<SUBMISSION>
<ACCESSION-NUMBER>0000950149-02-001730
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>13
<PERIOD>20020630
<FILING-DATE>20020814
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>CRITICAL PATH INC
<CIK>0001060801
<ASSIGNED-SIC>7389
<IRS-NUMBER>911788300
<STATE-OF-INCORPORATION>CA
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>000-25331
<FILM-NUMBER>02735350
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>320 FIRST STREET
<CITY>SAN FRANCISCO
<STATE>CA
<ZIP>94105
<PHONE>4158088800
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>320 FIRST STREET
<CITY>SAN FRNACISCO
<STATE>CA
<ZIP>94105
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>f83504e10vq.htm
<DESCRIPTION>FORM 10-Q
<TEXT>
<HTML>
<HEAD>
<TITLE>Form 10-Q</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

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<P align="center"><FONT size="3"><B>UNITED STATES SECURITIES AND EXCHANGE COMMISSION</B>
</FONT>

<DIV align="center"><FONT size="2"><B>Washington, D.C. 20549</B>
</FONT></DIV>

<P>
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<P>


<P align="center"><FONT size="4"><B>Form&nbsp;10-Q</B>
</FONT>

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<TABLE cellspacing="0" border="0" cellpadding="0" width="80%">
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        <TD width="8%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="87%">&nbsp;</TD>
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<TR valign="bottom">
        <TD valign="top"><FONT size="2"><IMG src="f83504xbox.gif" alt="box"></FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
<B>QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)<BR>
OF THE SECURITIES EXCHANGE ACT OF 1934</B></FONT></TD>
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<P align="center"><FONT size="2"><B>For the quarterly period ended June&nbsp;30, 2002</B>
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        <TD width="87%">&nbsp;</TD>
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        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
<B>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)<BR>
OF THE SECURITIES EXCHANGE ACT OF 1934</B></FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2"><B>For the transition period from &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; .</B>
</FONT>

<P align="center"><FONT size="1"><B>Commission File Number: 000-25331</B>
</FONT>

<P align="center"><FONT size="5"><B>Critical Path, Inc.</B>
</FONT>

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        <TD width="40%">&nbsp;</TD>
        <TD width="20%">&nbsp;</TD>
        <TD width="40%">&nbsp;</TD>
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<TR valign="bottom">
        <TD align="center" valign="top"><FONT size="1"><B>A California Corporation</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><FONT size="1">
<B>I.R.S. Employer No.&nbsp;91-1788300</B></FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="1"><B>350 The Embarcadero<BR>
San Francisco, California 94105<BR>
415-808-8800</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the registrant (1)&nbsp;has filed all reports
required to be filed by Section&nbsp;13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12&nbsp;months (or for such shorter period that the
registrant was required to file such reports), and (2)&nbsp;has been subject to such
filing requirements for the past 90&nbsp;days. <IMG src="f83504xbox.gif" alt="box"> Yes <IMG src="f83504box.gif" alt="box"> No
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of July&nbsp;31, 2002, the company had outstanding 79,642,000&nbsp;shares of
common stock, $0.001 par value per share.
</FONT>
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<P align="center"><FONT size="2">&nbsp;</FONT>

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<!-- TOC -->
<A name="toc"><DIV align="CENTER" style="page-break-before:always"><U><B>TABLE OF CONTENTS</B></U></DIV></A>

<P><CENTER>
<TABLE border="0" width="90%" cellpadding="0" cellspacing="0">
<TR>
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	<TD width="76%"></TD>
</TR>
<TR><TD colspan="9"><A HREF="#000">PART I</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#001">Item 1. Condensed Consolidated Financial Statements (Unaudited)</A></TD></TR>
<TR><TD></TD><TD></TD><TD colspan="7"><A HREF="#002">CONDENSED CONSOLIDATED BALANCE SHEETS</A></TD></TR>
<TR><TD></TD><TD></TD><TD colspan="7"><A HREF="#003">CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS</A></TD></TR>
<TR><TD></TD><TD></TD><TD colspan="7"><A HREF="#004">CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS</A></TD></TR>
<TR><TD></TD><TD></TD><TD colspan="7"><A HREF="#005">NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS<BR> (Unaudited)</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#006">Item&nbsp;2. Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</A></TD></TR>
<TR><TD></TD><TD></TD><TD colspan="7"><A HREF="#007"> SUPPLEMENTAL ALTERNATIVE MEASUREMENT FINANCIAL DATA</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#008">Item&nbsp;3. Quantitative and Qualitative Disclosures About Market Risk</A></TD></TR>
<TR><TD colspan="9"><A HREF="#009">PART 2 &#151; OTHER INFORMATION</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#010">Item&nbsp;1. Legal Proceedings</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#011">Item&nbsp;4. Submission of Matters to a Vote of Security Holders</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#012">Item&nbsp;6. Exhibits and Report on Form&nbsp;8-K</A></TD></TR>
<TR><TD colspan="9"><A HREF="#013">SIGNATURE</A></TD></TR>
<TR><TD colspan="9"><A HREF="#014">INDEX TO EXHIBITS</A></TD></TR>
<TR><TD colspan="9"><A HREF="f83504exv10w1.txt">Exhibit 10.1</A></TD></TR>
<TR><TD colspan="9"><A HREF="f83504exv10w2.txt">Exhibit 10.2</A></TD></TR>
<TR><TD colspan="9"><A HREF="f83504exv10w3.txt">Exhibit 10.3</A></TD></TR>
<TR><TD colspan="9"><A HREF="f83504exv10w4.txt">Exhibit 10.4</A></TD></TR>
<TR><TD colspan="9"><A HREF="f83504exv10w5.txt">Exhibit 10.5</A></TD></TR>
<TR><TD colspan="9"><A HREF="f83504exv10w6.txt">Exhibit 10.6</A></TD></TR>
<TR><TD colspan="9"><A HREF="f83504exv10w7.txt">Exhibit 10.7</A></TD></TR>
<TR><TD colspan="9"><A HREF="f83504exv10w8.txt">Exhibit 10.8</A></TD></TR>
<TR><TD colspan="9"><A HREF="f83504exv15w1.txt">Exhibit 15.1</A></TD></TR>
<TR><TD colspan="9"><A HREF="f83504exv99w1.txt">Exhibit 99.1</A></TD></TR>
</TABLE>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>




<P align="center"><FONT size="2"><B>CRITICAL PATH, INC.</B>
</FONT>

<P align="center"><FONT size="2"><B>INDEX</B>
</FONT>

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        <TD width="3%">&nbsp;</TD>
        <TD width="84%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center"><FONT size="1"><B>Page</B></FONT></TD>
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        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center"><HR size="1" noshade></TD>
</TR>
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        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><FONT size="2">
<B>PART I</B></FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">Item&nbsp;1.</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Condensed Consolidated Financial Statements (Unaudited)
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2"></FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Condensed Consolidated Balance Sheets
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">3</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Condensed Consolidated Statements of Operations
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">4</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Condensed Consolidated Statements of Cash Flows
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">5</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Notes to Condensed Consolidated Financial Statements</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">6</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD valign="top"><FONT size="2">Item&nbsp;2.</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">12</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Supplemental Alternative Measurement Financial Data (Unaudited)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">29</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD valign="top"><FONT size="2">Item&nbsp;3.</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Quantitative and Qualitative Disclosures About Market Risk</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">30</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>




<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">Report of
Independent Accountants</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">31</FONT></TD>
</TR>



<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>




<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><FONT size="2">
<B>PART II</B></FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD valign="top"><FONT size="2">Item&nbsp;1.</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Legal Proceedings</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">32</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">Item&nbsp;4.</FONT></TD>
<TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Submission of Matters to a Vote of Securities Holders</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">33</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD valign="top"><FONT size="2">Item&nbsp;6.</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Exhibits and Reports on Form&nbsp;8-K</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">34</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P align="center"><FONT size="2">2</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<!-- link1 "PART I" -->
<DIV align="left"><A NAME="000"></A></DIV>

<P align="center"><FONT size="2"><B>PART I</B>
</FONT>

<!-- link2 "Item 1. Condensed Consolidated Financial Statements (Unaudited)" -->
<DIV align="left"><A NAME="001"></A></DIV>

<P align="left"><FONT size="2"><B>Item&nbsp;1. </B><B><I>Condensed Consolidated Financial Statements (Unaudited)</I></B>
</FONT>

<P align="center"><FONT size="3"><B>CRITICAL PATH, INC.</B>
</FONT>

<!-- link3 "CONDENSED CONSOLIDATED BALANCE SHEETS" -->
<DIV align="left"><A NAME="002"></A></DIV>

<P align="center"><FONT size="3"><B>CONDENSED CONSOLIDATED BALANCE SHEETS</B>
</FONT>

<DIV align="center"><FONT size="1"><B>(In thousands, except per share amounts)</B>
</FONT></DIV>

