIMS
                      UNDER THE FAIR EMPLOYMENT AND HOUSING ACT, TITLE VII OF
                      THE CIVIL RIGHTS ACT OF 1964, THE AMERICANS WITH
                      DISABILITIES ACT, OR THE AGE DISCRIMINATION IN EMPLOYMENT
                      ACT), WRONGFUL TERMINATION, BREACH OF CONTRACT, BREACH OF
                      PUBLIC POLICY, PHYSICAL OR MENTAL HARM OR DISTRESS, OR ANY
                      OTHER DISPUTES, AND THE PARTIES AGREE THAT NO DISPUTE
                      SHALL BE SUBMITTED TO ARBITRATION WHERE THE COMPLAINANT
                      HAS NOT COMPLIED WITH THE PRELIMINARY STEPS PROVIDED FOR
                      IN SECTIONS (A) AND (B) ABOVE.

                  (g) The parties agree that the arbitration award shall be
                      enforceable in any court having jurisdiction to enforce
                      this agreement, so long as the arbitrator's findings of
                      fact are supported by substantial evidence on the whole
                      and the arbitrator has not made errors of law; however,
                      either party may bring an action in a court of competent
                      jurisdiction regarding or related to inventions that you
                      may claim to have developed prior to joining the Company,
                      pursuant to California Labor Code Section 2870 ("Disputes
                      Related to Inventions"). The parties further agree that
                      for Disputes Related to Inventions which the parties have
                      elected to submit to arbitration, each party retains the
                      right to seek preliminary injunctive relief in court in
                      order to preserve the status quo or prevent irreparable
                      injury before the matter can be heard in arbitration.

OFFER CONDITIONS

                  This offer is null and void if not accepted or declined by
                  close of business on February 2, 2004. This offer is also
                  contingent upon receiving your completed employment
                  application and the successful results of our independent
                  verification of your application and reference checks.

We are delighted to be able to extend you this offer and look forward to working
with you. To indicate your acceptance of the Company's offer, please sign and
date this letter in the space provided below and return it to Donna Spinola in
the Human Resources department (if by fax, then to 415.541.2301), along with a
signed and dated copy of the Proprietary Agreement. This letter, together with
the Proprietary Agreement, constitute the full, complete, and exclusive
agreement between you and the Company regarding the matters herein and
supersedes any prior representations or agreements, whether written or

                                                             Critical Path, Inc.

                                                                          Page 3


oral. This letter may not be modified or amended except by a written agreement,
signed by the Company and by you.

ACCEPTED AND AGREED:                    CRITICAL PATH, INC.

Name: James Clark                       By: /s/ William E. McGlashan, Jr.
                                           ------------------------------------
                                                 William E. McGlashan, Jr.
                                           Chairman and Chief Executive Officer

Signed: /s/ James Clark
       ---------------------------
Date: February 4, 2004

                                                             Critical Path, Inc.

                                                                          Page 4



                                   APPENDIX A

"Change of Control" shall mean the consummation of one of the following: (i) the
acquisition of 50% or more of the outstanding stock of the Company pursuant to a
tender or exchange offer validly made under any federal or state law (other than
a tender offer by the Company) or other share acquisition transaction; (ii) a
merger, consolidation or other reorganization of the Company (other than a
reincorporation of the Company), if after giving effect to such merger,
consolidation or other reorganization of the Company, the shareholders of the
Company immediately prior to such merger, consolidation or other reorganization
do not represent a majority in interest of the holders of voting securities (on
a fully diluted basis) with the ordinary voting power to elect directors of the
surviving entity after such merger, consolidation or other reorganization; (iii)
the sale of all or substantially all of the assets of the Company to a third
party who is not an affiliate of the Company.

"Cause" shall mean (i) failure or refusal to perform a lawful directive of the
CEO or the Board of Directors of the Company that is consistent with your duties
and responsibilities as set forth in this Agreement, (ii) willful misconduct or
material violation of your fiduciary obligations to the Company , (iii) you
perform your duties in a grossly negligent manner, or (iv) you are convicted of
any crime that has a material adverse impact on (A) your ability to perform your
duties hereunder, (B) the Company or (C) the Company's business.

"Good Reason" shall be deemed to occur if there is (a)(1) a material adverse
change in your position causing such position to be of significantly less
stature or of significantly less responsibility, (2) a material adverse change
in title, (3) a material reduction of employee's base salary, or (4) a material
change in your bonus structure or bonus targets such that your total potential
compensation will necessarily be materially reduced; and (b) within the sixty
(60) day period immediately following any of the foregoing events employee
elects to terminate his employment voluntarily.

                                                             Critical Path, Inc.

                                                                          Page 5

EX-10.51

                                                                   EXHIBIT 10.51

                               FIRST AMENDMENT TO
                              AMENDED AND RESTATED
                           LOAN AND SECURITY AGREEMENT

         THIS FIRST AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT (the "Amendment") is entered into as of November 26, 2003, by and
between SILICON VALLEY BANK, a California-chartered bank (the "Bank"), and
CRITICAL PATH, INC., a California corporation (the "Borrower"), in reliance on
the following:

                                    RECITALS

         A.       On or about July 18, 2003, the Borrower and the Bank entered
into that certain Amended and Restated Loan and Security Agreement pursuant to
which the Bank made available to the Borrower a revolving credit facility (the
"Senior Debt Facility") in the principal amount of up to Fifteen Million Dollars
($15,000,000.00). The Amended and Restated Loan and Security Agreement, along
with all other documents entered into by or on behalf of the Borrower in
connection therewith, are hereinafter referred to as the "Senior Loan
Documents", and each capitalized term used in this Amendment shall have the
meaning accorded to it in the Senior Loan Documents unless it is otherwise
defined herein.

         B.       The Borrower has entered into that certain Convertible Note
Purchase and Exchange Agreement, dated as of November 18, 2003, among the
Borrower, General Atlantic Partners 74, L.P. ("GAP 74"), GAP Coinvestment
Partners II, L.P. ("GAP Coinvestment"), GapStar, LLC ("GapStar") and GAPCO GmbH
& Co. KG ("GAPCO" and, together with GAP 74, GAP Coinvestment and GapStar, the
"Investors"), and the other entities listed on the signature pages thereto
(collectively with the notes and other documents to be executed and delivered by
the Borrower in connection therewith, as amended in accordance with the terms of
the Subordination Agreement defined below, the "Junior Debt Documents"),
pursuant to which the Borrower will issue to such Investors convertible notes in
the aggregate principal amount of Ten Million Dollars ($10,000,000) (the "Junior
Debt") and will grant to the Investors a security interest in certain of the
Collateral on November 26, 2003. The Bank is willing to consent to the
Borrower's entering into the Junior Debt Documents, issuing the convertible
notes thereunder to the Investors and granting a security interest in certain of
the Collateral to the Investors, but only upon the terms hereof.

                                    AGREEMENT

         NOW, THEREFORE, in reliance upon the foregoing and in consideration of
the mutual covenants set forth herein and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:

                  1        Consent to Junior Debt Documents. The Bank hereby
consents to each of the Borrower's and the Borrower's direct and indirect
subsidiaries' (including but not limited to its subsidiary Compass Holding
Corp.): (i) incurring indebtedness and guarantees of indebtedness under the
Junior Debt Documents; (ii) granting to the Investors a security interest in

                                      -1-


its assets and property, all as more fully set forth in the Junior Debt
Documents (it being acknowledged by the Bank that such security interest shall
constitute a "Permitted Lien" under the Senior Loan Documents to the extent that
such security interest is subordinate to the Bank's lien upon the Collateral as
provided in the Subordination Agreement); and (iii) entering into and performing
their obligations under the Junior Debt Documents; provided, however, that the
Bank's consent to the foregoing is expressly predicated upon the terms of the
Junior Debt Documents as of the date of this Amendment and does not constitute,
nor is it intended to constitute, a consent to any subsequent modifications to
the Junior Debt Documents. The Bank also hereby consents to the changes in the
Borrower's capital structure, the conversion of all or any portion of the Junior
Debt into equity interests of the Borrower or another entity (as contemplated by
the convertible notes referred to above) at any time and the consummation of all
other transactions contemplated by the Junior Debt Documents pursuant to their
respective terms as of the date hereof.

                  2        No Amendment of Junior Debt Documents. The Borrower
agrees that it shall not enter into, nor consent to, any amendment of the Junior
Debt Documents that is likely to result in a material adverse change to the
Bank's rights and remedies under the Senior Debt Documents or the Subordination
Agreement without first obtaining the Bank's consent thereto.

                  3        Reduction of the Credit Limit. On and after the
effective date of this Amendment, the Bank shall reduce the Credit Limit from
Fifteen Million Dollars ($15,000,000.00) to Five Million Dollars ($5,000,000.00)
(the "New Credit Limit") and shall also reduce the Letter of Credit Sublimit
from Six Million Dollars ($6,000,000.00) to Two Million Eight Hundred Thousand
Dollars ($2,800,000.00).

                  4        Reaffirmation of Obligations. The Borrower reaffirms
to the Bank that, as of the date hereof, the outstanding principal amount of all
Loans under the Senior Loan Documents (including the face amount of all Letters
of Credit outstanding under the Letter of Credit Sublimit) is Seven Million Four
Hundred Thousand and No/100 Dollars ($7,400,000.00). The Borrower acknowledges
that the Senior Loan Documents fully and accurately reflect and constitute the
valid and enforceable Obligations of the Borrower to the Bank, and the Borrower
remains fully obligated to perform all covenants thereunder and has no defenses
to or offsets against such Obligations.

                  5        Conditions to Effectiveness. The following conditions
must be satisfied in full, or waived in writing by the Bank, before this
Amendment shall be effective and the Bank shall become obligated hereunder.

                           5.1      Execution and Delivery of Documents. The
Borrower shall have executed and delivered to the Bank this Amendment, and the
Bank shall have received any and all other instruments and documents, fully
executed and in form and substance acceptable to the Bank, as are contemplated
hereby or otherwise reasonably requested by the Bank, including the
Subordination Agreement with the Investors.

                           5.2      Payment of Fees and Expenses. The Borrower
shall have paid to the Bank all fees due and owing under the Senior Loan
Documents as amended hereby, as well as a sum sufficient to reimburse the Bank
for all costs and expenses incurred by the Bank in

                                      -2-


entering into this Amendment, the Subordination Agreement and any and all other
documents and instruments contemplated hereby or thereby (including but not
limited to all attorneys' fees and expenses.)

                           5.3      Payment of Principal Accrued Interest. The
Borrower shall have paid to the Bank all outstanding principal amounts under the
Senior Loan Documents in excess of the New Credit Limit, plus all accrued
interest thereon that is due and owing, on or before the date on which this
Amendment becomes effective.

                           5.4      Representations and Warranties; No Default.
The representations and warranties of the Borrower as set forth in the Senior
Loan Documents shall be true and correct in all material respects as of the date
on which this Amendment becomes effective, and no Event of Default shall have
occurred and be continuing as of such date without having been cured.

                  6        Continued Full Force and Effect. Except to the extent
expressly amended hereby, all of the terms and provisions of the Senior Loan
Documents shall remain in full force and effect, and the lien in favor of the
Bank in the Collateral shall be and remain a fully perfected senior lien upon
all of the Collateral pursuant to the terms of the Senior Loan Documents, it
being the intent of the parties that nothing herein shall affect or impair the
Bank's rights or remedies under the Senior Loan Documents or its lien upon the
Collateral. Henceforth, the term "Loan Documents" shall be deemed to mean the
Senior Loan Documents as modified and supplemented by the terms of this
Amendment, and any default of the Borrower hereunder shall constitute an Event
of Default under the Senior Loan Documents.

                  7        General Provisions.

                           7.1      Choice of Law and Venue. This Amendment
shall be governed by and construed in accordance with the internal laws of the
State of California, without regard to principles of conflicts of law, and any
action or proceeding arising out of this Agreement shall be commenced in the
Superior Court of the State of California for the County of Santa Clara, or in
the District Court of the United States in the Northern District of California.

                           7.2      WAIVER OF JURY TRIAL. EACH OF THE BORROWER,
ON THE ONE HAND, AND THE BANK, ON THE OTHER HAND, WAIVES ITS RIGHT TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS
AMENDMENT, THE LOAN AGREEMENT OR ANY CONTEMPLATED TRANSACTION, INCLUDING
CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL
INDUCEMENT FOR EACH OF THE PARTIES TO ENTER INTO THIS AMENDMENT. EACH PARTY HAS
REVIEWED THIS WAIVER WITH ITS COUNSEL AND UNDERSTANDS THE RAMIFICATIONS THEREOF.

                           7.3      Entire Agreement. This Amendment and the
Loan Agreement together constitute the entire agreement and understanding
between the parties hereto with respect to the transactions contemplated
hereunder and thereunder and supersede all prior

                                      -3-


negotiations, understandings and agreements between the parties with respect to
such transactions.

                           7.4      Counterparts. This Amendment may be executed
and delivered in any number of counterparts, each of which shall be an original
and all of which together shall constitute one and the same agreement.

                           7.5      Time of the Essence. Time is of the essence
in the performance by each party of its obligations hereunder and the
satisfaction of all conditions specified herein.

         IN WITNESS WHEREOF, each of the parties hereto has caused its duly
authorized representative to execute this Amendment as of the date first set
forth above.

BORROWER:                                    BANK:

CRITICAL PATH, INC.                          SILICON VALLEY BANK,
a California corporation                     a California-chartered bank

CRITICAL PATH, INC.                          SILICON VALLEY BANK,
a California corporation                     a California-chartered bank

By: /s/ Michael J. Zukerman                  By: /s/ Brian Harrison
   --------------------------------             -----------------------------
Name:  Michael J. Zukerman                   Name:  Brian Harrison
Title: SVP and General Counsel               Title: Vice President

                                      -4-

EX-10.52

                                                                   EXHIBIT 10.52

                               SECOND AMENDMENT TO
                              AMENDED AND RESTATED
                           LOAN AND SECURITY AGREEMENT

         THIS SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT (the "Second Amendment") is entered into as of January 30, 2004, by
and between SILICON VALLEY BANK, a California-chartered bank (the "Bank"), and
CRITICAL PATH, INC., a California corporation (the "Borrower"), in reliance on
the following:

                                    RECITALS

         A.       On or about July 18, 2003, the Borrower and the Bank entered
into that certain Amended and Restated Loan and Security Agreement (the "Loan
Agreement") pursuant to which the Bank made available to the Borrower a
revolving credit facility (the "Senior Debt Facility") in the principal amount
of up to Fifteen Million Dollars ($15,000,000.00).

         B.       On or about November 18, 2003, the Borrower entered into that
certain Convertible Note Purchase and Exchange Agreement among the Borrower,
General Atlantic Partners 74, L.P. ("GAP 74"), GAP Coinvestment Partners II,
L.P. ("GAP Coinvestment"), GapStar, LLC ("GapStar") and GAPCO GmbH & Co. KG
("GAPCO" and, together with GAP 74, GAP Coinvestment and GapStar, the
"Investors"), and the other entities listed on the signature pages thereto
(collectively with the notes and other documents executed and delivered by the
Borrower in connection therewith, as amended in accordance with the terms of the
Subordination Agreement defined below, the "First Junior Debt Documents"),
pursuant to which the Borrower issued to such Investors convertible notes in the
aggregate principal amount of Ten Million Dollars ($10,000,000) (the "First
Junior Debt") and granted a security interest to the Investors in certain of the
Collateral on November 26, 2003.

         C.       The Bank consented to the Borrower's entering into the First
Junior Debt Documents and performing its obligations thereunder pursuant to the
terms of that certain First Amendment to Amended and Restated Loan and Security
Agreement dated as of November 26, 2003 (the "Amendment"). The Amendment
provided, in part, that the Investors would enter into that certain
Subordination Agreement with the Bank dated as of November 26, 2003 (the "First
Subordination Agreement") to evidence the terms by which the First Junior Debt
is subordinated to the Senior Debt Facility. The Loan Agreement as amended by
the Amendment, along with all other documents entered into by the parties in
connection with the Loan Agreement and the Amendment, are hereinafter referred
to as the "Senior Loan Documents," and each capitalized term used in this Second
Amendment shall have the meaning accorded to it in the Senior Loan Documents
unless it is otherwise defined herein.

         D.       On or about January 16, 2004, the Borrower entered into that
certain Convertible Note Purchase Agreement dated as of January 16, 2004, by and
among the Borrower as issuer, on the one hand, and Permal U.S. Opportunities
Limited, Zaxis Equity Neutral, L.P., Zaxis Partners, L.P., Zaxis Offshore
Limited, Zaxis Institutional Partners, L.P., and Passport Master

                                       1


Fund, L.P. as creditors (collectively, the "Second Subordinated Creditors"), on
the other hand, and the Notes, the Guaranty and Security Agreement and the other
documents executed and delivered in connection therewith (collectively, the
"Second Junior Debt Documents"). The Bank consented to the Borrower's entering
into the Second Junior Debt Documents and the Borrower's granting to the Second
Subordinated Creditors a security interest in certain of the Collateral, all as
more fully set forth in the Second Junior Debt Documents, conditioned upon the
execution and delivery by the Second Subordinated Creditors of a Subordination
Agreement by and among the Bank, as senior creditor, and the Second Subordinated
Creditors, as junior creditors, in form and substance acceptable to the Bank,
and the consent of the Investors to the Borrower's entering into the Second
Junior Debt Documents.

