8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of the

Securities Exchange Act of 1934

Date of Report: January 3, 2006

(Date of earliest event reported)

CRITICAL PATH, INC.

(Exact name of registrant as specified in its charter)

California	0-25331	94-1788300
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

2 Harrison Street, 2nd Floor San Francisco, California	94105
(Address of principal executive offices)	(Zip Code)

(415) 541-2500

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240-13e-4(c))

ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.

On December 14, 2005, Critical Path, Inc. (“Critical Path”) entered into an Asset Purchase Agreement (the “Agreement”) with Tucows.com Co. (“Tucows”) for the sale of a portion of Critical Path’s hosted messaging assets, including a portion of its hosted messaging customer base, assembled hosted messaging workforce, and hosted messaging hardware (the “Hosted Assets”). A copy of the Agreement was previously filed with the Securities and Exchange Commission. On January 3, 2006, Critical Path completed the sale of its Hosted Assets. Under the Agreement, Tucows also acquired a software license for Memova™ and assumed certain contractual liabilities related to the Hosted Assets. Tucows has paid Critical Path $6.25 million in cash. Tucows will also pay an additional $1.75 million to Critical Path if certain post-closing conditions are satisfied.

On January 6, 2006, in recognition of the successful closing of the disposition of the Hosted Assets, the Compensation Committee of the Board of Directors of Critical Path unanimously approved a special cash bonus award to each of the following executive officers: Mark Ferrer, Chief Executive Officer and Chairman of the Board, $28,000; James Clark, Executive Vice President and Chief Financial Officer, $25,000; Mark Palomba, Executive Vice President, Worldwide Services, Support and Asia Pacific, $28,000; and Michael Zukerman, Executive Vice President, General Counsel and Secretary, $25,000.

ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS.

On January 3, 2006, Critical Path completed the disposition of the Hosted Assets. The information contained in Item 1.01 with respect to the disposition of the Hosted Assets is hereby incorporated by reference.

Item 9.01 FINANCIAL STATEMENTS AND EXHIBITS

(b) Pro forma financial information

The unaudited pro forma financial information included with this Form 8-K has been prepared to illustrate the pro forma effects of the disposition of the Hosted Assets. The unaudited pro forma condensed consolidated balance sheet at September 30, 2005, unaudited pro forma condensed consolidated statement of operations for the nine months ended September 30, 2005 and the unaudited pro forma condensed consolidated statements of operations for fiscal year ended December 31, 2004 are filed as Exhibit 99.1. The unaudited pro forma condensed consolidated statements of operations for the nine months ended September 30, 2005 and the fiscal year ended December 31, 2004 give effect to the disposition of the Hosted Assets as if it had occurred as of the beginning of the earliest (January 1, 2004) period presented. The unaudited pro forma condensed consolidated balance sheet as of September 30, 2005 gives effect to the disposition of the Hosted Assets as if it had occurred at the end of the period. All pro forma information has been prepared for informational purposes only and does not purport to be indicative of what would have resulted had the disposition actually occurred on the dates indicated or what may result in the future.

(c) Exhibits

Exhibit No.	Description
99.1	Unaudited pro forma condensed consolidated balance sheet at September 30, 2005, unaudited pro forma condensed consolidated statement of operations for the nine months ended September 30, 2005 and unaudited pro forma condensed consolidated statement of operations for the fiscal year ended December 31, 2004.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: January 9, 2006

CRITICAL PATH, INC.
By:	/S/    MICHAEL J. ZUKERMAN
	Michael J. Zukerman
	Executive Vice President, General Counsel and Secretary

EXHIBIT INDEX

Exhibit No.	Description
99.1	Unaudited pro forma condensed consolidated balance sheet at September 30, 2005, unaudited pro forma condensed consolidated statement of operations for the nine months ended September 30, 2005 and unaudited pro forma condensed consolidated statement of operations for the fiscal year ended December 31, 2004.

EX-99.1

Exhibit 99.1

On December 14, 2005, Critical Path, Inc. (“Critical Path” or “the Registrant”) entered into an Asset Purchase Agreement (the “Agreement”) with Tucows.com Co. (“Tucows” or “the Buyer”) for the sale of a portion of Critical Path’s hosted messaging assets, including a portion of its hosted messaging customer base, assembled hosted messaging workforce and hosted messaging hardware (the “Hosted Assets”). Under the Agreement, Tucows also acquired a software license for Memova™ and agreed to assume certain contractual liabilities related to the Hosted Assets. Tucows paid Critical Path $6.25 million on January 3, 2006, the closing date. Tucows will also pay an additional $1.75 million if certain post-closing conditions related to renewal of services by certain customers through October 31, 2006 are satisfied.