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        <TD width="3%">&nbsp;</TD>
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        <TD width="3%">&nbsp;</TD>
        <TD width="64%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>December 31,</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="4"><FONT size="1"><B>(Unaudited)</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD align="center" colspan="13"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>ASSETS</B></FONT></DIV></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Current assets</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cash and cash equivalents</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">59,463</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">43,195</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Short-term investments</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">9,702</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">13,302</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accounts receivable, net</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">26,692</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">27,753</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other current assets</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">5,367</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">6,684</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total current assets</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">101,224</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">90,934</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Investments</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">7,215</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">1,848</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Property and equipment, net</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">36,285</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">26,382</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
<TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Goodwill</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">5,631</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">6,613</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other intangible assets, net</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">43,010</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">21,524</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Restricted cash</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2,674</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">5,692</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other assets</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">3,913</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">5,551</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total assets</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">199,952</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">158,544</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
<TD align="center" colspan="13"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>LIABILITIES,
MANDATORILY REDEEMABLE PREFERRED STOCK AND<br>SHAREHOLDERS&#146; EQUITY</B></FONT></DIV></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Current liabilities</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accounts payable</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">25,955</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">32,328</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accrued expenses</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">6,232</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">4,783</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred revenue</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">10,297</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">9,690</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Capital lease and other obligations, current</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">3,431</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">3,447</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total current liabilities</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">45,915</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">50,248</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Convertible subordinated notes payable</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">38,360</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">38,360</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Capital lease and other obligations, long-term</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">1,149</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">1,862</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total liabilities</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">85,424</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">90,470</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">

<TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Commitments
and contingencies (Note&nbsp;2)</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Mandatorily redeemable preferred stock</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">5,373</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">15,427</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Shareholders&#146; equity</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Common stock and paid-in-capital, $0.001 par value</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Shares authorized: 500,000</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Shares issued and outstanding: 76,581 and 79,639, respectively</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2,176,370</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2,173,176</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Common stock warrants</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">5,250</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">5,947</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Notes receivable from shareholders</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,222</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Unearned compensation</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(7,050</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,755</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>

<TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accumulated
deficit, including other comprehensive loss</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(2,064,193</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(2,124,721</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total shareholders&#146; equity</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">109,155</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">52,647</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total liabilities, mandatorily redeemable preferred stock and shareholders&#146; equity</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">199,952</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">158,544</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">The accompanying notes are an integral part of these Condensed Consolidated<BR>
Financial Statements.
</FONT>





<P align="center"><FONT size="2">3</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<!-- link3 "CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS" -->
<DIV align="left"><A NAME="003"></A></DIV>

<P align="center"><FONT size="2"><B>CRITICAL PATH, INC.<BR>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS<BR>
(In thousands, except per share amounts)</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="50%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>Three Months Ended</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>Six Months Ended</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="7"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>(Unaudited)</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net revenues
</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Software license
</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">8,913</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">10,900</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">14,463</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">21,811</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Hosted messaging</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">11,141</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">5,582</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">25,580</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">12,546</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Professional services</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2,900</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2,645</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">6,317</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">4,582</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Maintenance and support</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">4,131</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">3,315</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">7,868</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">7,192</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total net revenues</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">27,085</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">22,442</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">54,228</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">46,131</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cost of net revenues
</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Software license
</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">126</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">586</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">417</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">873</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Hosted messaging</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">17,440</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">7,570</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">35,378</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">15,387</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Professional services</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2,594</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2,166</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">5,560</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">4,609</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Maintenance and support</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2,414</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2,224</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">5,000</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">4,327</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of purchased technology</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">5,672</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">4,631</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">11,344</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">9,261</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Stock-based expense &#151; Hosted messaging</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">441</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">232</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">826</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">417</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Stock-based expense &#151; Professional services</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">588</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">65</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">1,021</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">146</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Stock-based expense &#151; Maintenance and support</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">440</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">121</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">925</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">272</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Impairment of long-lived assets</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">4,207</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">4,207</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total cost of net revenues</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">33,922</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">17,595</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">64,678</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">35,292</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Gross profit (loss)</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(6,837</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">4,847</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(10,450</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">10,839</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operating expenses
</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Sales and marketing
</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">15,694</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">11,374</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">34,406</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">22,317</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Research and development</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">8,333</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">5,173</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">18,267</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">10,175</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">General and administrative</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">11,745</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">6,296</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">25,038</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">12,974</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of intangible assets</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">4,112</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">6,227</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">8,245</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">12,358</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Acquisition-related retention bonuses</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">793</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">963</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">11</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Stock-based expense &#151; Sales and marketing</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">6,681</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">650</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">13,281</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">3,185</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Stock-based expense &#151; Research and development</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">1,229</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">353</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2,326</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">775</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Stock-based expense &#151; General and administrative</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">6,334</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">3,111</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">15,067</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">3,408</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Restructuring expense, net</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">8,481</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">1,539</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">8,481</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">1,539</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Impairment of long-lived assets</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">9,991</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">9,991</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total operating expenses</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">73,393</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">34,723</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">136,065</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">66,742</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loss from operations</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(80,230</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(29,876</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(146,515</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(55,903</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom">
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest and other income (expense), net</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2,193</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(3,359</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">4,618</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(2,730</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest expense</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(5,315</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(733</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(10,382</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,516</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom">
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Equity in net loss of joint venture</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(397</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,005</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,173</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,408</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Gain on retirement of convertible subordinated notes, net</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">3,818</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">3,818</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loss before income taxes</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(79,931</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(34,973</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(149,634</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(61,557</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Provision for income taxes</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,150</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(594</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,493</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(21</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net loss</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(81,081</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(35,567</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(151,127</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(61,578</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accretion on redeemable convertible preferred shares</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(3,261</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(6,467</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net loss attributable to common shares</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(81,081</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(38,828</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(151,127</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(68,045</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net loss per share &#151; basic and diluted
</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net loss per share
</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(1.10</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.46</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(2.07</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.80</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net
loss per share attributable to common shares</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(1.10</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.50</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(2.07</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.88</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
        <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Weighted average common shares outstanding</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">73,794</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">77,790</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">72,966</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">77,152</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P align="center"><FONT size="2">The accompanying notes are an integral part of these Condensed Consolidated<BR>
Financial Statements.
</FONT>

<P align="center"><FONT size="2">4</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<!-- link3 "CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS" -->
<DIV align="left"><A NAME="004"></A></DIV>

<P align="center"><FONT size="2"><B>CRITICAL PATH, INC.</B>
</FONT>

<P align="center"><FONT size="2"><B>CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS</B>
</FONT>

<DIV align="center"><FONT size="2"><B>(In thousands)</B>
</FONT></DIV>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="66%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="6%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>Six Months Ended</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>(Unaudited)</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">

<TD colspan="11"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operating</FONT></DIV></TD>
<TR>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>

<TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net loss</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(151,127</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(61,578</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Provision for doubtful accounts</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">3,746</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">457</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Depreciation and amortization</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">24,139</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">15,319</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of intangible assets</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">19,588</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">21,619</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of stock-based expenses</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">33,463</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">8,342</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Equity in net loss of joint venture</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">1,173</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">1,408</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Impairment of long-lived
assets</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">14,198</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Change in fair value of preferred stock instrument</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">3,320</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Gain on retirement of convertible debt,
net</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(3,818</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Provision for restructured operations</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">1,022</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accounts receivable</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">6,333</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,311</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other assets</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2,384</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,546</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accounts payable</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(3,570</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2,978</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accrued expenses</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(2,380</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,509</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred revenue</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(14</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(607</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net cash used in operating activities</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(55,885</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(12,086</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD colspan="11"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Investing</FONT></DIV></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Notes receivable from officers</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">85</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">265</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Property and equipment purchases</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(10,733</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(2,801</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Payments for acquisitions, net of cash acquired</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(9,898</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">4,511</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Short-term investments</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(18,308</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(3,600</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Restricted cash</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(817</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(3,018</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net cash used in investing activities</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(39,671</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(4,643</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">

<TD colspan="11"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Financing</FONT></DIV></TD>
</TR>
<TR valign="bottom">
                <TD><FONT size="2">&nbsp;</FONT></TD>

<TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Proceeds from issuance of Common Stock, net</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">1,599</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">1,439</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Retirement of convertible
debt</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,182</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Proceeds from payments of shareholder notes receivable</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">33</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">1,222</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>

<TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Principal
payments on capital lease obligations</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(4,864</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(3,130</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Purchase of Common Stock</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(54</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net cash used in financing activities</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(4,468</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(469</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net change in cash and cash equivalents</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(100,024</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(17,198</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Effect of exchange rates on cash and cash equivalents</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(2,240</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">930</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cash and cash equivalents at beginning of period</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">216,542</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">59,463</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cash and cash equivalents at end of period</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">114,278</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">43,195</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">The accompanying notes are an integral part of these Condensed Consolidated<BR>
Financial Statements.
</FONT>


<P align="center"><FONT size="2">5</FONT>



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<P align="center"><FONT size="2"><B>CRITICAL PATH, INC.</B>
</FONT>

<!-- link3 "NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS<BR> (Unaudited)" -->
<DIV align="left"><A NAME="005"></A></DIV>
<P align="center"><FONT size="2"><B>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Unaudited)</B>
</FONT>

<P align="left"><FONT size="2"><B>Note 1 &#151; Basis of Presentation and Summary of Significant Accounting Policies</B>
</FONT>