         E.       The Borrower now desires to amend the Senior Loan Documents
further in order to extend the Maturity Date, and the Bank is willing to do so
upon the terms set forth herein.

                                    AGREEMENT

         NOW, THEREFORE, in reliance upon the foregoing and in consideration of
the mutual covenants set forth herein and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:

         1.       Change in the Calculation of the Credit Limit.

                  1.1      The Credit Limit. On and after the date on which this
Second Amendment becomes effective pursuant to Section 9 hereof (the "Effective
Date"), the Credit Limit shall be an amount equal to the lesser of (i)
$5,000,000.00 or (ii) the Borrowing Base. Section 1.1 of Schedule 1 to the Loan
Agreement ("Schedule 1") is hereby amended accordingly.

                  1.2      Definition of the Borrowing Base. The Borrowing Base
shall hereafter be the sum of (i) 80% of Eligible Accounts, plus (ii) 100% of
unrestricted Investment Cash, plus (iii) 100 % of the face amount of all letters
of credit issued to the Bank, as beneficiary thereof, by such bank(s) and in
such form as is acceptable to the Bank in its sole discretion. The foregoing
definition hereby replaces in full the definition of Borrowing Base set forth in
Section 1.2 of Schedule 1, and said Section 1.2 is hereby amended accordingly.

                  1.3      Investment Cash. The term "Investment Cash" shall
mean that amount of cash deposited in the Borrower's Account No. 88602595 at SVB
Securities, an Affiliate of the Bank, and the second clause of the last sentence
of Section 1.2 of the Schedule is hereby deleted.

         2.       Change in the Letter of Credit Sub-Limit. On and after the
Effective Date, the Letter of Credit Sublimit shall be Three Million Dollars
($3,000,000.00). Section 1.5 of Schedule 1 is hereby amended accordingly, and
the definition of "Sublimit Loans" in said Section 1.5 is hereby deleted.

         3.       Change in the Interest Rate. On and after the Effective Date,
the Borrower shall pay interest on all Loans at a rate determined for each
calendar month as follows: (i) so long as the Borrower maintains at least
$10,000,000.00 on deposit with the Bank and its Affiliates at all

                                       2


times during such calendar month, the Prime Rate plus one percent per annum
(1.00% p.a.); (ii) if the Borrower maintains less than $10,000,000.00 but at
least $5,000,000.00 on deposit with the Bank and its Affiliates at all times
during such calendar month, the Prime Rate plus one and one-half percent per
annum (1.50% p.a.); and (iii) if at any time during such month the Borrower
maintains less than $5,000,000.00 on deposit with the Bank and its Affiliates,
the Prime Rate plus two percent per annum (2.00% p.a.). In no event shall the
Prime Rate be less than 4.00% per annum for purposes of the Senior Loan
Documents. Section 2 of Schedule 1 is hereby amended accordingly.

         4.       Fees.

                  4.1      The Facility Fee. Borrower will pay the Bank a
facility fee on the Effective Date in the amount of $20,000.00 (the "Facility
Fee"), which Facility Fee shall be fully-earned and non-refundable upon payment.

                  4.2      Other Fees. The following provisions of Section 3 of
Schedule 1 are hereby amended as follows:

                           a.       The last sentence of Section 3.3 is hereby
amended to read in full as follows: "For purposes of calculating the Unused
Facility Fee, the Credit Limit shall be deemed to be $5,000,000.00."

                           b.       Section 3.5 of Schedule 1 is hereby amended
to read in full as follows:

                                    "3.5     Termination Fee. If the Agreement
                           is terminated at any time during the six-month period
                           following the Effective Date due to an Event of
                           Default or as a result of the Borrower's termination
                           under Section 6.2 of the Agreement, the Borrower
                           shall pay to the Bank, within two Business Days after
                           such termination, a termination fee (the "Termination
                           Fee") in an amount equal to $50,000.00."

         5.       Extension of the Maturity Date. The Maturity Date shall be
extended to October 31, 2004, and Section 4 of Schedule 1 is hereby amended
accordingly.

         6.       Change to Financial Covenants.

                  6.1      Consolidated Revenues Covenant. The existing Section
5.1 of Schedule 1 is hereby deleted and a new Section 5.1 is hereby added to
read in full as follows:

                                    "5.1 Minimum Consolidated Revenues. Borrower
                           shall maintain minimum Consolidated Revenues on a
                           rolling three-month basis (the first such three-month
                           period being 10/1/03 - 12/31/03), measured by the
                           Bank each month commencing on December 31, 2003, in
                           the following amounts: (i) $18,500,000.00 for each
                           month

                                       3


                           through May 31, 2004; and (ii) $20,500,000.00 for
                           each month thereafter. For purposes of this covenant,
                           "Consolidated Revenues" shall mean the revenues of
                           the Borrower and its subsidiaries as reported to the
                           Bank on a consolidated basis in the Borrower's
                           monthly financial statements."

                  6.2      Minimum Cash Balance. The existing Section 5.2 of
Schedule 1 is hereby deleted and a new Section 5.2 is hereby added to read in
full as follows:

                                    "5.2     Minimum Cash Balance. The Borrower
                           shall maintain at least $3,000,000.00 in deposits
                           with the Bank and its Affiliates at all times."

         7.       Reporting.

                  7.1      Transaction Reports. On and after the Effective Date,
transaction reports shall be required daily at all times that any Loans are
outstanding and the Borrower maintains less than $5,000,000.00 on deposit with
the Bank and its Affiliates. Otherwise, transaction reports shall be required on
a weekly basis.

                  7.2      Monthly Financial Reports. Clause (v) of Section 6 of
Schedule 1 is hereby amended to read in full as follows:

                                    "(v)     Monthly unaudited financial
                           statements, as soon as available and in any event
                           within 30 days after the end of each month, prepared
                           on a consolidating basis for the Borrower and its
                           subsidiaries;"

         8.       Reaffirmation of Obligations. The Borrower reaffirms to the
Bank that, as of the date hereof, the outstanding principal amount of all Loans
under the Senior Loan Documents (including the face amount of all Letters of
Credit outstanding under the Letter of Credit Sublimit) is Two Million Seven
Hundred One Thousand Five Hundred One and No/100 Dollars ($2,701,501.00). The
Borrower acknowledges that the Senior Loan Documents fully and accurately
reflect and constitute the valid and enforceable Obligations of the Borrower to
the Bank, and the Borrower remains fully obligated to perform all covenants
thereunder and has no defenses to or offsets against such Obligations.

         9.       Conditions to Effectiveness. The following conditions must be
satisfied in full, or waived in writing by the Bank, before this Second
Amendment shall be effective and the Bank shall become obligated hereunder.

                  9.1      Execution and Delivery of Documents. The Borrower
shall have executed and delivered to the Bank this Second Amendment, and the
Bank shall have received any and all other instruments and documents, fully
executed and in form and substance acceptable to the Bank, as are contemplated
hereby or otherwise reasonably requested by the Bank.

                                       4


                  9.2      Payment of Fees and Expenses. The Borrower shall have
paid to the Bank all fees due and owing under the Senior Loan Documents as
amended hereby (including but not limited to the Facility Fee), as well as a sum
sufficient to reimburse the Bank for all costs and expenses incurred by the Bank
in entering into this Second Amendment and any and all other documents and
instruments contemplated hereby or thereby (including but not limited to all
attorneys' fees and expenses.)

                  9.3      Representations and Warranties; No Default. The
representations and warranties of the Borrower as set forth in the Senior Loan
Documents shall be true and correct in all material respects as of the date on
which this Second Amendment becomes effective, and no Event of Default shall
have occurred and be continuing as of such date without having been cured.

         10.      Condition Subsequent. In the event that the Borrower fails to
obtain within 15 days after the Effective Date an acknowledgement from each of
the Investors and the Second Subordinated Creditors, in form and substance
acceptable to the Bank, that the First Subordination Agreement and the Second
Subordination Agreement remain in full force and effect subsequent to the
Effective Date, this Second Amendment shall be of no further force or effect
whatsoever and the Senior Debt Facility shall be deemed to have matured on
January 30, 2004.

         11.      Continued Full Force and Effect. Except to the extent
expressly amended hereby, all of the terms and provisions of the Senior Loan
Documents shall remain in full force and effect, and the lien in favor of the
Bank in the Collateral shall be and remain a fully perfected senior lien upon
all of the Collateral pursuant to the terms of the Senior Loan Documents, it
being the intent of the parties that nothing herein shall affect or impair the
Bank's rights or remedies under the Senior Loan Documents or its lien upon the
Collateral. Henceforth, the term "Loan Documents" shall be deemed to mean the
Senior Loan Documents as modified and supplemented by the terms of this Second
Amendment, and any default of the Borrower hereunder shall constitute an Event
of Default under the Senior Loan Documents.

         12.      General Provisions.

                  12.1     Choice of Law and Venue. This Second Amendment shall
be governed by and construed in accordance with the internal laws of the State
of California, without regard to principles of conflicts of law, and any action
or proceeding arising out of this Second Amendment shall be commenced in the
Superior Court of the State of California for the County of Santa Clara, or in
the District Court of the United States in the Northern District of California.

                  12.2     WAIVER OF JURY TRIAL. EACH OF THE BORROWER, ON THE
ONE HAND, AND THE BANK, ON THE OTHER HAND, WAIVES ITS RIGHT TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS SECOND AMENDMENT,
THE SENIOR LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT,
TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT
FOR EACH OF THE PARTIES TO ENTER INTO THIS

                                       5


AMENDMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL AND UNDERSTANDS
THE RAMIFICATIONS THEREOF.

                  12.3     Entire Agreement. This Second Amendment, along with
the Loan Agreement and the other Senior Loan Documents, together constitute the
entire agreement and understanding between the parties hereto with respect to
the transactions contemplated hereunder and thereunder and supersede all prior
negotiations, understandings and agreements between the parties with respect to
such transactions.

                  12.4     Counterparts. This Second Amendment may be executed
and delivered in any number of counterparts, each of which shall be an original
and all of which together shall constitute one and the same agreement.

                  12.5     Time of the Essence. Time is of the essence in the
performance by each party of its obligations hereunder and the satisfaction of
all conditions specified herein.

         IN WITNESS WHEREOF, each of the parties hereto has caused its duly
authorized representative to execute this Second Amendment as of the date first
set forth above.

BORROWER:                                     BANK:

CRITICAL PATH, INC.                           SILICON VALLEY BANK,
a California corporation                      a California-chartered bank

By: /s/ Andrew P. Morrison                    By: /s/ Brian Harrison
   --------------------------------              -------------------------------
Name:  Andrew P. Morrison                     Name:  Brian Harrison
Title: Vice President, Finance               Title: Vice President

                    [Acknowledgement of Investors and Second
                   Subordinated Creditors Follow Immediately.]

                                       6


                                 ACKNOWLEDGEMENT

         THE UNDERSIGNED, as all of the Investors and the Second Subordinated
Creditors, hereby consent to the foregoing Second Amendment and acknowledge that
each of the First Subordination Agreement and the Second Subordination Agreement
remains in full force and effect subsequent to the Effective Date.

         IN WITNESS WHEREOF, the undersigned have executed this Acknowledgment
as of the date first set forth above.

THE INVESTORS:

GAP COINVESTMENT PARTNERS II, L.P.,      GENERAL ATLANTIC PARTNERS, 74, L.P.,
a Delaware limited partnership           a Delaware limited partnership

                                         By: GENERAL ATLANTIC PARTNERS,
                                         LLC, its Managing Member

By: /s/ Matthew Nimetz                   By: /s/ Matthew Nimetz
   ---------------------------------        ----------------------------
   Name:  Matthew Nimetz                    Name: Matthew Nimetz
   Title: A General Partner                 Title: A Managing Member

GAPSTAR, LLC, a Delaware limited         GAPCO GMBH & CO. KG., a German limited
liability company                         partnership

By: GENERAL ATLANTIC PARTNERS,           By: GAPCO MANAGEMENT GMBH, its
LLC, its Sole Member                     General Partner

By: /s/ Matthew Nimetz                   By: /s/ Matthew Nimetz
   ---------------------------------        ----------------------------
   Name: Matthew Nimetz                    Name: Matthew Nimetz
   Title: A Managing Member                 Title: A Managing Director

THE SECOND SUBORDINATED
CREDITORS:

PERMAL U.S. OPPORTUNITIES LIMITED        ZAXIS PARTNERS, L.P.

By:  Apex Capital, LLC                   By:  Apex Capital, LLC
Its: Authorized Investment Advisor       Its: General Partner

By: /s/ Sanford J. Colen                 By: /s/ Sanford J. Colen
   -----------------------                  ----------------------------
Name: Sanford J. Colen                   Name: Sanford J. Colen
Title: Manager and Principal             Title: Manager and Principal

                                       7


THE SECOND SUBORDINATED
CREDITORS (CON'T.):

ZAXIS EQUITY NEUTRAL, L.P.
                                         ZAXIS OFFSHORE LIMITED
By:  Apex Capital, LLC                    By: Apex Capital
Its: General Partner                     Its: General Partner

By: /s/ Sanford J. Colen                 By: /s/ Sanford J. Colen
   -----------------------                  ---------------------
Name:  Sanford J. Colen                  Name:  Sanford J. Colen
Title: Manager and Principal             Title: Manager and Principal

ZAXIS INSTITUTIONAL PARTNERS, L.P.       PASSPORT MASTER FUND, L.P.

By: Apex Capital                         By: /s/ John Burbank
Its: General Partner                        -----------------
                                         Name:  John Burbank
                                         Title:  Managing Partner
By: /s/ Sanford J. Colen
   ---------------------
Name:  Sanford J. Colen
Title: Manager and Principal

                                       8

EX-10.54

exv10w54

EX-10.55

EXHIBIT 10.55

AMENDMENT NO. 2 TO

CONVERTIBLE NOTE PURCHASE AND EXCHANGE AGREEMENT

     AMENDMENT NO. 2, dated March 9, 2004 (this “Amendment”), among Critical Path, Inc., a California corporation (the “Company”), General Atlantic Partners 74, L.P., a Delaware limited partnership, GAP Coinvestment Partners II, L.P., a Delaware limited partnership, GapStar, LLC, a Delaware limited liability company, GAPCO GmbH & Co. KG, a German limited partnership, Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited (collectively with the Company, the “Parties”),

WITNESSETH:

     WHEREAS, the Parties are each a party to that certain Convertible Note Purchase and Exchange Agreement, dated November 18, 2003, as amended on January 16, 2004 (the “November 2003 Note Exchange Agreement”); and

     WHEREAS, the Company entered into a Convertible Note Purchase Agreement, dated January 16, 2004, pursuant to which the Company issued and sold to Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P. convertible notes having an aggregate principal amount of $15 million, which notes are convertible, subject to Stockholder Approval, into shares of Series E Redeemable Convertible Preferred Stock of the Company, par value $0.001 per share (the “January 2004 Note Purchase Agreement”); and

     WHEREAS, in connection with the execution of the January 2004 Note Purchase Agreement, the Parties entered into an amendment to the November 2003 Note Exchange Agreement; and

     WHEREAS, the Company desires to enter into a Convertible Note Purchase Agreement, pursuant to which the Company proposes to issue and sell to Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P., Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures International convertible notes having an aggregate principal amount of $18.5 million which notes will be convertible, subject to Stockholder Approval, into shares of Series E Redeemable Convertible Preferred Stock of the Company, par value $0.001 per share (the “March 2004 Note Purchase Agreement”); and

     WHEREAS, in connection with the execution of the March 2004 Note Purchase Agreement, the Parties desire to amend the November 2003 Note Exchange Agreement as set forth herein; and

     WHEREAS, capitalized terms used in this Amendment and not defined herein shall have the meanings ascribed to such terms in the November 2003 Note Exchange Agreement:

     NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, for the covenants and agreements set forth in the November 2003 Note Exchange Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Parties hereby agree as follows:

     1.1 Amendments to the November 2003 Note Exchange Agreement. The November 2003 Note Exchange Agreement shall be amended as set forth below:

          (a) Section 1.1 of the November 2003 Note Exchange Agreement shall be amended to add the following:

          ““March 2004 Note Purchase Agreement” means that certain Convertible Note Purchase Agreement, dated March 9, 2004, among Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P., Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital Partners, Institutional, Criterion Capital Partners, L.P., Capital Ventures International and Critical Path, Inc., a California corporation (the “Company”), pursuant to which the Company shall issue and sell convertible notes in an aggregate principal amount of up to $18.5 million, which notes shall be convertible into Series E Preferred Stock, subject to Stockholder Approval and concurrently with the Conversion and Exchange, or into Common Stock, in each case in accordance with such agreement.”

           (b) The definition of “Note Purchase Agreement” in Section 1.1 of the November 2003 Note Exchange Agreement shall be deleted and replaced with the following:

           ““Note Purchase Agreement” means that certain Convertible Note Purchase Agreement, dated January 16, 2004, among Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P., Passport Master Fund, L.P. and Critical Path, Inc., a California corporation (the “Company”), pursuant to which the Company shall issue and sell convertible notes in an aggregate principal amount of up to $15 million, which notes shall be convertible into Series E Preferred Stock, subject to Stockholder Approval and concurrently with the Conversion and Exchange, or into Common Stock, in each case in accordance with such agreement.”