The following unaudited pro forma condensed consolidated balance sheet at September 30, 2005 and the unaudited pro forma condensed consolidated statements of operations data for the nine months ended September 30, 2005 and the year ended December 31, 2004, give pro forma effect to the estimated financial impact of the sale of the Registrant’s Hosted Assets to Tucows. The pro forma condensed consolidated balance sheet at September 30, 2005 gives pro forma effect to the sale of the Hosted Assets as if the transaction was consummated on September 30, 2005. The pro forma condensed consolidated statements of operations data for the nine months ended September 30, 2005 and the year ended December 31, 2004, give pro forma effect to the sale of the Hosted Assets as if the transaction was consummated as of the beginning of the earliest (January 1, 2004) periods presented.

The unaudited pro forma condensed consolidated financial statements are based on the historical consolidated financial statements of Critical Path giving effect to the sale of the Hosted Assets. The adjustments to reflect the sale of Hosted Assets are set forth in the following notes. The Registrant has retained products, operating activities and associated revenues, assets and liabilities, as well as operating expenses, related to its Critical Path’s Memova Messaging, Memova Anti-Abuse, Memova Mobile, Identity Management and Supernews software products and services.

The unaudited pro forma condensed financial data have been prepared by Critical Path’s management for informational purposes only and are not necessarily indicative of how the Critical Path’s balance sheet and operating results would have been presented had the transaction as set forth in the Agreement been consummated on the assumed dates, nor are they necessarily indicative of the presentation of the Critical Path’s balance sheet and statement of operations for any future period.

Critical Path, Inc.

Pro Forma Statement of Operations

Nine Months Ended September 30, 2005

	Actual Nine Months ended September 30, 2005			Pro Forma Adjustments			Pro Forma Nine Months ended September 30, 2005
NET REVENUE
Software license	$	14,810		$	—		$	14,810
Hosted messaging		12,048			(8,201	)a		3,847
Professional services		9,929			(153	)a		9,776
Maintenance and support		14,842			—			14,842
Total net revenue		51,629			(8,354	)		43,275
COST OF NET REVENUE
Software license		3,606			—			3,606
Hosted messaging		11,927			(6,767	)a		5,160
Professional services		6,993			—			6,993
Maintenance and support		4,542			—			4,542
Stock-based expense		168			(43	)b		125
Total cost of net revenue		27,236			(6,810	)		20,426
GROSS PROFIT (LOSS)		24,393			1,544			22,849
OPERATING EXPENSES
Selling and marketing		12,780			(63	)c		12,717
Research and development		11,446			(1,377	)c		10,069
General and administrative		9,829			—			9,829
Stock-based expense		749			(4	)b		745
Restructuring and other expenses		1,847			—			1,847
Total operating expenses		36,651			(1,444	)		35,207
OPERATING INCOME (LOSS)		(12,258	)		100			(12,358	)
Interest and other income (expense), net		5,598			—			5,598
Interest expense		(2,483	)		—			(2,483	)
Income (loss) before income taxes		(9,143	)		100			(9,243	)
Provision for income taxes		(789	)		—			(789	)
NET INCOME (LOSS)		(9,932	)		100			(10,032	)
Accretion on mandatorily redeemable preferred stock		(15,311	)		—			(15,311	)
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(25,243	)	$	100		$	(25,343	)
Net income (loss) per share attributable to common shareholders - basic and diluted	$	(0.83	)				$	(0.83	)
Shares used in the per share calculations - basic and diluted		30,452						30,452

Critical Path, Inc.

Pro Forma Statement of Operations

Year Ended December 31, 2004

	Actual Year Ended December 31, 2004			Pro forma Adjustments			Pro Forma Year Ended December 31, 2004
NET REVENUE
Software license	$	19,326		$	—		$	19,326
Hosted messaging		17,842			(12,135	)a		5,707
Professional services		12,829			(253	)a		12,576
Maintenance and support		21,075			—			21,075
Total net revenue		71,072			(12,388	)		58,684
COST OF NET REVENUE
Software license		5,463			—			5,463
Hosted messaging		25,404			(16,997	)a		8,407
Professional services		11,939			—			11,939
Maintenance and support		5,495			—			5,495
Stock-based expense		76			(21	)b		55
Restructuring expense		175			—			175
Total cost of net revenue		48,552			(17,018	)		31,534
GROSS PROFIT (LOSS)		22,520			(4,630	)		27,150
OPERATING EXPENSES
Selling and marketing		22,703			(2,042	)c		20,661
Research and development		20,973			(3,047	)c		17,926
General and administrative		15,005			—			15,005
Stock-based expense		1,839			(20	)b		1,819
Restructuring and other expense		3,404			—			3,404
Total operating expenses		63,924			(5,109	)		58,815
OPERATING INCOME (LOSS)		(41,404	)		(9,739	)		(31,665	)
Interest and other income (expense), net		7,686			—			7,686
Interest expense		(4,384	)		—			(4,384	)
Loss on extinguishment of debt		(12,783	)					(12,783	)
Income (loss) before income taxes		(50,885	)		(9,739	)		(41,146	)
Provision for income taxes		(1,112	)		—			(1,112	)
NET INCOME (LOSS)		(51,997	)		(9,739	)		(42,258	)
Accretion on mandatorily redeemable preferred stock		(14,565	)		—			(14,565	)
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(66,562	)	$	(9,739	)	$	(56,823	)
Net income (loss) per share attributable to common shareholders - basic and diluted	$	(3.15	)				$	(2.69	)
Shares used in the per share calculations - basic and diluted		21,123						21,123