<P align="left"><FONT size="2"><B><I>The Company</I></B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Critical Path, Inc. was incorporated in California on February&nbsp;19, 1997.
Critical Path, Inc., along with its subsidiaries (collectively
referred to herein as &#147;We,&#148; &#147;Critical Path&#148; or the &#147;Company&#148;), provides messaging and collaboration
solutions, from wireless and
secure and unified messaging to basic email and personal information
management, as well as identity management solutions that simplify user profile
management and strengthen information security. The Company&#146;s customers are
corporate enterprises, carriers and service providers, postal authorities and
government agencies.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The unaudited Condensed
Consolidated Financial Statements (&#147;Financial
Statements&#148;) of the Company furnished herein have been
reviewed by independent accountants and reflect all adjustments that are, in
the opinion of management, necessary to present fairly the financial position
and results of operations for each interim period presented. All adjustments
are normal recurring adjustments. The Financial Statements should be read in
conjunction with the condensed consolidated financial statements and notes
thereto, together with management&#146;s discussion and analysis of financial
condition and results of operations, presented in the Company&#146;s Annual Report
on Form&nbsp;10-K for the fiscal year ended December&nbsp;31, 2001. The results of
operations for the interim periods presented herein are not necessarily
indicative of the results to be expected for the entire year.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With respect to the unaudited condensed consolidated financial information
of the Company as of June&nbsp;30, 2002 and for the three and six-month periods ended June&nbsp;30,
2001 and 2002 included herein, PricewaterhouseCoopers LLP reported that they
have applied limited procedures in accordance with professional standards for a
review of such information. However, their separate report dated August&nbsp;7,
2002, appearing herein, states that they did not audit and they do not express
an opinion on the unaudited condensed consolidated financial information.
PricewaterhouseCoopers LLP is not subject to the liability provisions of
Section&nbsp;11 of the Securities Act of 1933 for their report on the unaudited
condensed consolidated financial information because that report is not a
report or a part of this Form&nbsp;10-Q prepared or certified by
PricewaterhouseCoopers LLP within the meaning of Sections&nbsp;7 and 11 of the Act.
</FONT>

<P align="left"><FONT size="2"><B><I>Basis of Presentation</I></B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The condensed 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.
</FONT>

<P align="left"><FONT size="2"><B><I>Segment and Geographic Information</I></B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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: Internet messaging and communication
products and services and management uses one measure of profitability. Revenue
information on a product and service basis has been disclosed in our
statements
of operations.
</FONT>

<P align="left"><FONT size="2"><B><I>Reclassifications</I></B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain amounts previously reported have been reclassified to conform to
the current period presentation.
</FONT>

<P align="left"><FONT size="2"><B><I>Recent accounting pronouncements</I></B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
July 2002, the Financial Accounting Standards Board
(&#147;FASB&#148;) issued Statement of Financial Accounting Standards
(&#147;SFAS&#148;) No.&nbsp;146, Accounting for Costs Associated with
Exit or Disposal Activities. This Statement addresses financial
accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force
(&#147;EITF&#148;) Issue No.&nbsp;94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring). This
Statement requires that a liability for costs associated with an exit
or disposal activity be recognized and measured initially at fair
value only when the liability is incurred. The provisions of this
Statement are effective for exit or disposal activities that are
initiated after December&nbsp;31, 2002. The Company is currently
assessing the impact of SFAS No.&nbsp;146 on its financial
statements.</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April 2002, the FASB issued
SFAS No.&nbsp;145, Rescission of
FASB Statements No.&nbsp;4, 44 and 64, Amendment of SFAS No.&nbsp;13, and Technical
Corrections. The provisions of SFAS No.&nbsp;145 related to the
rescission of SFAS No.&nbsp;4 are effective for fiscal years beginning
after May&nbsp;15, 2002. Other provisions of SFAS No.&nbsp;145 are effective for financial statements issued on or
after May&nbsp;15, 2002 and rescinds both SFAS No.&nbsp;4, Reporting Gains and Losses
from Extinguishment of Debt, and the amendment to SFAS No.&nbsp;4, SFAS No.&nbsp;64,
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. Through this
rescission, SFAS No.&nbsp;145 eliminates the requirement that gains and losses from
the extinguishment of debt be aggregated and, if material, classified as an
extraordinary item, net of the related income tax effect. The
</FONT>

<P align="center"><FONT size="2">6</FONT>

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<P><FONT size="2">Company early adopted the rules on accounting and reporting gains and losses
from extinguishment of debt in the second quarter of fiscal 2002. Adoption
resulted in the reclassification of certain gains on extinguishment of debt
recorded in fiscal 2001.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June 2001, the FASB issued SFAS No.&nbsp;142, Goodwill and Other Intangible
Assets. This Statement addressed financial accounting and reporting for
intangible assets acquired individually or with a group of other assets (but
not those acquired in a business combination) at acquisition and goodwill and
other intangible assets subsequent to their acquisition. This Statement
supersedes APB Opinion No.&nbsp;17, Intangible Assets. Under the provisions of this
Statement, if an intangible asset is determined to have an indefinite useful
life, it shall not be amortized until its useful life is determined to be no
longer indefinite. An intangible asset that is not subject to amortization
shall be tested for impairment annually, or more frequently if events or
changes in circumstances indicate that the asset might be impaired. Goodwill
shall not be amortized. Goodwill shall be tested for impairment on an annual
basis and between annual tests in certain circumstances at a level of reporting
referred to as a reporting unit. Goodwill and intangible assets acquired after
June&nbsp;30, 2001 will be subject immediately to the nonamortization and
amortization provisions of this Statement. The Company adopted the new rules on
accounting for goodwill and other intangible assets in the first quarter of
fiscal 2002. Adoption resulted in the identification of approximately $5.6
million in intangible assets related to acquired workforce and goodwill that
will no longer be amortized. These assets were also tested upon implementation
and found not to be impaired based upon estimates of the fair values of the two
reporting units identified. See also Note
6&nbsp;&#151;&nbsp;Intangible Assets.
</FONT>

<P align="left"><FONT size="2"><B>Note 2 &#151; Commitments and Contingencies</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company is 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.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Securities Class&nbsp;Actions in Northern District of California. </I>Beginning on
February&nbsp;2, 2001, a number of securities class action complaints were filed
against the Company and certain of its former officers and directors in the
U.S. District Court for the Northern District of California. The
complaints alleged that the Company and certain of its former
officers and directors made false or
misleading statements about the Company&#146;s financial results and its
prospects. In addition, on September&nbsp;24, 2001, certain former shareholders of
PeerLogic, Inc. filed a putative class action in the Superior Court of the
State of California alleging that Critical Path breached representations and
warranties made in connection with the acquisition of PeerLogic. On November&nbsp;8,
2001, Critical Path announced that it had reached an agreement in principle to
settle these cases. In February 2002, the Court gave preliminary approval to
the settlement of these cases. In June 2002, the Court entered its final
approval of the settlement. In connection with the settlement, the
Company reached a financial settlement and issued warrants to purchase up to 850,000&nbsp;shares of
common stock at $10.00 per share and recorded the fair value of the
warrants of $697,000 as a general and administrative expense in the
first quarter of 2002.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On April&nbsp;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
Critical Path and certain of its former officers. The plaintiff shareholders
opted out of the shareholder litigation settlement which was approved
by the
U.S. District Court for the Northern District of California in June
2002. The complaint alleges breach of contract, unjust
enrichment, common law fraud and violations of federal securities laws and
seeks compensatory and punitive damages in an unnamed amount but in excess of
$200&nbsp;million.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Securities and Exchange Commission Investigation. </I>In 2001, the Securities
and Exchange Commission (the &#147;SEC&#148;) investigated the Company and certain of the
Company&#146;s former officers and directors with respect to
non-specified accounting matters, financial reports, other public disclosures
and trading activity in the Company&#146;s securities. The SEC concluded its
investigation of the Company in January 2002 with no imposition of fines or
penalties. The Company consented without admitting or denying liability, to an
administrative order that the Company violated certain non-fraud provisions of
the federal securities laws and to a cease and desist order. The investigation
has also thus far resulted in charges being filed against two former
officers of the Company. We believe that the investigation of former officers of the Company continues
and, while the Company is fully
cooperating with all requests with respect to such investigation, we do not
know the status of such investigation.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Derivative Actions in Northern District of California. </I>Beginning on
February&nbsp;5, 2001, Critical Path was named as a nominal defendant in a number of
derivative actions, purportedly brought on the Company&#146;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&#146;s former officers and directors breached
their fiduciary duties, engaged in abuses of control, were unjustly enriched by
sales of the Company&#146;s common stock, engaged in insider trading in violation of
California law or published false financial
</FONT>