          (c) The definition of “Subsequent Lenders” in Section 1.1 of the November 2003 Note Exchange Agreement shall be deleted and replaced with the following:

           ““Subsequent Lenders” shall include the Lenders, as defined in the Note Purchase Agreement, and the Lenders, as defined in the March 2004 Note Purchase Agreement.”

2

          (d) Section 2.6(f) of the November 2003 Note Exchange Agreement is hereby deleted and amended and restated in its entirety to read as follows:

     “(f) Subsequent Closing. The consummation of the Exchange and Conversion (the “Subsequent Closing”) shall take place concurrently with the Subsequent Closing under the Note Purchase Agreement and the Subsequent Closing under the March 2004 Note Purchase Agreement, as soon as practicable following the satisfaction of the closing conditions set forth in Article VI of this Agreement, Article VI of the Note Purchase Agreement and Article VI of the March 2004 Note Purchase Agreement (the “Subsequent Closing Date”), at the offices of Pillsbury Winthrop LLP, 50 Fremont Street, San Francisco, California, or at such other time and place as the Company, the Lenders, the CK Purchasers and the Subsequent Lenders may mutually agree. At the Subsequent Closing, signature pages transmitted by facsimile will be acceptable, with originals to follow as soon as practicable thereafter.”

          (e) Article VIII of the November 2003 Note Exchange Agreement shall be amended to add a new Section 8.8 which shall read as follows:

     “8.8 Proxy Matters. Notwithstanding anything herein to the contrary, but subject to the provisions of Section 9.1 of this Agreement, if the Registration Statement has not been declared effective by the Commission on or prior to May 15, 2004, the Company will promptly take all such actions as may be necessary to withdraw the Registration Statement, and the Company shall continue to have an obligation under Section 8.4 of this Agreement to seek Stockholder Approval. If the Company withdraws the Registration Statement pursuant to this Section 8.8 and receives Stockholder Approval, the Company may, subject to approval by the Board of Directors, file a subsequent registration statement with the Commission and provide the Company’s shareholders the opportunity to participate in a subsequent rights offering.”

          (f) In the first sentence of Section 9.1 of the November 2003 Note Exchange Agreement, the words “April 30” shall be deleted and replaced with the words “August 15”.

     1.2 Amendments to Schedules to the November 2003 Note Exchange Agreement. Schedule 8.5 of the November 2003 Note Exchange Agreement is hereby deleted and amended and restated to read in its entirety in the form set forth as Annex 1 attached hereto.

     1.3 Counterparts. This Amendment may be executed in any number of counterparts and by the Parties in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Signature pages transmitted by facsimile will be acceptable, with originals to immediately follow.

     1.4 Continuing Agreement. Except as specifically amended hereby, all of the terms of the November 2003 Note Exchange Agreement shall remain and continue in full force and effect and are hereby confirmed in all respects.

3

     1.5 Headings. The headings in this Amendment are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

     1.6 Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of California, without regard to the principles of conflicts of law thereof.

     1.7 Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof.

     1.8 Entire Agreement. This Amendment, together with the November 2003 Note Exchange Agreement and the exhibits and schedules thereto, and the other Transaction Documents, are intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. There are no restrictions, promises, representations, warranties or undertakings, other than those set forth or referred to herein or therein. This Amendment and the November 2003 Note Exchange Agreement, together with the exhibits and schedules thereto, and the other Transaction Documents, supersede all prior agreements and understandings between the parties with respect to such subject matter.

[the remainder of this page intentionally left blank]

4

     IN WITNESS WHEREOF, the undersigned have executed, or have caused to be executed, this Amendment on the date first written above.

CRITICAL PATH, INC., a California corporation
By:	/s/ William E. McGlashan, Jr.
	Name:	William E. McGlashan, Jr.
	Title:	Chairman, Chief Executive Officer

SIGNATURE PAGE TO AMENDMENT NO. 2 TO CONVERTIBLE NOTE PURCHASE AND EXCHANGE AGREEMENT

GENERAL ATLANTIC PARTNERS 74, L.P.
By:	GENERAL ATLANTIC PARTNERS, LLC,
	its General Partner
By:	/s/ Thomas J. Murphy
	Name:	Thomas J. Murphy
	Title:	Attorney-in-fact
GAP COINVESTMENT PARTNERS II, L.P.
By:	/s/ Thomas J. Murphy
	Name:	Thomas J. Murphy
	Title:	Attorney-in-fact
GAPSTAR, LLC
By:	GENERAL ATLANTIC PARTNERS, LLC,
	its Managing Member
By:	/s/ Thomas J. Murphy
	Name:	Thomas J. Murphy
	Title:	Attorney-in-fact
GAPCO GMBH & CO. KG
By:	GAPCO MANAGEMENT GMBH,
	its General Partner
By:	/s/ Thomas J. Murphy
	Name:	Thomas J. Murphy
	Title:	Procuration Officer

SIGNATURE PAGE TO AMENDMENT NO. 2 TO CONVERTIBLE NOTE PURCHASE AND EXCHANGE AGREEMENT

CENWELL LIMITED
By:	/s/ Ip Tak Chuen, Edmond
	Name:	Ip Tak Chuen, Edmond
	Title:	Authorised Person

CAMPINA ENTERPRISES LIMITED
By:	/s/ Ip Tak Chuen, Edmond
	Name:	Name: Ip Tak Chuen, Edmond
	Title:	Director

GREAT AFFLUENT LIMITED
By:	/s/ Ip Tak Chuen, Edmond
	Name:	Ip Tak Chuen, Edmond
	Title:	Director

DRAGONFIELD LIMITED
By:	/s/ Pau Yee Wan, Ezra
	Name:	Pau Yee Wan, Ezra
	Title:	Authorised Person

LION COSMOS LIMITED
By:	/s/ Pau Yee Wan, Ezra
	Name:	Pau Yee Wan, Ezra
	Title:	Director

SIGNATURE PAGE TO AMENDMENT NO. 2 TO CONVERTIBLE NOTE PURCHASE AND EXCHANGE AGREEMENT

EX-10.57

EXHIBIT 10.57

AMENDMENT NO. 1 TO

CONVERTIBLE NOTE PURCHASE AGREEMENT

     AMENDMENT NO. 1, dated March 9, 2004 (this “Amendment”), among Critical Path, Inc., a California corporation (the “Company”), Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P., and Passport Master Fund, L.P. (collectively with the Company, the “Parties”),

WITNESSETH:

     WHEREAS, the Parties are each a party to that certain Convertible Note Purchase Agreement, dated January 16, 2004 (the “January 2004 Note Purchase Agreement”); and

     WHEREAS, the Company desires to enter into a Convertible Note Purchase Agreement, pursuant to which the Company proposes to issue and sell to Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P., Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Criterion Capital Partners, Ltd., Criterion Capital Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures International convertible notes having an aggregate principal amount of $18.5 million which notes will be convertible, subject to Stockholder Approval, into shares of Series E Redeemable Convertible Preferred Stock of the Company, par value $0.001 per share (the “March 2004 Note Purchase Agreement”); and

     WHEREAS, in connection with the execution of the March 2004 Note Purchase Agreement, the Parties desire to amend the January 2004 Note Purchase Agreement as set forth herein; and

     WHEREAS, capitalized terms used in this Amendment and not defined herein shall have the meanings ascribed to such terms in the January 2004 Note Purchase Agreement:

     NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, for the covenants and agreements set forth in the January 2004 Note Purchase Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Parties hereby agree as follows:

     1.1 Amendments to the January 2004 Note Purchase Agreement. The January 2004 Note Purchase Agreement shall be amended as set forth below:

          (a) Section 1.1 of the January 2004 Note Purchase Agreement shall be amended to add the following:

     ““March 2004 Note Purchase Agreement” means that certain Convertible Note Purchase Agreement, dated March 9, 2004, among Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners,

L.P., Zaxis Offshore Limited, Zaxis Partners, L.P., Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Criterion Capital Partners, Ltd., Criterion Capital Partners, Institutional, Criterion Capital Partners, L.P., Capital Ventures International and Critical Path, Inc., a California corporation (the “Company”), pursuant to which the Company shall issue and sell convertible notes in an aggregate principal amount of up to $18.5 million, which notes shall be convertible into Series E Preferred Stock, subject to Stockholder Approval and concurrently with the Conversion, or Common Stock, in each case in accordance with such agreement.”

     ““Subsequent Lenders” means the Lenders as defined in the March 2004 Note Purchase Agreement.”

     (b) The third sentence of Section 2.1(a) of the January 2004 Note Purchase Agreement shall be deleted and replaced with the following:

     “If the Conversion has not occurred on or before August 15, 2004, the Notes shall thereafter be convertible at the option of each Lender only into shares of Common Stock in accordance with the terms thereof (all the shares of Common Stock issuable directly upon conversion of the Notes referred to herein as the “Common Shares”).”

     (c) Section 2.4(e) of the January 2004 Note Purchase Agreement is hereby deleted and amended and restated in its entirety to read as follows:

     “(e) Subsequent Closing. The consummation of the Conversion (the “Subsequent Closing”) shall take place concurrently with the Subsequent Closing under the Convertible Note Agreement and the Subsequent Closing under the March 2004 Note Purchase Agreement, as soon as practicable following the satisfaction of the closing conditions set forth in Article VI of this Agreement, Article VI of the Convertible Note Agreement and Article VI of the March 2004 Note Purchase Agreement (the “Subsequent Closing Date”), at the offices of Pillsbury Winthrop LLP, 50 Fremont Street, San Francisco, California, or at such other time and place as the Company, the Lenders, the General Atlantic Entities, the CK Purchasers and the Subsequent Lenders may mutually agree. At the Subsequent Closing, signature pages transmitted by facsimile will be acceptable, with originals to follow as soon as practicable thereafter.”

           (d) In the first sentence of Section 2.5 of the January 2004 Note Purchase Agreement, the words “April 30” shall be deleted and replaced with the words “August 15”.

           (e) Section 8.6 of the January 2004 Note Purchase Agreement shall be deleted and replaced with the following:

           “8.6 Purchases and Sales. In the event any Lender has become aware of or becomes aware of any material non-public information about the Company (which the parties hereby agree will include (but not be limited to) any

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information labeled by the Company to be material non-public information) (“Material Non-Public Information”), such Lender shall not purchase or sell any shares of the Company’s capital stock (or securities exercisable or convertible for shares of the Company’s capital stock) until the earlier of (a) such time as the information is no longer material as a matter of law (which the parties agree shall be a period of at least three months after becoming aware of such material non-public information), and (b) the time at which such information has been disseminated publicly by the Company, and in any event not in violation of the federal securities laws. Except as set forth in this Agreement, the Company covenants and agrees that neither it nor any other Person acting on its behalf will provide any Lender or its agents or counsel with any information that the Company believes constitutes Material Non-Public Information, unless prior thereto such Lender shall have executed a written agreement regarding the confidentiality and use of such information. The Company understands and confirms that each Lender shall be relying on the foregoing representations in effecting transactions in securities of the Company.”

     (f) Article VIII of the January 2004 Note Purchase Agreement shall be amended to add a new Section 8.7 which shall read as follows:

     “8.7 Proxy Matters. Notwithstanding anything herein to the contrary, but subject to the provisions of Section 9.1 of this Agreement, if the Registration Statement (as defined in the Convertible Note Agreement) has not been declared effective by the Commission on or prior to May 15, 2004, subject to approval by the Board of Directors, the Company will promptly take all such actions as may be necessary to withdraw the Registration Statement, and the Company shall continue to have an obligation under Section 8.4 of this Agreement to seek Stockholder Approval. If the Company withdraws the Registration Statement pursuant to this Section 8.7 and receives Stockholder Approval, the Company may, subject to approval by the Board of Directors, file a subsequent registration statement with the Commission and provide the Company’s shareholders the opportunity to participate in a subsequent rights offering.”

     (g) In the first sentence of Section 9.1 of the January 2004 Note Purchase Agreement, the words “April 30” shall be deleted and replaced with the words “August 15”.

     1.2 Amendments to Schedules to the January 2004 Note Purchase Agreement. Schedule 8.5 of the January 2004 Note Purchase Agreement is hereby deleted and amended and restated to read in its entirety in the form set forth as Annex 1 attached hereto.

     1.3 Counterparts. This Amendment may be executed in any number of counterparts and by the Parties in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Signature pages transmitted by facsimile will be acceptable, with originals to immediately follow.

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     1.4 Continuing Agreement. Except as specifically amended hereby, all of the terms of the January 2004 Note Purchase Agreement shall remain and continue in full force and effect and are hereby confirmed in all respects.

     1.5 Headings. The headings in this Amendment are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

     1.6 Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of California, without regard to the principles of conflicts of law thereof.

     1.7 Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof.

     1.8 Entire Agreement. This Amendment, together with the January 2004 Note Purchase Agreement and the exhibits and schedules thereto, and the other Transaction Documents, are intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. There are no restrictions, promises, representations, warranties or undertakings, other than those set forth or referred to herein or therein. This Amendment and the January 2004 Note Purchase Agreement, together with the exhibits and schedules thereto, and the other Transaction Documents, supersede all prior agreements and understandings between the parties with respect to such subject matter.

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          IN WITNESS WHEREOF, the undersigned have executed, or have caused to be executed, this Amendment on the date first written above.

CRITICAL PATH, INC., a California corporation
By:	/s/ William E. McGlashan, Jr.
	Name:	William E. McGlashan, Jr.
	Title:	Chairman, Chief Executive Officer

SIGNATURE PAGE TO AMENDMENT NO. 1 TO CONVERTIBLE NOTE PURCHASE AGREEMENT

PERMAL U.S. OPPORTUNITIES LIMITED By: Apex Capital, LLC, its Authorized Investment Advisor
By:	/s/ Sanford J. Colen
	Name:	Sanford J. Colen
	Title:	Manager and Principal

ZAXIS PARTNERS, L.P. By: Apex Capital, LLC, its General Partner
By:	/s/ Sanford J. Colen
	Name:	Sanford J. Colen
	Title:	Manager and Principal

ZAXIS EQUITY NEUTRAL, L.P. By: Apex Capital, LLC, its General Partner
By:	/s/ Sanford J. Colen
	Name:	Sanford J. Colen
	Title:	Manager and Principal

ZAXIS OFFSHORE LIMITED By: Apex Capital, LLC, its Authorized Investment Advisor
By:	/s/ Sanford J. Colen
	Name:	Sanford J. Colen
	Title:	Manager and Principal

ZAXIS INSTITUTIONAL PARTNERS, L.P. By: Apex Capital, LLC, its General Partner
By:	/s/ Sanford J. Colen
	Name:	Sanford J. Colen
	Title:	Manager and Principal

SIGNATURE PAGE TO AMENDMENT NO. 1 TO CONVERTIBLE NOTE PURCHASE AGREEMENT

PASSPORT MASTER FUND
By:	/s/ John Burbank
	Name:	John Burbank
	Title:	Managing Partner