Critical Path, Inc.

Pro Forma Consolidated Balance Sheet

As of September 30, 2005

	Actual as of September 30, 2005			Pro forma adjustments			Pro forma as of September 30, 2005
ASSETS
Current assets
Cash and Cash Equivalents		20,486			6,250	a		26,736
Accounts Receivable, Net		13,274			—			13,274
Prepaid and Other Current Assets		3,391			—			3,391
Total Current Assets		37,151			6,250			43,401
Property and Equipment, Net		6,302			(4,024	)b		2,278
Goodwill		6,613			—			6,613
Restricted cash		278			—			278
Other Assets		1,678			—			1,678
Total Assets	$	52,022		$	2,226		$	54,248
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK, & SHAREHOLDERS’ DEFICIT
Current liabilities
Accounts Payable	$	2,439		$	—		$	2,439
Accrued Liabilities		20,726			794	c		21,520
Deferred Revenue		9,489			(126	)d		9,363
Capital Lease and Other Obligations, Current		137			—			137
Total current liabilities		32,791			668			33,459
Deferred Revenue		970			—			970
Embedded Derivative Liability		2,527			—			2,527
Notes Payable, net of current portion		17,585			—			17,585
Other liabilities, long-term		46			—			46
Total Liabilities		53,919			668			54,587
Mandatorily Redeemable Preferred Stock		116,874			—			116,874
Shareholders’ deficit
Common Stock and Paid-in Capital		2,180,595			—			2,180,595
Common Stock Warrants		5,947			—			5,947
Unearned Compensation, Net		(716	)		—			(716	)
Accumulated Deficit		(2,300,657	)		1,558			(2,299,099	)
Accumulated Other Comprehensive Income		(3,940	)		—			(3,940	)
Total Shareholder Deficit		(118,772	)		1,558			(117,213	)
Total Liabilities, Mandatorily Redeemable Preferred Stock, and shareholders’ deficit	$	52,022		$	2,226		$	54,248

CRITICAL PATH, INC.

NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

Pro Forma Adjustments for the Pro Forma Consolidated Statement of Operations

for the Nine Months Ended September 30, 2005

(a) This adjustment represents the revenues and cost of revenues attributable to the Hosted Assets for the nine months ended September 30, 2005.

(b) This adjustment represents the stock-based expenses attributable to Hosted Assets for the nine months ended September 30, 2005.

(c) This adjustment represents the direct operating expenses attributable to Hosted Assets for the nine months ended September 30, 2005.

Pro Forma Adjustments for the Pro Forma Consolidated Statement of Operations

for the Year Ended December 31, 2004

(a) This adjustment represents the revenues and cost of revenues attributable to the Hosted Assets for the year ended December 31, 2004.

(b) This adjustment represents the stock-based expenses attributable to Hosted Assets for the year ended December 31, 2004.

(c) This adjustment represents the direct operating expenses attributable to Hosted Assets for the year ended December 31, 2004.

Pro Forma Adjustments to the Pro Forma Consolidated Balance Sheet as of

September 30, 2005

(a) Critical Path received consideration of $6.25 million on January 3, 2006, the Closing Date. The Buyer will also pay an additional $1.75 million if certain post-closing conditions related to renewal of services by certain customers through October 31, 2006 are satisfied, however, such contingent consideration is not included as a pro forma adjustment to the Pro Forma Consolidated Balance Sheet as of September 30, 2005.

(b) This adjustment represents the value of certain Hosted Assets which are being transferred to the Buyer as part of the sale.

(c) This adjustment represents the accrual for liabilities directly attributable to investment advisory, legal and accounting fees and the bonuses due Critical Path, Inc. executives related to the sale of Hosted Assets.

(d) This adjustment represents the value of certain Hosted Asset liabilities which are being transferred to the Buyer as part of the sale.