<P align="center"><FONT size="2">7</FONT>

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<P><FONT size="2">information in violation of California law. While the plaintiffs sought
unspecified damages on the Company&#146;s behalf, because of the nature of
derivative litigation, any recovery would inure to the Company&#146;s benefit.
Contemporaneously with settlement of the securities class action described
above, an agreement in principle was reached to settle the derivative action.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Securities Class&nbsp;Action in Southern District of New York. </I>Beginning on
July&nbsp;18, 2001, a number of securities class action complaints were filed
against the Company, and certain of its former officers and
directors and underwriters connected with its initial public offering of common
stock in the U.S. District Court for the Southern District of New
York. The purported class action complaints were filed by individuals who
allege that they purchased common stock at the initial public offering of
common stock between March&nbsp;26, 1999 and December&nbsp;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 commissions
received by the underwriters. The complaints have been consolidated into a
single action. The complaints seek an unspecified amount in damages on behalf
of persons who purchased the Company&#146;s stock during the
specified period. Similar complaints have been filed against
more than 300 other companies and additional underwriters.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Lease Dispute. </I>In July 2000, PeerLogic, Inc. signed a lease for office
space in San Francisco, California. In December 2000, we acquired
PeerLogic as a wholly-owned subsidiary. After reviewing its obligations under
the lease, we 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&#146;s proposed use of the leased premises was not permitted. The
landlord appealed this determination and prevailed before the San Francisco
Board of Appeals. The Company requested a rehearing on the matter, which the
Board of Appeals denied. In July 2002, the Company filed a Petition for Writ
of Administrative Mandamus with the San Francisco Superior Court, requesting
that the Board of Appeals&#146; decision be reversed and/or remanded for rehearing
by the Board, with instructions from the Court. On April&nbsp;30, 2002, the landlord filed suit
in San Francisco Superior Court against the Company alleging, among other
things, breach of the lease. In its complaint, the landlord sought unspecified
compensatory damages for back rent, attorneys&#146; fees, treble damages under
relevant statutes, and unspecified punitive damages. Litigation in this matter
is ongoing.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The uncertainty associated with these and other unresolved or threatened
lawsuits could seriously harm the Company&#146;s business and financial condition.
In particular, the lawsuits or the continued effects of the investigation could
harm its relationships with existing customers and its ability to obtain new
customers. The continued defense of lawsuits could also result in the diversion
of management&#146;s time and attention away from business operations, which could
harm the Company&#146;s business. Negative developments with respect to the
settlements or the lawsuits could cause the Company&#146;s stock price to decline
significantly. In addition, although the Company is unable to determine the
amount, if any, that it may be required to pay in connection with the
resolution of these lawsuits or the investigation by settlement or otherwise,
and although the Company maintains adequate and customary insurance, the size
of any such payments could seriously harm the Company&#146;s financial condition.
</FONT>

<P align="left"><FONT size="2"><B>Note 3 &#151;Acquisition of Japanese Joint Venture</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June&nbsp;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&nbsp;million in
cash and the assumption of $2.6&nbsp;million in business restructuring and capital
lease obligations. The excess of the purchase price of $5.6&nbsp;million over the
fair value of the acquired net assets, primarily working capital and fixed
assets, of $4.6&nbsp;million was recorded as goodwill. In accordance
with SFAS No.&nbsp;142,
this goodwill asset of approximately $1.0&nbsp;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.
</FONT>

<P align="left"><FONT size="2"><B>Note 4 &#151; Related Party Transactions</B>
</FONT>

<P align="left"><FONT size="2"><B><I>Loans to Executive Officers</I></B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2001 and in connection with his employment agreement, the Company
made a loan and held a note receivable from David Hayden, Executive
Chairman and a Director of the Company,
in the amount of $1.5&nbsp;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.&nbsp;Hayden&#146;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.&nbsp;Hayden&#146;s employment agreement which 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
</FONT>

<P align="center"><FONT size="2">8</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P><FONT size="2">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.&nbsp;Hayden&#146;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.&nbsp;Hayden&#146;s termination of employment with the Company,
some of the terms of the loan were altered as described in this section
below under &#147;Termination Agreement.&#148;
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2001, the Board approved a fully secured loan to William
McGlashan, Jr., the Company&#146;s Chief Executive Officer, of up to $4.0&nbsp;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.&nbsp;McGlashan
agreed to amend the agreement in order to reduce the amount of the loan
commitment to $1.5&nbsp;million. As of August&nbsp;13, 2002, no portion of the loan
commitment has yet been funded.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;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&#146;s lapsing right of repurchase at a price
equal to the exercise price per share over a three year period.
Mr.&nbsp;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 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 &#147;vested&#148; shares.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
accordance with EITF&nbsp;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 has been recognized as an asset, in Other
assets, and as a liability, in Capital lease and other obligations.
These balances will be reclassified to shareholders&#146; equity as
the right of repurchase lapses.
</FONT>

<P align="left"><FONT size="2"><B><I>Termination Agreement</I></B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.&nbsp;Hayden received a lump sum separation payment of
$350,000 plus applicable taxes, continuation of health and welfare benefits until May&nbsp;31,
2003, an extension to repay
the $1.95&nbsp;million loan with the Company until no later than June&nbsp;30, 2005, an
extension of the period within which he may exercise his vested stock options
until no later than June&nbsp;30, 2005, acceleration
of a portion of his unvested options if a change of control of the Company
occurs prior to September&nbsp;30, 2003 and reimbursement for $50,000 of legal fees incurred. In connection
with the provision of these benefits, Mr.&nbsp;Hayden agreed to (i)&nbsp;forfeit the right
under the severance provisions of his employment agreement to an additional one year extension of
the $1.95&nbsp;million loan until August 2006; (ii)&nbsp;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&nbsp;million
loan; and (iii)&nbsp;forfeit his
right to receive a $2.5&nbsp;million loan from the Company to exercise certain of
his stock options. All sales of common stock of the Company by Mr.&nbsp;Hayden will be made
under a publicly filed trading plan.  In addition, Mr.&nbsp;Hayden
and the Company executed a mutual release of claims. As a result of Mr.&nbsp;Hayden&#146;s separation, the
Company recorded aggregate one-time charges of $2.6&nbsp;million,
included in operating expenses, inclusive of
$572,000 related to the separation payment and legal fee reimbursements made to
Mr.&nbsp;Hayden and $2.0&nbsp;million in stock-based expenses related to the extension of
the exercise period on Mr.&nbsp;Hayden&#146;s vested stock options.
</FONT>

<P align="left"><FONT size="2"><B>Note 5 &#151; Restructurings</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May 2002, the Board of Directors approved a restructuring plan to
further reduce the Company&#146;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&nbsp;million in severance and related costs associated with
the elimination of approximately 39 positions and $300,000 in facilities lease
termination costs. During the quarter, approximately $500,000 was charged
against this accrual, primarily cash payments of severance related costs. The
balance of the accrual of approximately $1.0&nbsp;million is expected to be utilized
by the end of this fiscal year.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2001, the Company announced a strategic restructuring plan that
involved reorganizing Critical Path&#146;s product and service offerings around a
group of core communications solutions, a reduction in the Company&#146;s workforce,
and the consolidation of facilities and operations. Total restructuring charges
during 2001 amounted to $18.3&nbsp;million, of which $8.5&nbsp;million was recognized
during the second quarter of 2001. As of December&nbsp;31, 2001 a $2.2&nbsp;million
accrual associated with these restructuring actions remained as a component of
accounts payable. During the first six months of 2002, approximately $700,000
was charged against this accrual, primarily cash paid related to facilities and
operations consolidation restructuring activities, leaving a remaining
restructuring accrual of $1.5&nbsp;million as of June&nbsp;30, 2002, which is expected to
be paid over the next 9&nbsp;months.
</FONT>

<P align="left"><FONT size="2"><B>Note 6 &#151; Intangible Assets</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At June&nbsp;30, 2002, the Company was carrying net intangible assets of $28.1
million. Of this amount, $21.6&nbsp;million is associated with acquired intangible
assets which are being amortized and the remaining $6.6&nbsp;million is associated
with goodwill which is not being
amortized, in accordance with SFAS No.&nbsp;142. During the second quarter of 2002,
goodwill increased by approximately $1.0&nbsp;million associated with the Company&#146;s
acquisition of its Japanese joint venture, Critical Path Pacific, Inc. See also
Note 3 &#150; Acquisition of Japanese Joint Venture.
</FONT>

<P align="center"><FONT size="2">9</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Goodwill
is detailed as follows (in thousands):
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
        <TD width="5%">&nbsp;</TD>
        <TD width="52%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="6%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="left" colspan="2"><FONT size="2"><B>&nbsp;</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>January&nbsp;1,</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>&nbsp;</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June&nbsp;30,</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="left" colspan="2"><FONT size="2"><B>&nbsp;</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>Acquisition</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>

<TR valign="bottom">
        <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">United
States</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">2,386</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">2,386</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Europe</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">3,245</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">3,245</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">982</FONT></TD>
        <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">982</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">5,631</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">982</FONT></TD>
        <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">6,613</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>



<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other
intangible
assets as of June&nbsp;30, 2002 are detailed as follows (in
thousands):
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
        <TD width="5%">&nbsp;</TD>
        <TD width="52%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="6%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="left" colspan="2"><FONT size="2"><B>&nbsp;</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>Gross</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>Accumulated</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="left" colspan="2"><FONT size="2"><B>&nbsp;</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>Amount</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>Amortization</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>Net Book Value</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Existing technology</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">39,748</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(30,487</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">9,261</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Strategic relationships&#151;warrants</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">38,660</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(28,996</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">9,664</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Customer base</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">12,493</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(10,076</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2,417</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Patents</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">726</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(544</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">182</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">91,627</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(70,103</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">21,524</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>