SIGNATURE PAGE TO AMENDMENT NO. 1 TO CONVERTIBLE NOTE PURCHASE AGREEMENT EX-10.59 44 f97295exv10w59.txt EXHIBIT 10.59 EXHIBIT 10.59 THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT THIS THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (the "Third Amendment") is entered into as of March 12, 2004, by and between SILICON VALLEY BANK, a California-chartered bank (the "Bank"), and CRITICAL PATH, INC., a California corporation (the "Borrower"), in reliance on the following: RECITALS A. On or about March 31, 2000, the Borrower entered into that certain Indenture (the "Indenture") between the Borrower and State Street Bank and Trust Company of California, N.A., a national banking association organized under the laws of the United States (the "Trustee"), pursuant to which the Borrower issued approximately $38,000,000.00 of Convertible Subordinated Notes (the "Notes") due to mature on April 1, 2005 (the "Note Payment Date") to a group of investors lead by the Cheung Kong Group and its Hutchison Whampoa Limited affiliates (the "Cheung Kong Investors"), among other investors. B. On or about July 18, 2003, the Borrower and the Bank entered into that certain Amended and Restated Loan and Security Agreement (the "Loan Agreement") pursuant to which the Bank made available to the Borrower a revolving credit facility (the "Senior Debt Facility") in the principal amount of up to $15,000,000.00. C. On or about November 18, 2003, the Borrower entered into that certain Convertible Note Purchase and Exchange Agreement among the Borrower, General Atlantic Partners 74, L.P. ("GAP 74"), GAP Coinvestment Partners II, L.P. ("GAP Coinvestment"), GapStar, LLC ("GapStar") and GAPCO GmbH & Co. KG ("GAPCO" and, together with GAP 74, GAP Coinvestment and GapStar, the "Investors"), and the other entities listed on the signature pages thereto (collectively with the notes and other documents executed and delivered by the Borrower in connection therewith, as amended in accordance with the terms of the First Subordination Agreement defined below, the "First Junior Debt Documents"), pursuant to which the Borrower issued to such Investors convertible notes in the aggregate principal amount of $10,000,000.00 (the "First Junior Debt") and granted a security interest to the Investors in certain of the Collateral on November 26, 2003. D. The Bank consented to the Borrower's entering into the First Junior Debt Documents and performing its obligations thereunder pursuant to the terms of that certain First Amendment to Amended and Restated Loan and Security Agreement dated as of November 26, 2003 (the "Amendment"). The Amendment provided, in part, that the Investors would enter into that certain Subordination Agreement with the Bank dated as of November 26, 2003 (the "First Subordination Agreement") to evidence the terms by which the First Junior Debt is subordinated to the Senior Debt Facility. 1 E. On or about January 16, 2004, the Borrower entered into that certain Convertible Note Purchase Agreement dated as of January 16, 2004, by and among the Borrower as issuer, on the one hand, and Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Partners, L.P., Zaxis Offshore Limited, Zaxis Institutional Partners, L.P., and Passport Master Fund, L.P. as creditors (collectively, the "Second Subordinated Creditors"), on the other hand, and the Notes, the Guaranty and Security Agreement and the other documents executed and delivered in connection therewith (collectively, the "Second Junior Debt Documents"). F. The Bank consented to the Borrower's entering into the Second Junior Debt Documents and the Borrower's granting to the Second Subordinated Creditors a security interest in certain of the Collateral, all as more fully set forth in the Second Junior Debt Documents, conditioned upon the execution and delivery by the Second Subordinated Creditors of a "Second Subordination Agreement" by and among the Bank, as senior creditor, and the Second Subordinated Creditors, as junior creditors, in form and substance acceptable to the Bank, and the consent of the Investors to the Borrower's entering into the Second Junior Debt Documents. G. On or about January 30, 2004, the Borrower entered into that certain Second Amendment to Amended and Restated Loan and Security Agreement dated as of January 30, 2004 (the "Second Amendment"). The Second Amendment provided, in part, an extension of the Maturity Date to October 31, 2004. The Loan Agreement as amended by the Amendment and the Second Amendment, along with all other documents entered into by the parties in connection with the Loan Agreement, the Amendment and the Second Amendment, are hereinafter referred to as the "Senior Loan Documents," and each capitalized term used in this Third Amendment shall have the meaning accorded to it in the Senior Loan Documents unless it is otherwise defined herein. H. On or about March 9, 2004, the Borrower entered into that certain Convertible Note Purchase Agreement dated as of March 9, 2004, by and among the Borrower as issuer, on the one hand, and Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Partners, L.P., Zaxis Offshore Limited, Zaxis Institutional Partners, L.P., Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd. Criterion Capital Partners, Institutional, Criterion Capital Partners, L.P. and Capital Ventures International as creditors (collectively, the "Third Subordinated Creditors"), on the other hand, and the Notes, the Guaranty and Security Agreement and the other documents executed and delivered in connection therewith (collectively, the "Third Junior Debt Documents"). I. The Bank consented to the Borrower's entering into the Third Junior Debt Documents and the Borrower's granting to the Third Subordinated Creditors a security interest in certain of the Collateral, all as more fully set forth in the Third Junior Debt Documents, conditioned upon the execution and delivery by the Third Subordinated Creditors of a "Third Subordination Agreement" by and among the Bank, as senior creditor, and the Third Subordinated Creditors, as junior creditors, in form and substance acceptable to the Bank, and the consent of the Investors and Second Subordinated Creditors to the Borrower's entering into the Third Junior Debt Documents. 2 J. The Borrower now desires to amend the Senior Loan Documents further in order to extend the Maturity Date, and the Bank is willing to do so upon the terms set forth herein. AGREEMENT NOW, THEREFORE, in reliance upon the foregoing and in consideration of the mutual covenants set forth herein and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Change in the Calculation of the Credit Limit. 1.1 The Credit Limit. On and after the date on which this Third Amendment becomes effective pursuant to Section 9 hereof (the "Effective Date"), the Credit Limit shall be an amount equal to the lesser of (i) $6,000,000.00 or (ii) the Borrowing Base. Section 1.1 of Schedule 1 to the Loan Agreement ("Schedule 1") is hereby amended accordingly. 1.2 Definition of the Borrowing Base. The following definition hereby replaces in full the definition of Borrowing Base set forth in Section 1.2 of Schedule 1, and said Section 1.2 is hereby amended accordingly: (a) During the period commencing on the Effective Date and ending on March 31, 2005, the Borrowing Base shall be the sum of (i) eighty percent (80%) of the amount of Eligible Accounts, plus (ii) one hundred percent (100%) of the unrestricted Investment Cash, plus (iii) one hundred percent (100%) of the face amount of all letters of credit issued to the Bank, as beneficiary thereof, by such bank(s) and in such form as is acceptable to the Bank in its sole discretion. (b) On or after April 1, 2005, the Borrowing Base shall be the sum of (i) $3,000,000.00, plus (ii) eighty percent (80%) of the amount of Eligible Accounts, plus (iii) one hundred percent (100%) of the unrestricted Investment Cash, plus (iv) one hundred percent (100%) of the face amount of all letters of credit issued to the Bank, as beneficiary thereof, by such bank(s) and in such form as is acceptable to the Bank in its sole discretion. 2. Change in the Interest Rate. On and after the Effective Date, the Borrower shall pay interest on all loans at a rate determined for each calendar month as follows: (i) so long as the Borrower maintains at least $15,000,000.00 on deposit with the Bank and its Affiliates at all times during such calendar month, the Prime Rate plus one and one-half percent per annum (1.50% p.a.); (ii) if the Borrower maintains less than $15,000,000.00 but at least $5,000,000.00 on deposit with the Bank and its Affiliates at all times during such calendar month, the Prime Rate plus two percent per annum (2.00% p.a.); and (iii) if at any time during such month the Borrower maintains less than $5,000,000.00 on deposit with the Bank and its Affiliates, the Prime Rate plus three percent per annum (3.00% p.a.). In no event shall the Prime Rate be less than 4.00% per annum for purposes of the Senior Loan Documents. Section 2 of Schedule 1 is hereby amended accordingly. 3 3. Fees. 3.1 The Facility Fee. The Borrower will pay the Bank a facility fee on the Effective Date in the amount of $100,000.00 (the "Facility Fee"), which Facility Fee shall be fully-earned and non-refundable upon payment. 3.2 The Expedite Fee. The Borrower will pay the Bank an expedite fee on the Effective Date in the amount of $50,000.00 (the "Expedite Fee"), which Expedite Fee shall be fully-earned and non-refundable upon payment. 3.3 Change to Unused Facility Fee. The existing Section 3.3 of Schedule 1 is hereby deleted and a new Section 3.3 is hereby added to read in full as follows: "3.3 Unused Facility Fee. Borrower shall pay the Bank, payable on the first day of each calendar quarter in arrears during the term hereof, an Unused Facility Fee as follows: (i) so long as Borrower has maintained at least Five Million Dollars ($5,000,000.00) on deposit with the Bank and its Affiliates at all times over the immediately preceding calendar quarter, an Unused Facility Fee equal to the product of (a) 0.45% multiplied by (b) an amount equal to the undrawn portion of the Credit Limit over the immediately prior calendar quarter, calculated on the basis of 360-day calendar year; and (ii) if at any time during the immediately preceding calendar quarter Borrower maintained less than Five Million Dollars ($5,000,000.00) on deposit with the Bank and its Affiliates, an Unused Facility Fee equal to the product of (a) 2.00% multiplied by (b) an amount equal to the undrawn portion of the Credit Limit over the immediately prior calendar quarter, calculated on the basis of 360-day calendar year." 4. Extension of the Maturity Date. The Maturity Date shall be extended to June 30, 2005, and Section 4 of Schedule 1 is hereby amended accordingly. 5. Change to Financial Covenants. 5.1 Consolidated Revenues Covenant. The existing Section 5.1 of Schedule 1 is hereby deleted and a new Section 5.1 is hereby added to read in full as follows: "5.1 Minimum Consolidated Revenues. Borrower shall maintain minimum Consolidated Revenues on a rolling three-month basis (the first such three-month period being 10/1/03 - 12/31/03), measured by the Bank each month commencing on December 31, 2003, in the following amounts: (i) $18,000,000.00 for each month through June 30, 2004; and (ii) $18,500,000.00 for each month thereafter. For purposes of this covenant, "Consolidated Revenues" shall mean the revenues of Borrower 4 and its subsidiaries as reported to the Bank on a consolidated basis in Borrower's monthly financial statements." 5.2 Minimum Americas Revenues. Borrower shall maintain minimum Americas Revenues on a rolling three-month basis, measured by the Bank each month commencing on the Effective Date, in an amount equal to $7,500,000 for each month through the Maturity Date. For purposes of this covenant, "Americas Revenues" shall mean the revenues generated by the Borrower. 5.3 Going Concern Qualification. The Borrower shall cause its external accountants to remove the "going concern" qualification issued in December 2003 by no later than April 30, 2004. 6. Designation of Senior Debt. The Borrower hereby designates the indebtedness evidenced in the Senior Debt Facility as a "Designated Senior Debt" under, and as such term is defined in, the Indenture and hereby agrees, as soon as practicable, to notify the Trustee of such designation. 7. Banking Relationship. The second sentence of Section 8.1 of Schedule 1 is hereby amended and restated as follows: "Without limiting the generality of the foregoing, Borrower shall at all times maintain unrestricted cash or cash equivalents on deposit with the Bank in an amount not less than (i) $5,000,000.00 for each month through March 31, 2005; and (ii) $2,000,000.00 each month thereafter until the Maturity Date." 8. Reaffirmation of Obligations. The Borrower reaffirms to the Bank that, as of the date hereof, the outstanding principal amount of all Loans under the Senior Loan Documents (including the face amount of all Letters of Credit outstanding under the Letter of Credit Sublimit) is $2,701,501.00. The Borrower acknowledges that the Senior Loan Documents fully and accurately reflect and constitute the valid and enforceable Obligations of the Borrower to the Bank, and the Borrower remains fully obligated to perform all covenants thereunder and has no defenses to or offsets against such Obligations. 9. Conditions to Effectiveness. The following conditions must be satisfied in full, or waived in writing by the Bank, before this Third Amendment shall be effective and the Bank shall become obligated hereunder. 9.1 Execution and Delivery of Documents. The Borrower shall have executed and delivered to the Bank this Third Amendment, and the Bank shall have received any and all other instruments and documents, fully executed and in form and substance acceptable to the Bank, as are contemplated hereby or otherwise reasonably requested by the Bank. 9.2 Extension of Note Payment Date. The Borrower shall have executed, and notified the Bank of the execution of, an agreement (in form and substance acceptable to the Bank) with each of the Cheung Kong Investors extending the Note Payment Date from April 1, 2005 to April 1, 2006. 5 9.3 Payment of Fees and Expenses. The Borrower shall have paid to the Bank all fees due and owing under the Senior Loan Documents as amended hereby (including but not limited to the Facility Fee), as well as a sum sufficient to reimburse the Bank for all costs and expenses incurred by the Bank in entering into this Third Amendment and any and all other documents and instruments contemplated hereby or thereby (including but not limited to all attorneys' fees and expenses.) 9.4 Representations and Warranties; No Default. The representations and warranties of the Borrower as set forth in the Senior Loan Documents shall be true and correct in all material respects as of the date on which this Third Amendment becomes effective, and no Event of Default shall have occurred and be continuing as of such date without having been cured. 10. Condition Subsequent. In the event that the Borrower fails to obtain within 15 days after the Effective Date an acknowledgement from each of the Investors, the Second Subordinated Creditors and the Third Subordinated Creditors, in form and substance acceptable to the Bank, that the First Subordination Agreement, the Second Subordination Agreement and the Third Subordination Agreement, respectively, remain in full force and effect after the Effective Date, this Third Amendment shall be of no further force or effect whatsoever and the Senior Debt Facility shall be deemed to mature on October 31, 2004. 11. Continued Full Force and Effect. Except to the extent expressly amended hereby, all of the terms and provisions of the Senior Loan Documents shall remain in full force and effect, and the lien in favor of the Bank in the Collateral shall be and remain a fully perfected senior lien upon all of the Collateral pursuant to the terms of the Senior Loan Documents, it being the intent of the parties that nothing herein shall affect or impair the Bank's rights or remedies under the Senior Loan Documents or its lien upon the Collateral. Henceforth, the term "Loan Documents" shall be deemed to mean the Senior Loan Documents as modified and supplemented by the terms of this Third Amendment, and any default of the Borrower hereunder shall constitute an Event of Default under the Senior Loan Documents. 12. General Provisions. 12.1 Choice of Law and Venue. This Third Amendment shall be governed by and construed in accordance with the internal laws of the State of California, without regard to principles of conflicts of law, and any action or proceeding arising out of this Third Amendment shall be commenced in the Superior Court of the State of California for the County of Santa Clara, or in the District Court of the United States in the Northern District of California. 12.2 WAIVER OF JURY TRIAL. EACH OF THE BORROWER, ON THE ONE HAND, AND THE BANK, ON THE OTHER HAND, WAIVES ITS RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS THIRD AMENDMENT, THE SENIOR LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR EACH OF THE PARTIES TO ENTER INTO THIS THIRD AMENDMENT. EACH 6 PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL AND UNDERSTANDS THE RAMIFICATIONS THEREOF. 12.3 Entire Agreement. This Third Amendment, along with the Loan Agreement and the other Senior Loan Documents, together constitute the entire agreement and understanding between the parties hereto with respect to the transactions contemplated hereunder and thereunder and supersede all prior negotiations, understandings and agreements between the parties with respect to such transactions. 12.4 Counterparts. This Third Amendment may be executed and delivered in any number of counterparts, each of which shall be an original and all of which together shall constitute one and the same agreement. 12.5 Time of the Essence. Time is of the essence in the performance by each party of its obligations hereunder and the satisfaction of all conditions specified herein. IN WITNESS WHEREOF, each of the parties hereto has caused its duly authorized representative to execute this Third Amendment as of the date first set forth above. BORROWER: BANK: CRITICAL PATH, INC. SILICON VALLEY BANK, a California corporation a California-chartered bank By: /s/ James A. Clark By: /s/ Brian Harrison ---------------------------- ------------------------------- Name: James A. Clark Name: Brian Harrison Title: EVP and CFO Title: Vice President 7 EX-10.60 45 f97295exv10w60.txt EXHIBIT 10.60 EXHIBIT 10.60 FIRST AMENDMENT TO LEASE (Reduction of Term; Landlord Substitution and Termination Rights) THIS FIRST AMENDMENT TO LEASE (this "Amendment") is executed as of November 17, 2003, between SRI HILLS PLAZA VENTURE, LLC, a Delaware limited liability company ("Landlord"), and CRITICAL PATH, INC., a California corporation ("Tenant"). RECITALS A. Landlord, as landlord, and Tenant, as tenant, entered into that certain Lease dated as of November 16, 2001 (the "Lease"), pursuant to which Tenant leased from Landlord premises (the "Current Premises") on the 6th floor of the building presently known as Hills Plaza Phase I, located at 345 Spear Street, San Francisco, California (the "345 Spear Building"). The 345 Spear Building is part of a combined office, retail and residential condominium project (the "Project") located on the entire block of Spear Street between Harrison Street and Folsom Street, in San Francisco, California, which also includes the building presently known as Hills Plaza Phase II, located at 2 Harrison Street, San Francisco, California (the "2 Harrison Building"). Capitalized terms not otherwise defined herein shall have the meanings given them in the Lease. B. The term of the Lease is scheduled to expire on March 31, 2012. C. Landlord and Tenant desire to amend the Lease to (i) shorten the term of the Lease, (ii) grant Landlord a right to terminate the Lease early, (iii) grant Landlord a right to reduce and/or relocate the premises demised under the Lease, (iv) delete Tenant's option to renew the term of the Lease, and (v) modify the Lease in certain other respects, all upon and subject to the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree as follows: 1. Reduction of Term. Subject to Paragraph 6 below, effective as of the date hereof, the term of the Lease specified in Paragraph 2.b. of the Lease is reduced by five (5) years and three (3) months. Accordingly, the Lease shall expire on December 31, 2006. To reflect the reduction of the term of the Lease, effective as of the date hereof, the Lease shall be amended as follows: a. All references to the "Expiration Date" in the Lease shall be deemed to be references to December 31, 2006. b. Paragraph 2.b. is hereby amended by replacing "one hundred twentieth (120th)" with "fifty-seventh (57th)". c. Paragraph 2.c. is hereby amended and restated in its entirety as follows: "c. Monthly Rent: From November 17, 2003 until December 31, 2006, the respective sums set forth as follows: Parcel A: $143,978.83 Parcel B: $57,000.00" 2. Tenant's Option to Renew. Effective as of the date hereof, Paragraph 52 of the Lease is hereby deleted in its entirety. 3. Letter of Credit. a. The Letter of Credit provided pursuant to Paragraph 6 of the Lease is not, and has never been intended to be, a security deposit. It is instead a more direct form of third party obligation where the issuer substitutes its own creditworthiness for that of the Tenant with the issuer having none of the defenses available to guarantors. b. Effective as of the date hereof, Paragraph 6.b. of the Lease is hereby deleted in its entirety. c. If Landlord exercises the Substitution Right (as defined in Paragraph 5.a. below), then so long as no Event of Default by Tenant under the Lease has occurred and is continuing as of the Substitution Date (as defined in Paragraph 5.b. below), and so long as no breach or default by Tenant under the Lease which, with notice or the passage of time or both could ripen into an Event of Default (an "Unmatured Default"), shall be continuing as of the Substitution Date, the amount required under the Letter of Credit shall be reduced as of the Substitution Date to equal twelve (12) month's worth of Monthly Rent for the Substitute Premises (as defined in Paragraph 5.a. below) as of the last twelve (12) months of the term of the Lease. If Tenant is entitled to such reduction, Tenant may replace or amend the -1- then existing Letter of Credit to reflect such reduced amount on or after the Substitution Date. If Landlord disallows any such reduction by reason of an Unmatured Default, and if Tenant cures the Unmatured Default prior to the same becoming an Event of Default, Tenant shall be entitled to a reduction of the Letter of Credit as set forth in this Paragraph as of the date that is five (5) days after the date such Unmatured Default is cured. d. Notwithstanding anything contained herein to the contrary, the amount of the Letter of Credit shall be reduced during the last twelve (12) months of the term of the Lease (whether or not Landlord has exercised the Substitution Right) at such times as reasonably agreed by Landlord and Tenant so that the amount of the Letter of Credit does not exceed the remaining Monthly Rent and Additional Rent (as estimated by Landlord pursuant to Paragraph 7 of the Lease) payable by Tenant under the Lease. 4. Term Reduction Payment. In consideration of Landlord's agreement to shorten the term of the Lease pursuant to Paragraph 1 above and as a condition to the effectiveness of this Amendment, Tenant shall pay to Landlord concurrently with Tenant's execution of this Amendment the amount of Five Hundred Thousand Dollars ($500,000.00) (the "Term Reduction Payment") in immediately available funds of lawful money of the United States of America. 5. Landlord's Substitution Right. a. Substitution Right. Effective as of the date hereof, Landlord shall have the onetime right (the "Substitution Right") to (i) relocate Tenant to another portion of the Project (a "Relocation") or (ii) reduce the size of the Current Premises (a "Reduction"), on the terms and conditions set forth in this Paragraph. Landlord may exercise the Substitution Right at any time during the term of the Lease upon written notice to Tenant (the "Substitution Notice"). The Substitution Notice shall specify (i) in the event of a Relocation, the premises to which Tenant shall be relocated or, in the event of a Reduction, the reduced premises to be demised under the Lease (in either case, the "Substitute Premises"), and the rentable square footage of the Substitute Premises (which shall be determined by Landlord using the BOMA standard then in effect), (ii) in the event of a Relocation, the date that Landlord anticipates delivering the Substitute Premises to Tenant or, in the event of a Reduction, the effective date of such Reduction, which date, in either case, shall be not less than ninety (90) days nor more than one hundred twenty (120) days after the date of the Substitution Notice, (iii) Landlord's determination of the fair market rental rate for the Substitute Premises, and (iv) Tenant's Share under Paragraph 7 of the Lease with respect to the Substitute Premises. Tenant shall not be entitled to recover any compensation, damages or any other amounts from Landlord should Landlord exercise the Substitution Right. b. Condition of the Substitute Premises; Surrender of the Current Premises. i. The Substitute Premises shall be no less than 22,500 rentable square feet and no more than 27,500 rentable square feet. The Substitute Premises may, at Landlord's option, consist of no more than two (2) non-contiguous increments; provided, however, that such increments shall be located on the same floor of the same building. ii. In the case of a Reduction, the "Substitution Date" shall mean the date specified in the Substitution Notice as the effective date of such Reduction. iii. In the case of a Relocation, the "Substitution Date" shall mean the date on which Landlord shall deliver the Substitute Premises to Tenant in the condition required pursuant to this Paragraph 5.b. The scheduled Substitution Date shall be the date specified in the Substitution Notice. However, if Landlord, for any reason whatsoever, cannot deliver possession of the Substitute Premises to Tenant on or before such scheduled Substitution Date, neither the Lease nor this Amendment shall be void or voidable, nor shall Landlord be liable to Tenant for any loss or damage resulting therefrom, but (A) the Substitution Date shall be delayed until the date Landlord delivers possession of the Substitute Premises to Tenant and (B) Tenant shall be entitled to an adjustment in Monthly Rent and Additional Rent provided in Paragraph 5.c.iii. below as if the Substitution Date had occurred and Tenant had been relocated to the Substitute Premises as of the scheduled Substitution Date. No delay in delivery of possession of the Substitute Premises shall operate to extend the term of the Lease or amend Tenant's obligations under this Amendment or the Lease. iv. Tenant shall accept the Substitute Premises in its "as is" state and condition on the Substitution Date and, except as otherwise set forth in this Paragraph 5.b., Landlord shall have no obligation to make or pay for any alterations, improvements or renovations in or to the Substitute Premises or to otherwise prepare the Substitute Premises for Tenant's occupancy. Notwithstanding the foregoing to the contrary, the Substitute Premises shall not be shell space. Tenant shall, at Tenant's sole cost and expense, using Building standard materials and finishes and subject to the terms, conditions and -2- approvals set forth in Paragraph 9 of the Lease, perform all work necessary to separately demise the Substitute Premises and otherwise make the Substitute Premises suitable for Tenant's occupancy. v. In the case of a Relocation, Landlord represents and warrants to Tenant that, as of the Substitution Date, the elevator, plumbing, heating, electrical, security, life safety and power systems serving the Substitute Premises shall be in good working order and condition, the Substitute Premises shall be free of excessive noise and vibration and Landlord shall make reasonable efforts to have the Substitute Premises free from excessive odors. vi. On or before the Substitution Date, Tenant shall surrender the Current Premises (or, in the case of a Reduction, those portions of the Current Premises other than the Substitute Premises) to Landlord in the condition required under the Lease as if the Substitution Date were the Expiration Date of the Lease with respect to the Current Premises (or portion thereof in the case of a Reduction). Tenant shall bear all expenses in moving Tenant's furnishings, fixtures and equipment from the Current Premises to the Substitute Premises. c. Terms and Conditions. i. If Landlord exercises the Substitution Right, then Tenant's lease of the Substitute Premises shall be on all of the terms and conditions set forth in the Lease as applicable to the Current Premises, except that (A) Tenant shall take the Substitute Premises in the condition set forth in Paragraph 5.b. above, (B) the term of the Lease shall be modified as set forth in Paragraph 5.c.ii. below, (C) the Monthly Rent payable by Tenant for the Substitute Premises shall be the then-fair market rent for the Substitute Premises as determined pursuant to Paragraph 5.c.iii. below, (D) the Base Year for the Substitute Premises shall be the calendar year in which the Substitution Date occurs if the Substitution Date is before October 1 of such calendar year and otherwise the Base Year shall be the following calendar year and the Base Tax Year for the Substitute Premises shall be the fiscal tax year in which the Substitution Date occurs if the Substitution Date is before April 1 of such fiscal tax year and otherwise the Base Tax Year shall be the following fiscal tax year, (E) Tenant's Share payable under Paragraph 7 of the Lease with respect to the Substitute Premises shall be determined by dividing the rentable square footage of the Substitute Premises as set forth on Landlord's Substitution Notice by the rentable square footage of the 345 Spear Building or the 2 Harrison Building, as the case may be (which shall be determined by Landlord using the BOMA standard then in effect), (F) the amount of the Letter of Credit shall be reduced in accordance with Paragraph 3.c. above. ii. If (A) the Substitution Date is on or before December 31, 2004 and (B) the Substitute Premises is located on the second (2nd) floor of the 2 Harrison Building, then the term of the Lease shall automatically be adjusted to be a period of three (3) years following the Substitution Date. If (X) the Substitution Date is on or before December 31, 2006 and (Y) the Substitute Premises is located on any floor of the Project other than the second (2nd) floor of the 2 Harrison Building, then the term of the Lease shall automatically be extended for a period of five (5) years following the Substitution Date. iii. The fair market rent for the Substitute Premises shall be based upon the terms of the Lease, as extended. The term "fair market rent" shall be as defined in Paragraph 52.b. of the Lease (which shall survive the deletion of Paragraph 52 from the Lease pursuant to Paragraph 2 above for purposes of reference herein thereto). The fair market rent shall be mutually agreed upon by Landlord and Tenant in writing within the fifteen (15)-day calendar period after Tenant's receipt of the Relocation Notice. If Landlord and Tenant are unable to agree upon the fair market rent within such fifteen (15)-day period, then the fair market rent shall be established by appraisal procedures set forth in Paragraph 52.c. of the Lease (which shall survive the deletion of Paragraph 52 from the Lease pursuant to Paragraph 2 above for purposes of reference herein thereto). iv. Notwithstanding anything contained this Paragraph 5.c. to the contrary, in no event shall the Monthly Rent for the Substitute Premises be less than (A) Twenty-Two Dollars ($22.00) per rentable square foot if the Substitute Premises is located on the second (2nd) floor of the 2 Harrison Building or (B) Twenty-Five Dollars ($25.00) per rentable square foot if the Substitute Premises is located on any floor of the Project other than the second (2nd) floor of the 2 Harrison Building. d. Amendment. Effective as of the Substitution Date, the term "Premises" as used in the Lease shall mean the Substitute Premises, and Landlord and Tenant shall execute an appropriate amendment to the Lease that (i) describes the Substitute Premises and sets forth the Substitution Date, (ii) sets forth the new Expiration Date of the Lease if extended pursuant to Paragraph 3.c.ii. above, (iii) sets forth the Monthly Rent payable by Tenant with respect to the Substitute Premises (as determined pursuant to Paragraph 5.c.iii. above) and Tenant's Share, the Base Year and the Base Tax Year with respect to the Substitute Premises (each as determined pursuant to Paragraph 5.c.i. above) and (iv) sets forth the amount of the Letter of Credit if reduced pursuant to Paragraph 3.c. above. -3- 6. Early Termination Right. Effective as of the date hereof, Landlord shall have the right (the "Early Termination Right") exercisable at any time upon ninety (90) days' prior written notice to Tenant (the "Early Termination Notice") to terminate the Lease as of the date specified in the Early Termination Notice (the "Early Termination Date"). Tenant shall not be entitled to recover any compensation, damages or any other amounts from Landlord should Landlord exercise the Early Termination Right. Tenant shall pay and perform all obligations of Tenant in accordance with the Lease through the Early Termination Date and shall surrender the Current Premises to Landlord in the condition required under the Lease on the Early Termination Date as if the Early Termination Date were the Expiration Date. Termination of the Lease on the Early Termination Date pursuant to this Paragraph 6 shall not release Tenant from any obligation or liability that arises under the Lease prior to the Early Termination Date. Notwithstanding anything contained herein to the contrary, if Landlord exercises the Substitution Right set forth in Paragraph 5 above, then the Early Termination Right shall terminate and be of no further force or effect. 7. Inducement Payments. a. As an inducement to Landlord to exercise either the Substitution Right or the Early Termination Right and in consideration of Landlord's agreement to relocate (or reduce) the Current Premises or to terminate the Lease early pursuant thereto, as the case may be, and thereby reduce the amount of rent payable by Tenant under the Lease, Tenant hereby agrees to pay to Landlord the amount of Five Hundred Thousand Dollars ($500,000.00) (the "Inducement Payment") plus an additional payment (the "Additional Inducement Payment") pursuant to the schedule set forth below:

SUBSTITUTION DATE OR EARLY TERMINATION DATE ADDITIONAL INDUCEMENT PAYMENT - ------------------------------------------- ----------------------------- January 1, 2004 - June 30, 2004 $1,500,000.00 July 1, 2004 - December 31, 2004 $1,000,000.00 January 1, 2005 - June 30, 2005 $750,000.00 July 1, 2005 - December 31, 2005 $500,000.00 January 1, 2006 - June 30, 2006 $250,000.00 On or after July 1, 2006 $0

b. Both the Inducement Payment and the Additional Inducement Payment shall be paid by Tenant in immediately available funds of lawful money of the United States of America on or before the date that is thirty (30) days prior to the Early Termination Date or the scheduled Substitution Date, as the case may be. If Landlord does not exercise its right under Paragraph 7.d. below, the Inducement Payment and the Additional Inducement Payment shall constitute additional rent payable by Tenant under the Lease. Notwithstanding anything contained in the Lease to the contrary, if Tenant fails to pay any portion of either the Inducement Payment or the Additional Inducement Payment when due, then, notwithstanding anything contained herein to the contrary, then, at Landlord's option exercised by written notice to Tenant within ten (10) days after such payment was due, the Substitution Notice or the Early Termination Notice, as the case may be, shall be void and of no further force or effect. If Landlord does not exercise its right to void the Substitution Notice or the Early Termination Notice, as the case may be, pursuant to the preceding sentence, then the Substitution Notice or the Early Termination Notice, as the case may be, shall remain in full force and effect and Landlord shall have the right to pursue all remedies available to Landlord under the Lease for the collection of rent. c. Notwithstanding anything contained in this Paragraph 5 to the contrary, if the Substitution Date or the Early Termination Date, as the case may be, is after September 30, 2006, then the Inducement Payment (but not the Additional Inducement Payment) shall be applied by Landlord on account of Tenant's remaining rental obligations under the Lease in the order that such rental obligations for Monthly Rent and Additional Rent become next due. d. Landlord shall have the right to require that Tenant pay all or any portion of the Inducement Payment and/or the Additional Inducement Payment directly to a replacement Tenant of the Current Premises for use as a tenant improvement allowance or to an account to be used by Landlord to perform improvements to the Project and/or the Current Premises, in either case on such terms and conditions as Landlord, in its sole and absolute discretion, shall designate in the Substitution Notice or the Early Termination Notice, as the case may be, or otherwise designate in writing to Tenant prior to Tenant's payment of the applicable amount. -4- 8. Revival of Tenant's Obligations. a. If by November 1, 2004, (i) Tenant is Solvent (as defined below), (ii) Tenant is publicly traded on NASDAQ or another public stock exchange, (iii) no Reorganizational Activity (as defined below) has occurred and (iv) Landlord has not exercised either the Substitution Right or the Early Termination Right, then, at Landlord's option, this Amendment shall be void and of no further force or effect and, accordingly, the full ten (10) year term of the Lease shall be reinstated and all of the terms and conditions thereof shall apply (including, without limitation, Tenant's renewal option under Paragraph 52 thereof) and the Expiration Date under the Lease shall be March 31, 2012; provided, however, that notwithstanding the foregoing, Landlord shall be entitled to retain the Term Reduction Payment. b. As used herein, "Solvent" shall mean (i) the total assets of Tenant which would be shown as assets on a balance sheet of Tenant as of the close of Tenant's most recent fiscal quarter (i.e., September 30, 2004), prepared in accordance with generally accepted accounting principles in effect in the United States ("GAAP"), are greater than (ii) the total liabilities of Tenant which would be shown as liabilities on such balance sheet of Tenant prepared in accordance with GAAP. If Tenant is a publicly traded entity at the time, it shall deliver its most recent publicly available financial statements provided that such financial statements were filed with the appropriate public regulatory agency on or before the applicable due date for such financial statements. c. As used herein, "Reorganizational Activity" shall mean any of the following that occurs after the date of this Amendment: i. Tenant shall have an order for relief entered with respect to it in a case under the Bankruptcy Code; ii. Raising private or public equity or debt financing of Seven Million Five Hundred Thousand Dollars ($7,500,000.00) or more; iii. Selling material assets (not including sales by Tenant in the ordinary course of Tenant's business) for an aggregate amount of Five Million Dollars ($5,000,000) or more; iv. Restructuring of space lease obligations of Tenant (other than the Lease) with a total savings of the lesser of (A) Two Million Dollars ($2,000,000.00) in the aggregate or (B) Five Hundred Thousand Dollars ($500,000.00) per year; or v. Terminating the employment of twenty percent (20%) or more of Tenant's permanent full-time workforce in the United States (i.e., exclusive of any temporary employees or employees that work less than thirty-five (35) hours per week). As of the date hereof, Tenant represents and warrants that it has one hundred forty-nine (149) permanent full-time employees in the United States. 9. Landlord's Right of First Negotiation. Tenant shall not lease, agree to lease or offer to lease any space in an office building in the City and County of San Francisco, California (the "City"), without first offering to lease the same amount of space from Landlord in accordance with the provisions of this Paragraph 9. Prior to Tenant offering or agreeing to lease any space from any landlord other than Landlord, Tenant shall deliver to Landlord an offer in writing to lease space from Landlord or an affiliate of Landlord (the "Offer Notice"), which Offer Notice shall set forth the amount of space Tenant requires. Landlord shall have thirty (30) days following Landlord's receipt of the Offer Notice (the "Election Period") to notify Tenant in writing of Landlord's election to open negotiations with Tenant for the lease of space at the Project or any other property in the City owned or operated by Landlord or an affiliate of Landlord (an "Election Notice"). The Election Notice shall identify the space that Landlord (or the affiliate of Landlord, as the case may be) offers to lease to Tenant (the "Offer Space") and the rental rate at which the Offer Space is offered. If Landlord delivers an Election Notice to Tenant prior to the end of the Election Period, Landlord and Tenant shall negotiate in good faith for a period of thirty (30) days to attempt to reach an agreement satisfactory to both parties for the lease by Tenant of the Offer Space from Landlord or an affiliate of Landlord, as the case may be (the "Negotiation Period"). Tenant shall not lease, agree to lease or offer to lease any space in an office building in the City during the Negotiation Period. This Paragraph 9 shall survive the expiration or earlier termination of the Lease and shall terminate on March 31, 2012; provided, however, if Landlord exercises the Early Termination Right pursuant to Paragraph 6 above, Landlord's Right of First Negotiation pursuant to this Paragraph 9 shall terminate and be of no further force or effect. 10. Bankruptcy Matters. In consideration of Landlord's agreement to shorten the term of the Lease pursuant to Paragraph 1 above, and the opportunities Tenant will have due to such reduction in the term of the Lease to resolve its financial difficulties, and because this Amendment is intended to be an alternative to the commencement of a case under the Bankruptcy Code by or with respect to Tenant, in order that Landlord may receive the benefits for which it has negotiated, Tenant agrees that if such a case -5- is commenced by or against it, Tenant will not assert or request any other party to assert that the automatic stay (the "Automatic Stay") provided by Section 362(a) of the Bankruptcy Code shall operate or be interpreted to stay, modify, preempt, condition, reduce, or limit the ability of Landlord to (a) void a previously sent Substitution Notice or the Early Termination Notice in accordance with Paragraph 7.b. above or (b) exercise the Substitution Right or the Early Termination Right pursuant to Paragraphs 5 and 6 above, respectively. Specifically, without limiting the generality of the foregoing, in the event of the commencement of any such case, Tenant agrees that sufficient cause exists for the bankruptcy court having jurisdiction over such case to grant Landlord relief from the Automatic Stay for the purposes specified in the preceding sentence. Tenant irrevocably consents and waives any right to object, and Landlord shall be entitled, to an order granting relief from the Automatic Stay and any and all other stays, and equitable relief under Section 105 of the Bankruptcy Code, any other applicable law or equity, so as to permit Landlord to exercise such specified rights. 11. Brokers. Landlord and Tenant each represents and warrants to the other that such party has negotiated this Amendment directly with Shorenstein Management, Inc., a California corporation (the "Broker") and has not authorized or employed, or acted by implication to authorize or to employ, any other real estate broker or salesperson to act for such party in connection with this Amendment. Each party shall hold the other harmless from and indemnify and defend the other against any and all claims by any real estate broker or salesperson other than the Broker for a commission, finder's fee or other compensation as a result of the inaccuracy of such party's representation above. 12. Landlord's Attorneys' Fees. Prior to or concurrently with Tenant's execution and delivery of this Amendment, Tenant shall pay to Landlord the amount of Ten Thousand Dollars ($10,000.00) to reimburse Landlord for a portion of Landlord's attorneys' fees in connection with this Amendment. Tenant's failure to pay the foregoing attorneys' fees when due pursuant to the foregoing shall constitute a default under the Lease, and at Landlord's option, shall also serve to revoke and void this Amendment. 13. Authority. If Tenant is a corporation, Tenant and each person executing this Amendment on behalf of Tenant, hereby covenants and warrants that (a) Tenant is duly incorporated or otherwise established or formed and validly existing under the laws of its state of incorporation, (b) Tenant has and is duly qualified to do business in the State of California, (c) Tenant has full corporate power and authority to enter into this Amendment and to perform all of Tenant's obligations under the Lease, as amended by this Amendment, and (d) each person (and all of the persons if more than one signs) signing this Amendment on behalf of Tenant is duly and validly authorized to do so. 14. Lease in Full Force and Effect. Except as provided above, the Lease is unmodified hereby and remains in full force and effect. 15. No Offer. Submission of this instrument for examination and signature by Tenant does not constitute an offer to lease or a reservation of or option for lease, and is not effective as a lease amendment or otherwise until execution and delivery by both Landlord and Tenant. -6- IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date and year first above written. Landlord: Tenant: SRI HILLS PLAZA VENTURE, LLC, CRITICAL PATH, INC., a California a Delaware limited liability company corporation By: /S/ MICHAEL J. ZUKERMAN By: /S/ JAMES A. PIERRE ----------------------------------- ----------------------------------- Name: Michael J. Zukerman Name: James A. Pierre --------------------------------- --------------------------------- Title: Senior Vice President and Title: Vice President General Counsel -------------------------------- -------------------------------- -7- EX-21.1 46 f97295exv21w1.txt EXHIBIT 21.1 EXHIBIT 21.1 List of Principal Direct Wholly-Owned Subsidiaries Amplitude Software Ltd. Critical Path B.V. CP Datacenter Ltd. Compass Holdings Corp. Remarq Communities, Inc. DotOne Acquisition Corp. FaxNet Acquisition Corp. Netmosphere Corporation PeerLogic, Inc. Critical Path Sweden 3034996 Nova Scotia Company 3034997 Nova Scotia Company Critical Path Data Center AG Critical Path Japan KK CP International Limited (Ireland) EX-23.1 47 f97295exv23w1.txt EXHIBIT 23.1 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-63080, 333-51504, 333-44418, 333-40476, 333-36228, 333-95933, 333-95279, 333-87553) and on Form S-3 (Nos. 333-39958, 333-38006, 333-38000, 333-36382, 333-111559) of Critical Path, Inc. of our report dated March 12, 2004 relating to the consolidated financial statements and financial statement schedule, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP San Jose, CA March 15, 2004 EX-31.1 48 f97295exv31w1.htm EXHIBIT 31.1