<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The aggregate amortization
expense related to goodwill
which is no longer being amortized totaled $1.3&nbsp;million and zero for the
second quarters of 2001 and 2002, respectively, and $2.6&nbsp;million and zero for
the first six-month periods of 2001 and 2002, respectively. The estimated
total amortization expense related to all intangible assets is $43.1&nbsp;million
for the fiscal year 2002, at which time all other intangible assets will
be fully amortized.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table presents
net loss attributable to common shares and
net loss per share attributable to common shares &#151; basic and diluted, as if the goodwill had not
been amortized during the periods presented (in
thousands, except per share amounts):
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%">
<TR valign="bottom">
        <TD width="55%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>Three Months Ended</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>Six Months Ended</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="7"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Net
loss</B></FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap><FONT size="2"></FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap><FONT size="2"></FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Reported net loss attributable to common shares</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(81,081</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(38,828</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(151,127</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(68,045</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of goodwill</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">1,284</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2,568</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net loss attributable to common shares, as adjusted</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(79,797</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(38,828</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(148,559</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(68,045</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Net
loss per share&nbsp;&#151;&nbsp;basic and diluted</B></FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Reported
net loss per share attributable to common shares</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(1.10</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.50</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(2.07</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.88</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of goodwill per share</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">0.02</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">0.04</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net
loss per share attributable to common shares, as adjusted</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(1.08</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.50</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(2.03</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.88</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P align="left"><FONT size="2"><B>Note 7 &#151; Other Comprehensive Loss</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
components of other comprehensive loss are as follows (in thousands):
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%">
<TR valign="bottom">
        <TD width="51%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>Three Months Ended</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>Six Months Ended</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>June 30,</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>June 30,</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="7"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net loss</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(81,081</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(35,567</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(151,127</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(61,578</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net
unrealized investment losses</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(687</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(181</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(385</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(678</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Foreign currency translation adjustments</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,576</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2,068</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(2,414</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">1,729</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other comprehensive loss</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(83,344</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(33,680</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(153,926</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(60,527</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accumulated
other comprehensive loss consists of net unrealized gains (losses)
on available-for-sale securities, net of tax, and cumulative translation
adjustments, as presented on the accompanying consolidated balance sheet.
</FONT>

<P align="left"><FONT size="2"><B>Note 8 &#151; Net Loss Per Share</B>
</FONT>

<P align="left"><FONT size="2">Net loss per share is calculated as follows:<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(In thousands, except per share amounts)
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="97%">
<TR valign="bottom">
        <TD width="55%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>Three Months Ended</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>Six Months Ended</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="7"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Net loss</B></FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net loss</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(81,081</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(35,567</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(151,127</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(61,578</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accretion on redeemable convertible preferred shares</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(3,261</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(6,467</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net loss attributable to common shares</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(81,081</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(38,828</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(151,127</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(68,045</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Weighted average shares outstanding</B></FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Weighted average shares outstanding</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">74,968</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">78,168</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">74,619</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">77,542</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Weighted average common shares issued subject to
repurchase agreements</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(124</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(34</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(325</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(46</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Shares held in escrow related to acquisitions</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,050</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(344</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,328</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(344</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Shares used in computation of basic and diluted net
loss per share</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">73,794</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">77,790</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">72,966</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">77,152</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Net loss per share &#150; basic and diluted</B></FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net loss</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(1.10</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.46</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(2.07</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.80</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accretion on redeemable convertible preferred
shares</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(0.04</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(0.08</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net loss attributable to common shares</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(1.10</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.50</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(2.07</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.88</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At June 30, 2001 and 2002, approximately
31.3 million and 86.0 million potential common shares, respectively,
were excluded from the determination of diluted net loss per share,
as the effect of such shares is anti-dilutive.
</FONT>


<P align="center"><FONT size="2">10</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2"><B>CRITICAL PATH, INC.</B>
</FONT>

<P align="center"><FONT size="2"><B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF<BR>
FINANCIAL CONDITION AND RESULTS OF OPERATIONS</B>
</FONT>