Exhibit 31.1

CERTIFICATIONS

I, William E. McGlashan, Jr., certify that:

1.	I have reviewed this Annual Report on Form 10-K of Critical Path, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstance under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 15, 2004

/s/ WILLIAM E. MCGLASHAN, JR.  

William E. McGlashan, Jr. 

Chief Executive Officer and Chairman 

130

EX-10.59

                                                                   EXHIBIT 10.59

                               THIRD AMENDMENT TO
                              AMENDED AND RESTATED
                           LOAN AND SECURITY AGREEMENT

         THIS THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT (the "Third Amendment") is entered into as of March 12, 2004, by and
between SILICON VALLEY BANK, a California-chartered bank (the "Bank"), and
CRITICAL PATH, INC., a California corporation (the "Borrower"), in reliance on
the following:

                                    RECITALS

         A.       On or about March 31, 2000, the Borrower entered into that
certain Indenture (the "Indenture") between the Borrower and State Street Bank
and Trust Company of California, N.A., a national banking association organized
under the laws of the United States (the "Trustee"), pursuant to which the
Borrower issued approximately $38,000,000.00 of Convertible Subordinated Notes
(the "Notes") due to mature on April 1, 2005 (the "Note Payment Date") to a
group of investors lead by the Cheung Kong Group and its Hutchison Whampoa
Limited affiliates (the "Cheung Kong Investors"), among other investors.

         B.       On or about July 18, 2003, the Borrower and the Bank entered
into that certain Amended and Restated Loan and Security Agreement (the "Loan
Agreement") pursuant to which the Bank made available to the Borrower a
revolving credit facility (the "Senior Debt Facility") in the principal amount
of up to $15,000,000.00.

         C.       On or about November 18, 2003, the Borrower entered into that
certain Convertible Note Purchase and Exchange Agreement among the Borrower,
General Atlantic Partners 74, L.P. ("GAP 74"), GAP Coinvestment Partners II,
L.P. ("GAP Coinvestment"), GapStar, LLC ("GapStar") and GAPCO GmbH & Co. KG
("GAPCO" and, together with GAP 74, GAP Coinvestment and GapStar, the
"Investors"), and the other entities listed on the signature pages thereto
(collectively with the notes and other documents executed and delivered by the
Borrower in connection therewith, as amended in accordance with the terms of the
First Subordination Agreement defined below, the "First Junior Debt Documents"),
pursuant to which the Borrower issued to such Investors convertible notes in the
aggregate principal amount of $10,000,000.00 (the "First Junior Debt") and
granted a security interest to the Investors in certain of the Collateral on
November 26, 2003.

         D.       The Bank consented to the Borrower's entering into the First
Junior Debt Documents and performing its obligations thereunder pursuant to the
terms of that certain First Amendment to Amended and Restated Loan and Security
Agreement dated as of November 26, 2003 (the "Amendment"). The Amendment
provided, in part, that the Investors would enter into that certain
Subordination Agreement with the Bank dated as of November 26, 2003 (the "First
Subordination Agreement") to evidence the terms by which the First Junior Debt
is subordinated to the Senior Debt Facility.

                                       1


         E.       On or about January 16, 2004, the Borrower entered into that
certain Convertible Note Purchase Agreement dated as of January 16, 2004, by and
among the Borrower as issuer, on the one hand, and Permal U.S. Opportunities
Limited, Zaxis Equity Neutral, L.P., Zaxis Partners, L.P., Zaxis Offshore
Limited, Zaxis Institutional Partners, L.P., and Passport Master Fund, L.P. as
creditors (collectively, the "Second Subordinated Creditors"), on the other
hand, and the Notes, the Guaranty and Security Agreement and the other documents
executed and delivered in connection therewith (collectively, the "Second Junior
Debt Documents").

         F.       The Bank consented to the Borrower's entering into the Second
Junior Debt Documents and the Borrower's granting to the Second Subordinated
Creditors a security interest in certain of the Collateral, all as more fully
set forth in the Second Junior Debt Documents, conditioned upon the execution
and delivery by the Second Subordinated Creditors of a "Second Subordination
Agreement" by and among the Bank, as senior creditor, and the Second
Subordinated Creditors, as junior creditors, in form and substance acceptable to
the Bank, and the consent of the Investors to the Borrower's entering into the
Second Junior Debt Documents.

         G.       On or about January 30, 2004, the Borrower entered into that
certain Second Amendment to Amended and Restated Loan and Security Agreement
dated as of January 30, 2004 (the "Second Amendment"). The Second Amendment
provided, in part, an extension of the Maturity Date to October 31, 2004. The
Loan Agreement as amended by the Amendment and the Second Amendment, along with
all other documents entered into by the parties in connection with the Loan
Agreement, the Amendment and the Second Amendment, are hereinafter referred to
as the "Senior Loan Documents," and each capitalized term used in this Third
Amendment shall have the meaning accorded to it in the Senior Loan Documents
unless it is otherwise defined herein.

         H.       On or about March 9, 2004, the Borrower entered into that
certain Convertible Note Purchase Agreement dated as of March 9, 2004, by and
among the Borrower as issuer, on the one hand, and Permal U.S. Opportunities
Limited, Zaxis Equity Neutral, L.P., Zaxis Partners, L.P., Zaxis Offshore
Limited, Zaxis Institutional Partners, L.P., Guggenheim Portfolio Company XIII,
Crosslink Crossover Fund IV, L.P., Sagamore Hill Hub Fund, Ltd., Criterion
Capital Partners, Ltd. Criterion Capital Partners, Institutional, Criterion
Capital Partners, L.P. and Capital Ventures International as creditors
(collectively, the "Third Subordinated Creditors"), on the other hand, and the
Notes, the Guaranty and Security Agreement and the other documents executed and
delivered in connection therewith (collectively, the "Third Junior Debt
Documents").

         I.       The Bank consented to the Borrower's entering into the Third
Junior Debt Documents and the Borrower's granting to the Third Subordinated
Creditors a security interest in certain of the Collateral, all as more fully
set forth in the Third Junior Debt Documents, conditioned upon the execution and
delivery by the Third Subordinated Creditors of a "Third Subordination
Agreement" by and among the Bank, as senior creditor, and the Third Subordinated
Creditors, as junior creditors, in form and substance acceptable to the Bank,
and the consent of the Investors and Second Subordinated Creditors to the
Borrower's entering into the Third Junior Debt Documents.

                                       2


         J.       The Borrower now desires to amend the Senior Loan Documents
further in order to extend the Maturity Date, and the Bank is willing to do so
upon the terms set forth herein.

                                    AGREEMENT

         NOW, THEREFORE, in reliance upon the foregoing and in consideration of
the mutual covenants set forth herein and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:

1.       Change in the Calculation of the Credit Limit.

         1.1      The Credit Limit. On and after the date on which this Third
Amendment becomes effective pursuant to Section 9 hereof (the "Effective Date"),
the Credit Limit shall be an amount equal to the lesser of (i) $6,000,000.00 or
(ii) the Borrowing Base. Section 1.1 of Schedule 1 to the Loan Agreement
("Schedule 1") is hereby amended accordingly.

         1.2      Definition of the Borrowing Base. The following definition
hereby replaces in full the definition of Borrowing Base set forth in Section
1.2 of Schedule 1, and said Section 1.2 is hereby amended accordingly:

                  (a)      During the period commencing on the Effective Date
and ending on March 31, 2005, the Borrowing Base shall be the sum of (i) eighty
percent (80%) of the amount of Eligible Accounts, plus (ii) one hundred percent
(100%) of the unrestricted Investment Cash, plus (iii) one hundred percent
(100%) of the face amount of all letters of credit issued to the Bank, as
beneficiary thereof, by such bank(s) and in such form as is acceptable to the
Bank in its sole discretion.

                  (b)      On or after April 1, 2005, the Borrowing Base shall
be the sum of (i) $3,000,000.00, plus (ii) eighty percent (80%) of the amount of
Eligible Accounts, plus (iii) one hundred percent (100%) of the unrestricted
Investment Cash, plus (iv) one hundred percent (100%) of the face amount of all
letters of credit issued to the Bank, as beneficiary thereof, by such bank(s)
and in such form as is acceptable to the Bank in its sole discretion.

2.       Change in the Interest Rate. On and after the Effective Date, the
Borrower shall pay interest on all loans at a rate determined for each calendar
month as follows: (i) so long as the Borrower maintains at least $15,000,000.00
on deposit with the Bank and its Affiliates at all times during such calendar
month, the Prime Rate plus one and one-half percent per annum (1.50% p.a.); (ii)
if the Borrower maintains less than $15,000,000.00 but at least $5,000,000.00 on
deposit with the Bank and its Affiliates at all times during such calendar
month, the Prime Rate plus two percent per annum (2.00% p.a.); and (iii) if at
any time during such month the Borrower maintains less than $5,000,000.00 on
deposit with the Bank and its Affiliates, the Prime Rate plus three percent per
annum (3.00% p.a.). In no event shall the Prime Rate be less than 4.00% per
annum for purposes of the Senior Loan Documents. Section 2 of Schedule 1 is
hereby amended accordingly.

                                       3


3.       Fees.

         3.1      The Facility Fee. The Borrower will pay the Bank a facility
fee on the Effective Date in the amount of $100,000.00 (the "Facility Fee"),
which Facility Fee shall be fully-earned and non-refundable upon payment.

         3.2      The Expedite Fee. The Borrower will pay the Bank an expedite
fee on the Effective Date in the amount of $50,000.00 (the "Expedite Fee"),
which Expedite Fee shall be fully-earned and non-refundable upon payment.

         3.3      Change to Unused Facility Fee. The existing Section 3.3 of
Schedule 1 is hereby deleted and a new Section 3.3 is hereby added to read in
full as follows:

                  "3.3 Unused Facility Fee. Borrower shall pay the Bank, payable
                  on the first day of each calendar quarter in arrears during
                  the term hereof, an Unused Facility Fee as follows: (i) so
                  long as Borrower has maintained at least Five Million Dollars
                  ($5,000,000.00) on deposit with the Bank and its Affiliates at
                  all times over the immediately preceding calendar quarter, an
                  Unused Facility Fee equal to the product of (a) 0.45%
                  multiplied by (b) an amount equal to the undrawn portion of
                  the Credit Limit over the immediately prior calendar quarter,
                  calculated on the basis of 360-day calendar year; and (ii) if
                  at any time during the immediately preceding calendar quarter
                  Borrower maintained less than Five Million Dollars
                  ($5,000,000.00) on deposit with the Bank and its Affiliates,
                  an Unused Facility Fee equal to the product of (a) 2.00%
                  multiplied by (b) an amount equal to the undrawn portion of
                  the Credit Limit over the immediately prior calendar quarter,
                  calculated on the basis of 360-day calendar year."

4.       Extension of the Maturity Date. The Maturity Date shall be extended to
June 30, 2005, and Section 4 of Schedule 1 is hereby amended accordingly.

5.       Change to Financial Covenants.

         5.1      Consolidated Revenues Covenant. The existing Section 5.1 of
Schedule 1 is hereby deleted and a new Section 5.1 is hereby added to read in
full as follows:

                  "5.1     Minimum Consolidated Revenues. Borrower shall
                  maintain minimum Consolidated Revenues on a rolling
                  three-month basis (the first such three-month period being
                  10/1/03 - 12/31/03), measured by the Bank each month
                  commencing on December 31, 2003, in the following amounts: (i)
                  $18,000,000.00 for each month through June 30, 2004; and (ii)
                  $18,500,000.00 for each month thereafter. For purposes of this
                  covenant, "Consolidated Revenues" shall mean the revenues of
                  Borrower

                                       4


                  and its subsidiaries as reported to the Bank on a consolidated
                  basis in Borrower's monthly financial statements."

         5.2      Minimum Americas Revenues. Borrower shall maintain minimum
Americas Revenues on a rolling three-month basis, measured by the Bank each
month commencing on the Effective Date, in an amount equal to $7,500,000 for
each month through the Maturity Date. For purposes of this covenant, "Americas
Revenues" shall mean the revenues generated by the Borrower.

         5.3      Going Concern Qualification. The Borrower shall cause its
external accountants to remove the "going concern" qualification issued in
December 2003 by no later than April 30, 2004.

6.       Designation of Senior Debt. The Borrower hereby designates the
indebtedness evidenced in the Senior Debt Facility as a "Designated Senior Debt"
under, and as such term is defined in, the Indenture and hereby agrees, as soon
as practicable, to notify the Trustee of such designation.

7.       Banking Relationship. The second sentence of Section 8.1 of Schedule 1
is hereby amended and restated as follows:

                  "Without limiting the generality of the foregoing,
                  Borrower shall at all times maintain unrestricted cash or
                  cash equivalents on deposit with the Bank in an amount
                  not less than (i) $5,000,000.00 for each month through
                  March 31, 2005; and (ii) $2,000,000.00 each month
                  thereafter until the Maturity Date."