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<DIV align="left"><A NAME="006"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;2. </B><B><I>Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</I></B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>This report on Form&nbsp;10-Q contains forward-looking statements within the
meaning of the &#147;safe harbor&#148; provisions of the Private Securities Litigation
Reform Act of 1995, as amended and in effect from time to time. The words
&#147;anticipate,&#148; &#147;expect,&#148; &#147;intend,&#148; &#147;plan,&#148; &#147;believe,&#148; &#147;seek,&#148; and
&#147;estimate&#148; and similar expressions are intended to identify forward-looking
statements. These are statements that relate to future periods and include
statements regarding our future strategic, operational and financial plans,
anticipated or projected revenues, expenses and operational growth, markets and
potential strategic partners and customers for our products and service offerings, 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 in the global marketplace, investments in product development, the adequacy of our current
facilities,
use of future earnings, the features, 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 meet sales
and revenue objectives,
forecasts and earnings guidance, competition in the marketplace and
our ability to attract and retain customers, our ability to
successfully manage costs to achieve profitability, failure to negotiate strategic technology
and distribution deals on favorable terms, our evolving business
strategy and the emerging nature of the market for our products and
services, lingering doubts related to the accounting restatements and SEC investigation of our former executives and
directors, turnover within and integration of senior management, board of
directors members and other key personnel, volatility in the market
for our stock, risks associated
with an inability to maintain continued compliance with the Nasdaq National
Market listing requirements, potential difficulties associated with strategic
relationships, investments and uncollected bills, general economic conditions
in markets in which the Company does business, volatility in the
market for our stock and risks associated with our
international operations, foreign currency fluctuations, unplanned system
interruptions and capacity constraints, and software defects, and those discussed in &#147;Management&#146;s Discussion and Analysis of
Financial Condition and Results of Operations&#148; and &#147;Additional Factors That May
Affect Future Operating Results&#148; 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.</I>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>All references to &#147;Critical Path,&#148; &#147;we,&#148; &#147;our,&#148; or the &#147;Company&#148; mean
Critical Path, Inc. and its subsidiaries, except where it is clear from the
context that such terms mean only the parent company and exclude
subsidiaries.</I>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>This Quarterly Report on Form&nbsp;10-Q includes numerous trademarks and
registered trademarks of Critical Path. Products or service names of other
companies mentioned in this Quarterly Report on Form&nbsp;10-Q may be trademarks or
registered trademarks of their respective owners.</I>
</FONT>
<P align="left"><FONT size="2"><B>Overview</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Critical Path, Inc., a global leader in Internet communications, delivers
software and services that maximize the value of Internet
communications. We provide messaging and collaboration solutions from wireless,
secure and unified messaging to basic email and personal information
management, as well as identity management solutions that simplify user profile
management and strengthen information security. Our standards-based Critical
Path Communications Platform, built to perform reliably at the scale of public
networks, delivers the industry&#146;s lowest total cost of ownership for messaging
solutions and lays a solid foundation for next-generation communications
services.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our primary sources of revenue come from providing a wide range of
messaging and identity management products and services. Critical Path&#146;s customers are
corporate enterprises, carriers and service providers, postal authorities and
government agencies. Critical Path was founded in 1997 and is headquartered in
San Francisco, California with offices worldwide.
</FONT>
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<P align="left"><FONT size="2"><B>Results of Operations</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
light of the rapidly evolving nature of our business, prior
acquisitions, 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 June&nbsp;30, 2002, we had 587 employees, in comparison
with 562 employees at December&nbsp;31, 2001 and 784 employees at June&nbsp;30, 2001. We
do not believe that our historical growth rates for revenue, expenses or
personnel are indicative of future results.
</FONT>
<P align="left"><FONT size="2"><B><I>Net Revenues</I></B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We derive most of our revenues through the sale of our messaging and
identity management communications solutions. These solutions include both licensed
software products and hosted messaging services. In addition, we receive
revenues from professional services and maintenance and support services.
Software license revenues are derived from perpetual and term licenses for our
messaging, identity management, collaborative and enterprise application integration
technologies. Hosted messaging revenues relate to fees for our hosted
messaging and collaboration services. These fees are primarily based upon
monthly contractual per unit rates for the services involved, and are
recognized as revenue on a ratable monthly basis over the term of the contract.
Professional services revenues are derived from fees primarily related to
training, installation and configuration services and revenue is recognized as
services are performed. Maintenance and support revenues are derived from fees
related to post-contract customer support agreements associated with software
product licenses. Maintenance and support revenues are recognized ratably over
the term of the agreement.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Software License. </I>We recognized $10.9&nbsp;million and $21.8&nbsp;million in
software license revenues during the three and six-month periods ended June&nbsp;30,
2002, respectively, compared to $8.9&nbsp;million and $14.5&nbsp;million during the same
periods in 2001, respectively. The significant increase in software license
revenues over the prior year was due primarily to the uncertainty surrounding
Critical Path during the first two quarters of 2001, which caused a number of
current and potential customers to delay making purchase decisions. This
uncertainty was created by the restatement of certain previously released
financial results of Critical Path for the third quarter of 2000, significant
turnover within the senior management group and the termination and resignation
of much of the leadership within our sales organization. During the second half
of 2001 and first half of 2002, we have restructured our business and
management team and rebuilt customer confidence in Critical Path.
Even with the higher license revenue levels during the first quarter and first
six months of 2002, our business activities continue to be impacted by the
difficult worldwide business climate, which has resulted in lower and delayed
information technology spending across the enterprise software market.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
the second quarter of 2002, we excluded all royalty revenue earned
from Sun Microsystems, Inc. related to the sales of their iPlanet
meta-directory products, which based on the historical calculation
methodology would have approximated $300,000. During August we
entered into a dispute with Sun Microsystems, Inc. over the
calculation of these royalties. Since inception we have recognized
and been paid approximately $3.1&nbsp;million in royalties under the
agreement. We will not be recognizing royalty
revenue from Sun Microsystems until we come to a mutual agreement on
their current and historic contractual obligations.
</font>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Hosted Messaging. </I>We recognized $5.6&nbsp;million and $12.5&nbsp;million in hosted
messaging revenues during the three and six-month periods ended June&nbsp;30, 2002,
respectively, compared to $11.1&nbsp;million and $25.6&nbsp;million during the same
periods in 2001, respectively. This decrease in 2002 hosted messaging revenues
resulted in part due to the exiting or sale, as part of our 2001 restructuring
initiatives, certain non-core hosted messaging services during the second-half
of 2001. These non-core services accounted for a significant portion of hosted
messaging revenues for the first six-months of 2001. In addition, during the
second quarter of 2002, we did experience a net loss in customers, which
further contributed to the decline in hosted messaging revenue over the prior
year&#146;s periods and we have excluded approximately $300,000 in
hosted messaging revenue from the second quarter of 2002 related to
Worldcom. We have reserved for all uncollected balances with this
customer as a result of their recent Chapter&nbsp;11 bankruptcy filing. We are currently completing work on a new hosted messaging
software and hardware platform as well as working to establish relationships
with strategic partners in order to enhance product capabilities, broaden sales
channels and increase hosted messaging revenues. Until these new initiatives
are substantially in place, and with the elimination of certain non-core hosted
messaging services in the second-half of 2001, we expect hosted messaging
revenues to be lower in the second-half of 2002 in comparison to the prior
year&#146;s periods.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Professional Services. </I>We recognized $2.6&nbsp;million and $4.6&nbsp;million in
professional services revenues during the three and six-month periods ended
June&nbsp;30, 2002, respectively, compared to $2.9&nbsp;million and $6.3&nbsp;million during
the same periods in 2001, respectively. The decrease in professional
services revenues in the second quarter of 2002 was due primarily to our 2001
restructuring initiatives, which eliminated certain non-core products, reducing
the professional services revenues derived from these products. The decrease
in revenue for the first six-months of 2002 was due primarily to higher first
quarter 2001 professional services revenues related to non-core
products directly resulting from our
September 2000 acquisition of PeerLogic, Inc.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Maintenance and Support. </I>We recognized $3.3&nbsp;million and $7.2&nbsp;million in
maintenance and support revenues during the three and six-month periods ended
June&nbsp;30, 2002, respectively, compared to $4.1&nbsp;million and $7.9&nbsp;million for the
same periods in 2001, respectively. The decrease in 2002 resulted primarily
from the loss of maintenance and support revenues from the elimination of
certain non-core products and services as part of our 2001 restructuring
initiatives.
</FONT>
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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Critical Path&#146;s international operations accounted for approximately 58%
and 57% of net revenues for the three and six-month periods ended June&nbsp;30,
2002. Revenues from international operations accounted for approximately 45%
and 37% of net revenues for the three and six-month periods ended June&nbsp;30,
2001. This significant increase in the percentage of international revenues
related primarily to a dramatic reduction in enterprise information technology
spending during the first and second quarters of 2001, as it particularly
impacted the sale of our license products in international markets.
</FONT>
<P align="left"><FONT size="2"><B><I>Cost of Net Revenues</I></B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Software License. </I>Cost of net software license revenues consist
primarily of product media duplication, manuals and packaging materials,
personnel and facility costs, and third-party royalties. The cost of net
software license revenues for the second quarter and first six months of 2002
were higher than the same periods in the prior year, consistent with the increase in license
revenue.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Hosted Messaging. </I>Cost of net hosted messaging revenues consist
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. The cost of net hosted messaging
revenues were significantly lower in the second quarter and first six months of
2002 compared to the prior year periods primarily due to our restructuring
initiatives undertaken in the second half of 2001. As a result of these
initiatives, the costs associated with our hosted messaging revenues were
reduced through the sale or exit of several non-core services, the termination
of employees and reduction in employee-related costs, the retirement of surplus
network infrastructure equipment and software, and the consolidation of data
centers.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Professional Services. </I>Cost of net professional services revenues consist
primarily of personnel costs including custom engineering, installation and
training services for both hosted and licensed solutions, and other direct and
allocated indirect costs. As a result of our 2001 restructuring initiatives,
personnel and certain overhead costs were reduced, resulting in lower
professional services cost of net revenues for the second quarter and first six
months of 2002, in comparison to the same periods in the prior year.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Maintenance and Support. </I>Cost of net 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. The cost of net maintenance and support revenues was lower in the second
quarter and first six months of 2002 in comparison to the year ago period, due
primarily to a decrease in staffing levels and a reduction in employee-related
costs.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operations, customer support, and professional services staff decreased to
190 employees at June&nbsp;30, 2002 from 273 employees at June&nbsp;30, 2001.
</FONT>
<P align="left"><FONT size="2"><B><I>Operating Expenses</I></B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Sales and Marketing. </I>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 for the second quarter and first six months of 2002
decreased significantly over the prior year&#146;s periods due primarily to cost
savings generated from our 2001 restructuring initiatives. With actions taken
as part of the restructuring, sales and marketing staffing levels were reduced
to 147 employees at June&nbsp;30, 2002 from 201 employees at June&nbsp;30, 2001. The
savings in personnel and personnel-related costs together with the termination
of certain strategic marketing relationships related to non-core services
accounted for the reduction in sales and marketing expenses from the second
quarter and first six-months of 2001 compared to the same periods in 2002.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Research and Development. </I>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. This significant
decrease in second quarter and year-to-date 2002 research and development
expenses resulted primarily from a reduction in headcount and related personnel
costs as part of our 2001 restructuring initiatives. These actions have
contributed to a decrease in research and development staffing to 157 employees
at June&nbsp;30, 2002, from 199 employees at June&nbsp;30, 2001. In addition, savings
realized from the termination of certain outside consulting arrangements and
consolidation of facilities also contributed to this decrease in research and
development expenses.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>General and Administrative. </I>General and administrative expenses consist
primarily of compensation for personnel, fees for outside professional
services, occupancy costs and, to a lesser extent, related overhead. The
significant decrease in second quarter and year-to-date 2002 general and
administrative expenses in comparison to the same periods in the prior year was
due primarily to cost savings realized from our 2001 restructuring initiatives.
Savings were realized from a decrease in general and administrative staffing
</FONT>
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<P><FONT size="2">levels to 93 employees at June&nbsp;30, 2002 from 111 employees at June&nbsp;30,
2001, as well as savings resulting from the reduction in facilities from 77 at
December&nbsp;31, 2000 to 27 at June&nbsp;30, 2002. In addition, as a result of the
restatement of certain previously released 2000 financial results, we incurred
higher fees for outside professional services in the first half of 2001, in
particular higher legal and accounting fees related to the SEC investigation
and extended outside audit work.
</FONT>
<P align="left"><FONT size="2"><B><I>Amortization of Intangible Assets and Asset Impairment Charge</I></B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the acquisitions we completed in 1999 and 2000, which
were all accounted for using the purchase method of accounting, we recorded
goodwill and other intangible assets, primarily for assembled workforce,
customer base, and existing technology. During 2000, we recorded a charge of
$1.3&nbsp;billion related to the impairment of certain long-lived assets, including
intangible assets. In addition, in connection with our second quarter
2001 restructuring
initiative, an impairment assessment of certain long-lived assets was
performed. As a result of this assessment in the second quarter of
2001, we recorded an additional
impairment charge of $14.2&nbsp;million to reduce these intangible assets to their estimated
fair values or eliminate them, as appropriate. Based upon the types
of intangible assets, $4.2&nbsp;million of this impairment charge was
allocated to cost of net revenues and $10.0&nbsp;million was
allocated to operating expenses.</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the adoption of FAS No.&nbsp;142, Goodwill and Other
Intangible Assets, in the beginning of 2002, approximately $5.6&nbsp;million of goodwill will no longer be
subject to amortization, but instead will be periodically tested for
impairment. As a result of the second quarter 2001 impairment charge and the
adoption of FAS No.&nbsp;142, first quarter 2002 amortization expense decreased
significantly from the first quarter of 2001. Based upon the types of
identifiable intangibles acquired, second quarter 2002 amortization expense of
$4.6&nbsp;million was allocated to cost of net revenues and the remaining
amortization expense of $6.2&nbsp;million was allocated to operating expenses.
</FONT>
<P align="left"><FONT size="2"><B><I>Acquisition-Related Retention Bonuses</I></B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the numerous acquisitions completed in 1999 and 2000,
we established various retention bonus programs that in the aggregate amounted
to approximately $20.7&nbsp;million in incentives for certain former employees of
these companies to encourage their continued employment with Critical Path. The
significant decrease in acquisition-related retention bonus expense resulted
from the completion during fiscal year 2001 of all but one of the
acquisition-related retention bonus programs. The remaining program concluded
in April 2002.
</FONT>
<P align="left"><FONT size="2"><B><I>Restructuring Expense</I></B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May 2002, the Board of Directors approved a restructuring plan to
further reduce our expense levels consistent with the current business climate.
In connection with the plan, a restructuring charge of $1.5&nbsp;million was
recognized in the second quarter of 2002. This charge was comprised of
approximately $1.2&nbsp;million in severance and related costs associated with the
elimination of approximately 39 positions and $300,000 in facilities lease
termination costs.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April 2001, we announced a strategic restructuring plan that involved
reorganizing Critical Path&#146;s product and service offerings around a group of
core communications solutions, a reduction in our workforce, and the
consolidation of facilities and operations. As a result, we recognized a
restructuring charge of $8.5&nbsp;million during the second quarter of 2001.
</FONT>
<P align="left"><FONT size="2"><B><I>Stock-Based Expenses</I></B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based expenses are comprised of charges related to certain stock
options and warrants granted to employees, directors and consultants and common
stock issued to certain employees, directors and advisors in 1998 and 1999. The
decline in stock-based expenses in the second quarter and first six-months of
2002 in comparison to the same periods in 2001 was primarily the result of
certain stock-based charges related to 1998 grant activity becoming fully
amortized in the second-half of 2001.
</FONT>
<P align="left"><FONT size="2"><B><I>Interest and Other Income (Expense)</I></B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest and other income (expense)&nbsp;consists primarily of interest
earned from cash and cash equivalents, net realized gains (losses)&nbsp;on foreign
exchange transactions, and any gain or loss from changes in the fair value of
the liquidation preference feature granted to the investors who participated in
the Critical Path 2001 preferred stock financing transaction. The net other
expense&nbsp;of $3.4&nbsp;million and $2.7&nbsp;million for the second quarter and first
six-months of 2002, respectively, was primarily generated by the recording of a
non-cash loss of $3.5&nbsp;million in the second quarter associated with the
revaluation of the preferred stock liquidation preference discussed above.
</FONT>
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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest income amounted to $570,000 and $907,000 for the second quarter
and first six-months of 2002, respectively, compared to interest income of $1.6
million and $3.9&nbsp;million for the comparable periods in 2001, respectively.
Interest income was lower in 2002 compared to the same periods in the prior
year due to lower cash balances available for investing. Cash balances declined
during the twelve-month period ended June&nbsp;30, 2002, due primarily to the funding of
our net losses and cash utilized in 2001 to retire a significant portion of our
convertible debt obligations.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We also recognized net losses from foreign currency transactions
associated with our international operations in the amounts of $779,000 and
$577,000 for the second quarter and first six months of 2002, respectively,
compared to net gains of $1.3&nbsp;million and $1.5&nbsp;million for the second quarter
and first six months of 2001. The foreign currency losses recognized in 2002
primarily resulted from the strengthening of the Euro in relationship to the
U.S. Dollar and the resulting losses this generated against any U.S. Dollar
denominated balances we carry in Europe.
</FONT>
<P align="left"><FONT size="2"><B><I>Interest Expense</I></B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest
expense consists primarily of the interest charges and amortization of
related issuance costs associated with the Convertible Subordinated Notes we
issued in March 2000, and interest on certain capital leases. Because of the
retirement of a significant portion of our convertible subordinated notes and
capital leases during 2001, interest expense for the second quarter and first
six months of 2002 declined to $733,000 and $1.5&nbsp;million,
respectively, from
$5.3&nbsp;million and $10.4&nbsp;million for the comparable periods in 2001.
</FONT>

<P align="left"><FONT size="2"><B><I>Equity in Net Loss of Critical Path Pacific</I></B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&nbsp;million and held a 40% ownership interest in the joint venture.
This investment was accounted for using the equity method. During the second
quarter and first six months of 2002, we recorded equity in net loss of joint
venture of approximately $1.0&nbsp;million and $1.4&nbsp;million, respectively, compared
to a net loss of $397,000 and $1.2&nbsp;million recorded in the second quarter and
first six months of 2001.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
June&nbsp;6, 2002, we acquired the remaining 60% ownership interest
that Critical Path did not already own in
Critical Path Pacific, Inc. for $3.0&nbsp;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&nbsp;million over the fair value of the acquired net
assets, primarily working capital and fixed assets, of $4.6&nbsp;million was
recorded as goodwill. In accordance with SFAS No.&nbsp;142, this
goodwill asset of approximately $1.0&nbsp;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
Pacific 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
will be using the equity method to account for our Japanese entity ownership
interest.
</FONT>
<P align="left"><FONT size="2"><B><I>Provision for Income Taxes</I></B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the second quarter of 2002, we recognized a provision for foreign
income taxes as certain of our European operations generated income taxable in
certain European jurisdictions. No current provision 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. On a year-to-date basis, our tax expense reflects
an $800,000 first quarter 2002 U.S. federal income tax benefit due to the
repeal of the federal corporate alternative minimum tax.
</FONT>
<P align="left"><FONT size="2"><B>Liquidity and Capital Resources</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of June&nbsp;30, 2002, our cash, cash equivalents and short-term investments
totaled $56.5&nbsp;million, comprised of $43.2&nbsp;million in cash and cash equivalents
and $13.3&nbsp;million in short-term investments. Our working capital amounted to
approximately $40.7&nbsp;million. For the first six months of 2002, we used
approximately $17.2&nbsp;million in cash.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We used cash of $12.1&nbsp;million to fund operating activities during the
first six months of 2002 primarily due to our net loss, adjusted for non-cash
charges, as operating costs, primarily employee and employee related costs,
exceeded the related sales of our software products and services. In addition,
we used cash to make certain insurance and software and hardware support and
maintenance renewal payments during the first six months, accounting for the
$1.5&nbsp;million in cash used for other assets. Accrued expenses decreased by $1.5
million due primarily to the payment of the remaining acquisition retention
bonus amounts during the
</FONT>
<P align="center"><FONT size="2">16</FONT>

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<P><FONT size="2">second quarter of 2002. These uses of cash to fund operating activities
were partially offset by the growth in our accounts payable balances by $3.0
million.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We used cash in investing activities during the first six months of 2002
totaling $4.6&nbsp;million. Cash was primarily used to purchase additional
short-term investments of $3.6&nbsp;million, issue a cash security deposit of $3.0
million in support of a recently negotiated licensing agreement, and to
purchase capital equipment of approximately $2.8&nbsp;million, which included investments in
additional network infrastructure equipment and improvements to our new San
Francisco headquarters.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the second quarter, the Company acquired the remaining 60%
ownership interest in its Japanese joint venture, Critical Path Pacific, Inc.,
for $3.0&nbsp;million in cash and the assumption of $2.6&nbsp;million in business
restructuring and capital lease obligations. As a result of the acquisition,
Critical Path actually recognized a net increase in cash, as the cash held on
the books of the joint venture exceeded the cash portion of the purchase price
by $4.5&nbsp;million.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
used cash in financing activities during the first six months of 2002
of $469,000. Cash was principally used to retire $3.1&nbsp;million in principal on
capital lease obligations. This use of cash was partially offset by proceeds
the Company received from the repayment of notes receivable from former
officers and shareholders totaling $1.2&nbsp;million, and $1.4&nbsp;million from the sale
of our common stock, primarily the result of stock option exercises.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May 2002, the Board of Directors approved a restructuring plan to
further reduce our expense levels consistent with the current business climate.
In connection with the plan, a restructuring charge of $1.5&nbsp;million was
recognized in the second quarter of 2002. This charge was comprised of
approximately $1.2&nbsp;million in severance and related costs associated with the
elimination of approximately 39 positions and $300,000 in facilities lease
termination costs. During the quarter, approximately $500,000 was charged
against this accrual, primarily cash payments of severance and related costs.
The balance of the accrual of approximately $1.0&nbsp;million is expected to be
utilized by the end of this fiscal year.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our primary sources of capital have come from both debt and equity
financings, that have been completed by Critical Path over the past three
years. Revenues generated from the sale of our products and services may not
increase to a level that exceeds our operating expenses or could fluctuate
significantly as a result of changes in customer demand or acceptance of future
products. We also expect to experience increased operating expenses, including
moderate increases in strategic areas, such as sales and marketing, and we
anticipate that operating expenses and capital expenditures will constitute a
material use of our cash. Accordingly, our cash flow from operations may
continue to be negatively impacted. We believe that our cash, cash equivalents
and anticipated cash from operations will be sufficient to maintain current and
planned operations for at least the next twelve months.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additionally, 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. Currently, we are considering several alternatives to expand our
presence in the Asian markets and potentially other international markets.
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.
</FONT>
<P align="left"><FONT size="2"><B>Additional Factors That May Affect Future Operating Results</B>
</FONT>