8.       Reaffirmation of Obligations. The Borrower reaffirms to the Bank that,
as of the date hereof, the outstanding principal amount of all Loans under the
Senior Loan Documents (including the face amount of all Letters of Credit
outstanding under the Letter of Credit Sublimit) is $2,701,501.00. The Borrower
acknowledges that the Senior Loan Documents fully and accurately reflect and
constitute the valid and enforceable Obligations of the Borrower to the Bank,
and the Borrower remains fully obligated to perform all covenants thereunder and
has no defenses to or offsets against such Obligations.

9.       Conditions to Effectiveness. The following conditions must be satisfied
in full, or waived in writing by the Bank, before this Third Amendment shall be
effective and the Bank shall become obligated hereunder.

         9.1      Execution and Delivery of Documents. The Borrower shall have
executed and delivered to the Bank this Third Amendment, and the Bank shall have
received any and all other instruments and documents, fully executed and in form
and substance acceptable to the Bank, as are contemplated hereby or otherwise
reasonably requested by the Bank.

         9.2      Extension of Note Payment Date. The Borrower shall have
executed, and notified the Bank of the execution of, an agreement (in form and
substance acceptable to the Bank) with each of the Cheung Kong Investors
extending the Note Payment Date from April 1, 2005 to April 1, 2006.

                                       5


         9.3      Payment of Fees and Expenses. The Borrower shall have paid to
the Bank all fees due and owing under the Senior Loan Documents as amended
hereby (including but not limited to the Facility Fee), as well as a sum
sufficient to reimburse the Bank for all costs and expenses incurred by the Bank
in entering into this Third Amendment and any and all other documents and
instruments contemplated hereby or thereby (including but not limited to all
attorneys' fees and expenses.)

         9.4      Representations and Warranties; No Default. The
representations and warranties of the Borrower as set forth in the Senior Loan
Documents shall be true and correct in all material respects as of the date on
which this Third Amendment becomes effective, and no Event of Default shall have
occurred and be continuing as of such date without having been cured.

10.      Condition Subsequent. In the event that the Borrower fails to obtain
within 15 days after the Effective Date an acknowledgement from each of the
Investors, the Second Subordinated Creditors and the Third Subordinated
Creditors, in form and substance acceptable to the Bank, that the First
Subordination Agreement, the Second Subordination Agreement and the Third
Subordination Agreement, respectively, remain in full force and effect after the
Effective Date, this Third Amendment shall be of no further force or effect
whatsoever and the Senior Debt Facility shall be deemed to mature on October 31,
2004.

11.      Continued Full Force and Effect. Except to the extent expressly amended
hereby, all of the terms and provisions of the Senior Loan Documents shall
remain in full force and effect, and the lien in favor of the Bank in the
Collateral shall be and remain a fully perfected senior lien upon all of the
Collateral pursuant to the terms of the Senior Loan Documents, it being the
intent of the parties that nothing herein shall affect or impair the Bank's
rights or remedies under the Senior Loan Documents or its lien upon the
Collateral. Henceforth, the term "Loan Documents" shall be deemed to mean the
Senior Loan Documents as modified and supplemented by the terms of this Third
Amendment, and any default of the Borrower hereunder shall constitute an Event
of Default under the Senior Loan Documents.

12.      General Provisions.

         12.1     Choice of Law and Venue. This Third Amendment shall be
governed by and construed in accordance with the internal laws of the State of
California, without regard to principles of conflicts of law, and any action or
proceeding arising out of this Third Amendment shall be commenced in the
Superior Court of the State of California for the County of Santa Clara, or in
the District Court of the United States in the Northern District of California.

         12.2     WAIVER OF JURY TRIAL. EACH OF THE BORROWER, ON THE ONE HAND,
AND THE BANK, ON THE OTHER HAND, WAIVES ITS RIGHT TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS THIRD AMENDMENT, THE SENIOR
LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH
OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR EACH OF
THE PARTIES TO ENTER INTO THIS THIRD AMENDMENT. EACH

                                       6


PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL AND UNDERSTANDS THE
RAMIFICATIONS THEREOF.

         12.3     Entire Agreement. This Third Amendment, along with the Loan
Agreement and the other Senior Loan Documents, together constitute the entire
agreement and understanding between the parties hereto with respect to the
transactions contemplated hereunder and thereunder and supersede all prior
negotiations, understandings and agreements between the parties with respect to
such transactions.

         12.4     Counterparts. This Third Amendment may be executed and
delivered in any number of counterparts, each of which shall be an original and
all of which together shall constitute one and the same agreement.

         12.5     Time of the Essence. Time is of the essence in the performance
by each party of its obligations hereunder and the satisfaction of all
conditions specified herein.

         IN WITNESS WHEREOF, each of the parties hereto has caused its duly
authorized representative to execute this Third Amendment as of the date first
set forth above.

BORROWER:                                    BANK:

CRITICAL PATH, INC.                          SILICON VALLEY BANK,
a California corporation                     a California-chartered bank

By: /s/ James A. Clark                       By: /s/ Brian Harrison
   ----------------------------                 -------------------------------
Name:  James A. Clark                           Name:  Brian Harrison
Title: EVP and CFO                              Title: Vice President

                                       7

EX-10.60

                                                                EXHIBIT 10.60

                            FIRST AMENDMENT TO LEASE
        (Reduction of Term; Landlord Substitution and Termination Rights)

      THIS FIRST AMENDMENT TO LEASE (this "Amendment") is executed as of
November 17, 2003, between SRI HILLS PLAZA VENTURE, LLC, a Delaware limited
liability company ("Landlord"), and CRITICAL PATH, INC., a California
corporation ("Tenant").

                                    RECITALS

      A. Landlord, as landlord, and Tenant, as tenant, entered into that certain
Lease dated as of November 16, 2001 (the "Lease"), pursuant to which Tenant
leased from Landlord premises (the "Current Premises") on the 6th floor of the
building presently known as Hills Plaza Phase I, located at 345 Spear Street,
San Francisco, California (the "345 Spear Building"). The 345 Spear Building is
part of a combined office, retail and residential condominium project (the
"Project") located on the entire block of Spear Street between Harrison Street
and Folsom Street, in San Francisco, California, which also includes the
building presently known as Hills Plaza Phase II, located at 2 Harrison Street,
San Francisco, California (the "2 Harrison Building"). Capitalized terms not
otherwise defined herein shall have the meanings given them in the Lease.

      B. The term of the Lease is scheduled to expire on March 31, 2012.

      C. Landlord and Tenant desire to amend the Lease to (i) shorten the term
of the Lease, (ii) grant Landlord a right to terminate the Lease early, (iii)
grant Landlord a right to reduce and/or relocate the premises demised under the
Lease, (iv) delete Tenant's option to renew the term of the Lease, and (v)
modify the Lease in certain other respects, all upon and subject to the terms
and conditions set forth herein.

      NOW, THEREFORE, in consideration of the foregoing, the parties hereto
agree as follows:

      1. Reduction of Term. Subject to Paragraph 6 below, effective as of the
date hereof, the term of the Lease specified in Paragraph 2.b. of the Lease is
reduced by five (5) years and three (3) months. Accordingly, the Lease shall
expire on December 31, 2006. To reflect the reduction of the term of the Lease,
effective as of the date hereof, the Lease shall be amended as follows:

            a. All references to the "Expiration Date" in the Lease shall be
deemed to be references to December 31, 2006.

            b. Paragraph 2.b. is hereby amended by replacing "one hundred
twentieth (120th)" with "fifty-seventh (57th)".

            c. Paragraph 2.c. is hereby amended and restated in its entirety as
follows:

                  "c. Monthly Rent: From November 17, 2003 until December 31,
            2006, the respective sums set forth as follows:

                      Parcel A: $143,978.83
                      Parcel B: $57,000.00"

      2. Tenant's Option to Renew. Effective as of the date hereof, Paragraph 52
of the Lease is hereby deleted in its entirety.

            3. Letter of Credit.

            a. The Letter of Credit provided pursuant to Paragraph 6 of the
Lease is not, and has never been intended to be, a security deposit. It is
instead a more direct form of third party obligation where the issuer
substitutes its own creditworthiness for that of the Tenant with the issuer
having none of the defenses available to guarantors.

            b. Effective as of the date hereof, Paragraph 6.b. of the Lease is
hereby deleted in its entirety.

            c. If Landlord exercises the Substitution Right (as defined in
Paragraph 5.a. below), then so long as no Event of Default by Tenant under the
Lease has occurred and is continuing as of the Substitution Date (as defined in
Paragraph 5.b. below), and so long as no breach or default by Tenant under the
Lease which, with notice or the passage of time or both could ripen into an
Event of Default (an "Unmatured Default"), shall be continuing as of the
Substitution Date, the amount required under the Letter of Credit shall be
reduced as of the Substitution Date to equal twelve (12) month's worth of
Monthly Rent for the Substitute Premises (as defined in Paragraph 5.a. below) as
of the last twelve (12) months of the term of the Lease. If Tenant is entitled
to such reduction, Tenant may replace or amend the


                                      -1-


then existing Letter of Credit to reflect such reduced amount on or after the
Substitution Date. If Landlord disallows any such reduction by reason of an
Unmatured Default, and if Tenant cures the Unmatured Default prior to the same
becoming an Event of Default, Tenant shall be entitled to a reduction of the
Letter of Credit as set forth in this Paragraph as of the date that is five (5)
days after the date such Unmatured Default is cured.

            d. Notwithstanding anything contained herein to the contrary, the
amount of the Letter of Credit shall be reduced during the last twelve (12)
months of the term of the Lease (whether or not Landlord has exercised the
Substitution Right) at such times as reasonably agreed by Landlord and Tenant so
that the amount of the Letter of Credit does not exceed the remaining Monthly
Rent and Additional Rent (as estimated by Landlord pursuant to Paragraph 7 of
the Lease) payable by Tenant under the Lease.

      4. Term Reduction Payment. In consideration of Landlord's agreement to
shorten the term of the Lease pursuant to Paragraph 1 above and as a condition
to the effectiveness of this Amendment, Tenant shall pay to Landlord
concurrently with Tenant's execution of this Amendment the amount of Five
Hundred Thousand Dollars ($500,000.00) (the "Term Reduction Payment") in
immediately available funds of lawful money of the United States of America.

      5. Landlord's Substitution Right.

            a. Substitution Right. Effective as of the date hereof, Landlord
shall have the onetime right (the "Substitution Right") to (i) relocate Tenant
to another portion of the Project (a "Relocation") or (ii) reduce the size of
the Current Premises (a "Reduction"), on the terms and conditions set forth in
this Paragraph. Landlord may exercise the Substitution Right at any time during
the term of the Lease upon written notice to Tenant (the "Substitution Notice").
The Substitution Notice shall specify (i) in the event of a Relocation, the
premises to which Tenant shall be relocated or, in the event of a Reduction, the
reduced premises to be demised under the Lease (in either case, the "Substitute
Premises"), and the rentable square footage of the Substitute Premises (which
shall be determined by Landlord using the BOMA standard then in effect), (ii) in
the event of a Relocation, the date that Landlord anticipates delivering the
Substitute Premises to Tenant or, in the event of a Reduction, the effective
date of such Reduction, which date, in either case, shall be not less than
ninety (90) days nor more than one hundred twenty (120) days after the date of
the Substitution Notice, (iii) Landlord's determination of the fair market
rental rate for the Substitute Premises, and (iv) Tenant's Share under Paragraph
7 of the Lease with respect to the Substitute Premises. Tenant shall not be
entitled to recover any compensation, damages or any other amounts from Landlord
should Landlord exercise the Substitution Right.

            b. Condition of the Substitute Premises; Surrender of the Current
Premises.

                  i. The Substitute Premises shall be no less than 22,500
rentable square feet and no more than 27,500 rentable square feet. The
Substitute Premises may, at Landlord's option, consist of no more than two (2)
non-contiguous increments; provided, however, that such increments shall be
located on the same floor of the same building.

                  ii. In the case of a Reduction, the "Substitution Date" shall
mean the date specified in the Substitution Notice as the effective date of such
Reduction.

                  iii. In the case of a Relocation, the "Substitution Date"
shall mean the date on which Landlord shall deliver the Substitute Premises to
Tenant in the condition required pursuant to this Paragraph 5.b. The scheduled
Substitution Date shall be the date specified in the Substitution Notice.
However, if Landlord, for any reason whatsoever, cannot deliver possession of
the Substitute Premises to Tenant on or before such scheduled Substitution Date,
neither the Lease nor this Amendment shall be void or voidable, nor shall
Landlord be liable to Tenant for any loss or damage resulting therefrom, but (A)
the Substitution Date shall be delayed until the date Landlord delivers
possession of the Substitute Premises to Tenant and (B) Tenant shall be entitled
to an adjustment in Monthly Rent and Additional Rent provided in Paragraph
5.c.iii. below as if the Substitution Date had occurred and Tenant had been
relocated to the Substitute Premises as of the scheduled Substitution Date. No
delay in delivery of possession of the Substitute Premises shall operate to
extend the term of the Lease or amend Tenant's obligations under this Amendment
or the Lease.

                  iv. Tenant shall accept the Substitute Premises in its "as is"
state and condition on the Substitution Date and, except as otherwise set forth
in this Paragraph 5.b., Landlord shall have no obligation to make or pay for any
alterations, improvements or renovations in or to the Substitute Premises or to
otherwise prepare the Substitute Premises for Tenant's occupancy.
Notwithstanding the foregoing to the contrary, the Substitute Premises shall not
be shell space. Tenant shall, at Tenant's sole cost and expense, using Building
standard materials and finishes and subject to the terms, conditions and


                                      -2-


approvals set forth in Paragraph 9 of the Lease, perform all work necessary to
separately demise the Substitute Premises and otherwise make the Substitute
Premises suitable for Tenant's occupancy.

                  v. In the case of a Relocation, Landlord represents and
warrants to Tenant that, as of the Substitution Date, the elevator, plumbing,
heating, electrical, security, life safety and power systems serving the
Substitute Premises shall be in good working order and condition, the Substitute
Premises shall be free of excessive noise and vibration and Landlord shall make
reasonable efforts to have the Substitute Premises free from excessive odors.

                  vi. On or before the Substitution Date, Tenant shall surrender
the Current Premises (or, in the case of a Reduction, those portions of the
Current Premises other than the Substitute Premises) to Landlord in the
condition required under the Lease as if the Substitution Date were the
Expiration Date of the Lease with respect to the Current Premises (or portion
thereof in the case of a Reduction). Tenant shall bear all expenses in moving
Tenant's furnishings, fixtures and equipment from the Current Premises to the
Substitute Premises.

            c. Terms and Conditions.

                  i. If Landlord exercises the Substitution Right, then Tenant's
lease of the Substitute Premises shall be on all of the terms and conditions set
forth in the Lease as applicable to the Current Premises, except that (A) Tenant
shall take the Substitute Premises in the condition set forth in Paragraph 5.b.
above, (B) the term of the Lease shall be modified as set forth in Paragraph
5.c.ii. below, (C) the Monthly Rent payable by Tenant for the Substitute
Premises shall be the then-fair market rent for the Substitute Premises as
determined pursuant to Paragraph 5.c.iii. below, (D) the Base Year for the
Substitute Premises shall be the calendar year in which the Substitution Date
occurs if the Substitution Date is before October 1 of such calendar year and
otherwise the Base Year shall be the following calendar year and the Base Tax
Year for the Substitute Premises shall be the fiscal tax year in which the
Substitution Date occurs if the Substitution Date is before April 1 of such
fiscal tax year and otherwise the Base Tax Year shall be the following fiscal
tax year, (E) Tenant's Share payable under Paragraph 7 of the Lease with respect
to the Substitute Premises shall be determined by dividing the rentable square
footage of the Substitute Premises as set forth on Landlord's Substitution
Notice by the rentable square footage of the 345 Spear Building or the 2
Harrison Building, as the case may be (which shall be determined by Landlord
using the BOMA standard then in effect), (F) the amount of the Letter of Credit
shall be reduced in accordance with Paragraph 3.c. above.

                  ii. If (A) the Substitution Date is on or before December 31,
2004 and (B) the Substitute Premises is located on the second (2nd) floor of the
2 Harrison Building, then the term of the Lease shall automatically be adjusted
to be a period of three (3) years following the Substitution Date. If (X) the
Substitution Date is on or before December 31, 2006 and (Y) the Substitute
Premises is located on any floor of the Project other than the second (2nd)
floor of the 2 Harrison Building, then the term of the Lease shall automatically
be extended for a period of five (5) years following the Substitution Date.

                  iii. The fair market rent for the Substitute Premises shall be
based upon the terms of the Lease, as extended. The term "fair market rent"
shall be as defined in Paragraph 52.b. of the Lease (which shall survive the
deletion of Paragraph 52 from the Lease pursuant to Paragraph 2 above for
purposes of reference herein thereto). The fair market rent shall be mutually
agreed upon by Landlord and Tenant in writing within the fifteen (15)-day
calendar period after Tenant's receipt of the Relocation Notice. If Landlord and
Tenant are unable to agree upon the fair market rent within such fifteen
(15)-day period, then the fair market rent shall be established by appraisal
procedures set forth in Paragraph 52.c. of the Lease (which shall survive the
deletion of Paragraph 52 from the Lease pursuant to Paragraph 2 above for
purposes of reference herein thereto).

                  iv. Notwithstanding anything contained this Paragraph 5.c. to
the contrary, in no event shall the Monthly Rent for the Substitute Premises be
less than (A) Twenty-Two Dollars ($22.00) per rentable square foot if the
Substitute Premises is located on the second (2nd) floor of the 2 Harrison
Building or (B) Twenty-Five Dollars ($25.00) per rentable square foot if the
Substitute Premises is located on any floor of the Project other than the second
(2nd) floor of the 2 Harrison Building.

            d. Amendment. Effective as of the Substitution Date, the term
"Premises" as used in the Lease shall mean the Substitute Premises, and Landlord
and Tenant shall execute an appropriate amendment to the Lease that (i)
describes the Substitute Premises and sets forth the Substitution Date, (ii)
sets forth the new Expiration Date of the Lease if extended pursuant to
Paragraph 3.c.ii. above, (iii) sets forth the Monthly Rent payable by Tenant
with respect to the Substitute Premises (as determined pursuant to Paragraph
5.c.iii. above) and Tenant's Share, the Base Year and the Base Tax Year with
respect to the Substitute Premises (each as determined pursuant to Paragraph
5.c.i. above) and (iv) sets forth the amount of the Letter of Credit if reduced
pursuant to Paragraph 3.c. above.


                                      -3-


      6. Early Termination Right. Effective as of the date hereof, Landlord
shall have the right (the "Early Termination Right") exercisable at any time
upon ninety (90) days' prior written notice to Tenant (the "Early Termination
Notice") to terminate the Lease as of the date specified in the Early
Termination Notice (the "Early Termination Date"). Tenant shall not be entitled
to recover any compensation, damages or any other amounts from Landlord should
Landlord exercise the Early Termination Right. Tenant shall pay and perform all
obligations of Tenant in accordance with the Lease through the Early Termination
Date and shall surrender the Current Premises to Landlord in the condition
required under the Lease on the Early Termination Date as if the Early
Termination Date were the Expiration Date. Termination of the Lease on the Early
Termination Date pursuant to this Paragraph 6 shall not release Tenant from any
obligation or liability that arises under the Lease prior to the Early
Termination Date. Notwithstanding anything contained herein to the contrary, if
Landlord exercises the Substitution Right set forth in Paragraph 5 above, then
the Early Termination Right shall terminate and be of no further force or
effect.

      7. Inducement Payments.

            a. As an inducement to Landlord to exercise either the Substitution
Right or the Early Termination Right and in consideration of Landlord's
agreement to relocate (or reduce) the Current Premises or to terminate the Lease
early pursuant thereto, as the case may be, and thereby reduce the amount of
rent payable by Tenant under the Lease, Tenant hereby agrees to pay to Landlord
the amount of Five Hundred Thousand Dollars ($500,000.00) (the "Inducement
Payment") plus an additional payment (the "Additional Inducement Payment")
pursuant to the schedule set forth below:



SUBSTITUTION DATE OR EARLY TERMINATION DATE                 ADDITIONAL INDUCEMENT PAYMENT
- -------------------------------------------                 -----------------------------
                                                         
January 1, 2004 - June 30, 2004                             $1,500,000.00
July 1, 2004 - December 31, 2004                            $1,000,000.00
January 1, 2005 - June 30, 2005                             $750,000.00
July 1, 2005 - December 31, 2005                            $500,000.00
January 1, 2006 - June 30, 2006                             $250,000.00
On or after July 1, 2006                                    $0


            b. Both the Inducement Payment and the Additional Inducement Payment
shall be paid by Tenant in immediately available funds of lawful money of the
United States of America on or before the date that is thirty (30) days prior to
the Early Termination Date or the scheduled Substitution Date, as the case may
be. If Landlord does not exercise its right under Paragraph 7.d. below, the
Inducement Payment and the Additional Inducement Payment shall constitute
additional rent payable by Tenant under the Lease. Notwithstanding anything
contained in the Lease to the contrary, if Tenant fails to pay any portion of
either the Inducement Payment or the Additional Inducement Payment when due,
then, notwithstanding anything contained herein to the contrary, then, at
Landlord's option exercised by written notice to Tenant within ten (10) days
after such payment was due, the Substitution Notice or the Early Termination
Notice, as the case may be, shall be void and of no further force or effect. If
Landlord does not exercise its right to void the Substitution Notice or the
Early Termination Notice, as the case may be, pursuant to the preceding
sentence, then the Substitution Notice or the Early Termination Notice, as the
case may be, shall remain in full force and effect and Landlord shall have the
right to pursue all remedies available to Landlord under the Lease for the
collection of rent.

            c. Notwithstanding anything contained in this Paragraph 5 to the
contrary, if the Substitution Date or the Early Termination Date, as the case
may be, is after September 30, 2006, then the Inducement Payment (but not the
Additional Inducement Payment) shall be applied by Landlord on account of
Tenant's remaining rental obligations under the Lease in the order that such
rental obligations for Monthly Rent and Additional Rent become next due.

            d. Landlord shall have the right to require that Tenant pay all or
any portion of the Inducement Payment and/or the Additional Inducement Payment
directly to a replacement Tenant of the Current Premises for use as a tenant
improvement allowance or to an account to be used by Landlord to perform
improvements to the Project and/or the Current Premises, in either case on such
terms and conditions as Landlord, in its sole and absolute discretion, shall
designate in the Substitution Notice or the Early Termination Notice, as the
case may be, or otherwise designate in writing to Tenant prior to Tenant's
payment of the applicable amount.


                                      -4-


      8. Revival of Tenant's Obligations.

            a. If by November 1, 2004, (i) Tenant is Solvent (as defined below),
(ii) Tenant is publicly traded on NASDAQ or another public stock exchange, (iii)
no Reorganizational Activity (as defined below) has occurred and (iv) Landlord
has not exercised either the Substitution Right or the Early Termination Right,
then, at Landlord's option, this Amendment shall be void and of no further force
or effect and, accordingly, the full ten (10) year term of the Lease shall be
reinstated and all of the terms and conditions thereof shall apply (including,
without limitation, Tenant's renewal option under Paragraph 52 thereof) and the
Expiration Date under the Lease shall be March 31, 2012; provided, however, that
notwithstanding the foregoing, Landlord shall be entitled to retain the Term
Reduction Payment.

            b. As used herein, "Solvent" shall mean (i) the total assets of
Tenant which would be shown as assets on a balance sheet of Tenant as of the
close of Tenant's most recent fiscal quarter (i.e., September 30, 2004),
prepared in accordance with generally accepted accounting principles in effect
in the United States ("GAAP"), are greater than (ii) the total liabilities of
Tenant which would be shown as liabilities on such balance sheet of Tenant
prepared in accordance with GAAP. If Tenant is a publicly traded entity at the
time, it shall deliver its most recent publicly available financial statements
provided that such financial statements were filed with the appropriate public
regulatory agency on or before the applicable due date for such financial
statements.

            c. As used herein, "Reorganizational Activity" shall mean any of the
following that occurs after the date of this Amendment:

                  i. Tenant shall have an order for relief entered with respect
to it in a case under the Bankruptcy Code;

                  ii. Raising private or public equity or debt financing of
Seven Million Five Hundred Thousand Dollars ($7,500,000.00) or more;

                  iii. Selling material assets (not including sales by Tenant in
the ordinary course of Tenant's business) for an aggregate amount of Five
Million Dollars ($5,000,000) or more;

                  iv. Restructuring of space lease obligations of Tenant (other
than the Lease) with a total savings of the lesser of (A) Two Million Dollars
($2,000,000.00) in the aggregate or (B) Five Hundred Thousand Dollars
($500,000.00) per year; or

                  v. Terminating the employment of twenty percent (20%) or more
of Tenant's permanent full-time workforce in the United States (i.e., exclusive
of any temporary employees or employees that work less than thirty-five (35)
hours per week). As of the date hereof, Tenant represents and warrants that it
has one hundred forty-nine (149) permanent full-time employees in the United
States.

      9. Landlord's Right of First Negotiation. Tenant shall not lease, agree to
lease or offer to lease any space in an office building in the City and County
of San Francisco, California (the "City"), without first offering to lease the
same amount of space from Landlord in accordance with the provisions of this
Paragraph 9. Prior to Tenant offering or agreeing to lease any space from any
landlord other than Landlord, Tenant shall deliver to Landlord an offer in
writing to lease space from Landlord or an affiliate of Landlord (the "Offer
Notice"), which Offer Notice shall set forth the amount of space Tenant
requires. Landlord shall have thirty (30) days following Landlord's receipt of
the Offer Notice (the "Election Period") to notify Tenant in writing of
Landlord's election to open negotiations with Tenant for the lease of space at
the Project or any other property in the City owned or operated by Landlord or
an affiliate of Landlord (an "Election Notice"). The Election Notice shall
identify the space that Landlord (or the affiliate of Landlord, as the case may
be) offers to lease to Tenant (the "Offer Space") and the rental rate at which
the Offer Space is offered. If Landlord delivers an Election Notice to Tenant
prior to the end of the Election Period, Landlord and Tenant shall negotiate in
good faith for a period of thirty (30) days to attempt to reach an agreement
satisfactory to both parties for the lease by Tenant of the Offer Space from
Landlord or an affiliate of Landlord, as the case may be (the "Negotiation
Period"). Tenant shall not lease, agree to lease or offer to lease any space in
an office building in the City during the Negotiation Period. This Paragraph 9
shall survive the expiration or earlier termination of the Lease and shall
terminate on March 31, 2012; provided, however, if Landlord exercises the Early
Termination Right pursuant to Paragraph 6 above, Landlord's Right of First
Negotiation pursuant to this Paragraph 9 shall terminate and be of no further
force or effect.

      10. Bankruptcy Matters. In consideration of Landlord's agreement to
shorten the term of the Lease pursuant to Paragraph 1 above, and the
opportunities Tenant will have due to such reduction in the term of the Lease to
resolve its financial difficulties, and because this Amendment is intended to be
an alternative to the commencement of a case under the Bankruptcy Code by or
with respect to Tenant, in order that Landlord may receive the benefits for
which it has negotiated, Tenant agrees that if such a case


                                      -5-


is commenced by or against it, Tenant will not assert or request any other party
to assert that the automatic stay (the "Automatic Stay") provided by Section
362(a) of the Bankruptcy Code shall operate or be interpreted to stay, modify,
preempt, condition, reduce, or limit the ability of Landlord to (a) void a
previously sent Substitution Notice or the Early Termination Notice in
accordance with Paragraph 7.b. above or (b) exercise the Substitution Right or
the Early Termination Right pursuant to Paragraphs 5 and 6 above, respectively.
Specifically, without limiting the generality of the foregoing, in the event of
the commencement of any such case, Tenant agrees that sufficient cause exists
for the bankruptcy court having jurisdiction over such case to grant Landlord
relief from the Automatic Stay for the purposes specified in the preceding
sentence. Tenant irrevocably consents and waives any right to object, and
Landlord shall be entitled, to an order granting relief from the Automatic Stay
and any and all other stays, and equitable relief under Section 105 of the
Bankruptcy Code, any other applicable law or equity, so as to permit Landlord to
exercise such specified rights.

      11. Brokers. Landlord and Tenant each represents and warrants to the other
that such party has negotiated this Amendment directly with Shorenstein
Management, Inc., a California corporation (the "Broker") and has not authorized
or employed, or acted by implication to authorize or to employ, any other real
estate broker or salesperson to act for such party in connection with this
Amendment. Each party shall hold the other harmless from and indemnify and
defend the other against any and all claims by any real estate broker or
salesperson other than the Broker for a commission, finder's fee or other
compensation as a result of the inaccuracy of such party's representation above.

      12. Landlord's Attorneys' Fees. Prior to or concurrently with Tenant's
execution and delivery of this Amendment, Tenant shall pay to Landlord the
amount of Ten Thousand Dollars ($10,000.00) to reimburse Landlord for a portion
of Landlord's attorneys' fees in connection with this Amendment. Tenant's
failure to pay the foregoing attorneys' fees when due pursuant to the foregoing
shall constitute a default under the Lease, and at Landlord's option, shall also
serve to revoke and void this Amendment.

      13. Authority. If Tenant is a corporation, Tenant and each person
executing this Amendment on behalf of Tenant, hereby covenants and warrants that
(a) Tenant is duly incorporated or otherwise established or formed and validly
existing under the laws of its state of incorporation, (b) Tenant has and is
duly qualified to do business in the State of California, (c) Tenant has full
corporate power and authority to enter into this Amendment and to perform all of
Tenant's obligations under the Lease, as amended by this Amendment, and (d) each
person (and all of the persons if more than one signs) signing this Amendment on
behalf of Tenant is duly and validly authorized to do so.

      14. Lease in Full Force and Effect. Except as provided above, the Lease is
unmodified hereby and remains in full force and effect.

      15. No Offer. Submission of this instrument for examination and signature
by Tenant does not constitute an offer to lease or a reservation of or option
for lease, and is not effective as a lease amendment or otherwise until
execution and delivery by both Landlord and Tenant.


                                      -6-


      IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date and year first above written.

Landlord:                                Tenant:

SRI HILLS PLAZA VENTURE, LLC,            CRITICAL PATH, INC., a California
a Delaware limited liability company     corporation


                                         By: /S/ MICHAEL J. ZUKERMAN
By: /S/ JAMES A. PIERRE                      -----------------------------------
    -----------------------------------  Name: Michael J. Zukerman
Name: James A. Pierre                          ---------------------------------
      ---------------------------------  Title: Senior Vice President and
Title: Vice President                            General Counsel
       --------------------------------         --------------------------------




                                      -7-

EX-21.1

                                                                    EXHIBIT 21.1

List of Principal Direct Wholly-Owned Subsidiaries

Amplitude Software Ltd.
Critical Path B.V.
CP Datacenter Ltd.
Compass Holdings Corp.
Remarq Communities, Inc.
DotOne Acquisition Corp.
FaxNet Acquisition Corp.
Netmosphere Corporation
PeerLogic, Inc.
Critical Path Sweden
3034996 Nova Scotia Company
3034997 Nova Scotia Company
Critical Path Data Center AG
Critical Path Japan KK
CP International Limited (Ireland)

EX-23.1

                                                                    Exhibit 23.1


                      CONSENT OF INDEPENDENT ACCOUNTANTS



We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-63080, 333-51504, 333-44418, 333-40476,
333-36228, 333-95933, 333-95279, 333-87553) and on Form S-3 (Nos. 333-39958,
333-38006, 333-38000, 333-36382, 333-111559) of Critical Path, Inc. of our
report dated March 12, 2004 relating to the consolidated financial statements
and financial statement schedule, which appears in this Form 10-K.


/s/ PricewaterhouseCoopers LLP

San Jose, CA
March 15, 2004

EX-31.1

exv31w1

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, James Clark, certify that:

1.	I have reviewed this Annual Report on Form 10-K of Critical Path, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstance under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 15, 2004

/s/ JAMES CLARK  

James Clark 

Chief Financial Officer and
Executive Vice President 

131

EX-32.1

                                                                    EXHIBIT 32.1

      STATEMENT OF CHIEF EXECUTIVE OFFICER UNDER 18 U.S.C. SECTION 1350

I, William E. McGlashan, Jr., the chief executive officer of Critical Path, Inc.
(the "Company"), certify for the purposes of section 1350 of chapter 63 of title
18 of the United States Code that, to my knowledge,:

(i) the Annual Report of the Company on Form 10-K for the year ended December
31, 2003 (the "Report") fully complies with the requirements of
section 13(a) of the Securities Exchange Act of 1934, and

(ii) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.

Date: March 15, 2004                /s/ William E. McGlashan, Jr.
                                -------------------------------------
                                     William E. McGlashan, Jr.
                                Chief Executive Officer and Chairman

A signed original of this written statement required by 18 U.S.C. Section 1350
has been provided to Critical Path, Inc. and will be retained by Critical Path,
Inc. and furnished to the Securities and Exchange Commission or its staff upon
request.

- ------------------
(1) The material contained in this Exhibit 32.1 is not deemed "filed" with the
SEC and is not to be incorporated by reference into any filing of the Company
under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether
made before or after the date hereof and irrespective of any general
incorporation language contained in such filing.

EX-32.2

                                                                    EXHIBIT 32.2

      STATEMENT OF CHIEF FINANCIAL OFFICER UNDER 18 U.S.C. SECTION 1350

I, James Clark, the chief financial officer of Critical Path, Inc. (the
"Company"), certify for the purposes of section 1350 of chapter 63 of title 18
of the United States Code that, to my knowledge,:

(i) the Annual Report of the Company on Form 10-K for the year ended December
31, 2003 (the "Report") fully complies with the requirements of
section 13(a) of the Securities Exchange Act of 1934, and

(ii) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.

Date: March 15, 2004                 /s/ James Clark
                           ----------------------------------------
                                         James Clark
                                 Chief Financial Officer and
                                   Executive Vice President

A signed original of this written statement required by 18 U.S.C. Section 1350
has been provided to Critical Path, Inc. and will be retained by Critical Path,
Inc. and furnished to the Securities and Exchange Commission or its staff upon
request.

- ------------------
(1) The material contained in this Exhibit 32.2 is not deemed "filed" with the
SEC and is not to be incorporated by reference into any filing of the Company
under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether
made before or after the date hereof and irrespective of any general
incorporation language contained in such filing.