<P><FONT size="2"><B><I>Due to our limited operating history, 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.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We cannot accurately forecast our revenues as a result of our limited
operating history, evolving business strategy and the emerging nature of the
Internet messaging infrastructure market. Forecasting is further complicated by
rapid changes in our business due to integration of acquisitions we completed
in 1999 and 2000, our recent strategic and operational restructuring, as well
as significant fluctuations in license revenues as a percentage of total
revenues from an insignificant percentage in 1999, to 38% in 2000, 30% in 2001
and 49% for the second quarter of 2002. Our revenues have in some quarters 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 operating margins. A number of factors are likely to
cause fluctuations in operating results, including, but not limited to:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">the demand for licensed solutions for messaging, directory, and other products;</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">17</FONT>

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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">the demand for outsourced messaging services generally and the use of
messaging and directory infrastructure products and services in
particular;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">our ability to attract and retain customers and maintain customer satisfaction;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">our ability to attract and retain qualified personnel with industry expertise, particularly sales personnel;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">the ability to upgrade, develop and maintain our systems and
infrastructure and to effectively respond to the rapid technology change
of the messaging and directory infrastructure market;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">the budgeting and payment cycles of our customers and potential customers;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">the amount and timing of operating costs and capital expenditures relating to expansion of business and infrastructure;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">our ability to quickly handle and alleviate technical difficulties or system outages;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">the announcement or introduction of new or enhanced services by competitors; and</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">general economic and market conditions and their affect on our operations and that of our customers.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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, we have incurred and expect to continue to incur
substantial non-cash charges associated with the grant of stock options to
employees and non-employees and the grant of warrants to customers, investors
and other parties with whom we have business relationships. These grants of
options and warrants also may be dilutive to existing shareholders.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, our operating results have been and could continue to be
impacted by future decisions to eliminate product or service offerings through
termination, sale or other disposition or to sustain certain products and
services at a minimum level where customer commitments prevent us from
eliminating the offering altogether. Decisions to eliminate, revise or limit
any other offerings of a product or service would involve other factors
affecting operational results 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,
any of which could harm our financial condition and operating results.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 decline.
</FONT>

<P><FONT size="2"><B><I>If we fail to improve our sales and marketing results, we may be unable to grow
our business, which would negatively impact our operating results.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our ability to increase revenues will depend on our ability to continue to
successfully recruit, train and retain experienced and effective sales and
marketing personnel and to achieve results once employed with us. Competition for qualified 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 directory
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. Because we have experienced turnover in our sales force and the
majority of our current sales and marketing personnel have recently joined us
and have limited experience working together, our sales and marketing
organizations may not be able to compete successfully against the sales and
marketing organizations of our competitors. If we do not successfully operate
and grow our sales and marketing activities, our business could suffer and the
price of our common stock could decline.
</FONT>



<P><FONT size="2"><B><I>We depend on strategic relationships as well as other sales channels and the
loss of any key strategic relationships could harm our business and negatively
affect our revenues.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We depend on strategic relationships to expand distribution channels 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. We 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 30 &#151; 120&nbsp;days
notice. Most of the 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 to
aggressively 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, our business and financial results will suffer, and could have an adverse impact on our current and
future revenues.
</FONT>
<P align="center"><FONT size="2">18</FONT>

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<P><FONT size="2"><B><I>We have experienced turnover of senior management and our current management
team has been together for a limited time, which could harm our business and
operations.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Throughout
the fiscal year ended December&nbsp;31, 2001, we announced a series of
changes in our management that included the departure of many senior executives
and later made additional changes in our management and board of directors. A
majority of the current senior executives of the Company joined us in the
latter half of 2001 and in early 2002. Because of these recent changes and
their recent recruitment, our management team has not worked together for a
significant length of time and may not be able to work together effectively to
successfully implement our strategies and run 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 current senior executive officers could harm our business
and affect our ability to successfully implement our business objectives.
</FONT>
<P><FONT size="2"><B><I>We have a history of losses, expect continuing losses and may never achieve
profitability.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of June&nbsp;30, 2002, we had an accumulated deficit, including other
comprehensive income, of approximately $2.1&nbsp;billion. We have not achieved
profitability in any period and expect to continue to incur net losses in
accordance with generally accepted accounting principles for the foreseeable
future. However, we will continue to spend resources on maintaining and
strengthening our business, and this may, in the near term, have a negative
effect on our operating results and our financial condition.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In past quarters, we have spent heavily on technology and infrastructure
development. We may continue to spend substantial financial and other resources
to develop and introduce new end-to-end messaging and directory infrastructure
solutions, and to improve our sales and marketing organizations, strategic
relationships and operating infrastructure. In addition, in future periods we
will continue to incur significant non-cash charges related to the ten
acquisitions we completed in 1999 and 2000 and related stock-based
compensation. We expect that our cost of revenues, sales and marketing
expenses, general and administrative expenses, operations and customer support
expenses and depreciation and amortization expenses could continue to increase
in absolute dollars and may increase as a percent of revenues. If revenues do
not correspondingly increase, our operating results and financial condition
could be harmed. 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 may never obtain sufficient revenues to
achieve profitability. If we do achieve profitability, we may not sustain or
increase profitability in the future. This may also, in turn, cause the price
of our common stock to demonstrate volatility and/or to decline.
</FONT>
<P><FONT size="2"><B><I>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.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. 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 harm our business. 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 30 &#151; 120
days notice. In addition, a number of our customers,
</FONT>
<P align="center"><FONT size="2">19</FONT>

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<P><FONT size="2">particularly for our hosted services business and in the technology
industry, have also suffered from falling revenue, job losses, restructuring
and decreased technology spending in the recent economic downturn. Especially
in the telecommunications industry, which represents a sizeable portion of our
customer base, the relative financial performance of our customers will
continue to impact our sales cycles and ability to attract new business. If our
customers terminate their agreements for any reason before the end of the
contract term, the loss of the customer could have an adverse impact on 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.
</FONT>
<P><FONT size="2"><B><I>If we are unable to successfully compete in our product market, our operating
results could be harmed.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 iPlanet and OpenWave. For
secure delivery services, our competitors include Tumbleweed for product-based
solutions and SlamDunk for service-based solutions. In the enterprise/eBusiness
directory category, we compete primarily with iPlanet, Microsoft and Novell,
and our competitors in the meta-directory market are iPlanet, Microsoft, Novell
and Siemens. Our competitors for corporate customers seeking
outsourced hosted messaging solutions are email service providers, such as
Commtouch, Easylink, USA.NET and application service providers who offer hosted
exchange services.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that competitive factors affecting the market for messaging and
directory infrastructure solutions include:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">breadth of platform features and functionality;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">sophistication, innovation of
competitors&#146; offerings;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">ease of integration into customers&#146; existing systems;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">scalability, reliability and performance, and ease of expansion and upgrade;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">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</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">total cost of ownership and operation.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe competition will continue to be fierce and further increase as
current competitors 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 business to suffer.
</FONT>
<P><FONT size="2"><B><I>Our sales cycle is lengthy and our results could be harmed by delays or
cancellations in orders.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 two to twelve 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 a slowdown in technology spending in particular, have further
lengthened and affected our sales cycle, leading to delays and postponements in
purchasing decisions. Any delay or cancellation in sales of our products or
services could cause our operating results to differ from those projected and
cause our stock price to decline.
</FONT>
<P><FONT size="2"><B><I>We may need to raise additional capital and to initiate other operational
strategies that may dilute existing shareholders.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that existing capital resources will enable us to maintain
current and planned operations through at least June&nbsp;30, 2003. However,
additional capital may be required to continue operations and achieve
profitability. In addition, we may be required to raise additional funds due to
unforeseen circumstances. If our capital requirements vary materially from
those currently planned, we may
</FONT>
<P align="center"><FONT size="2">20</FONT>

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<P><FONT size="2">require additional financing sooner than anticipated. Such financing may
not be available in sufficient amounts or on terms acceptable to us and may be
dilutive to existing shareholders. Additionally, we face a number of challenges
in operating our business, including but not limited to the resources to
maintain worldwide operations, our leveraged capital structure and significant
contingent liabilities associated with litigation. In the event that resolution
of these or other operational matters involve issuance of stock or other
derivative instruments, our existing shareholders may experience significant
dilution.
</FONT>
<P><FONT size="2"><B><I>Pending litigation could harm relationships with existing or potential
strategic partners and customers, and divert management&#146;s attention, either of
which could harm our business.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
recent years, we have had filed a number of lawsuits against us,
including securities class action and shareholder derivative litigation filed
in February and August 2001, and certain of our former officers and
directors and some of our subsidiaries, as well as other lawsuits related to
acquisitions, employee terminations and copyright infringement. While these
lawsuits vary greatly in the materiality of potential liability associated with
them and many have been satisfactorily settled, the uncertainty associated with substantial unresolved lawsuits could
seriously harm our business, financial condition and reputation, whether
material individually or in the aggregate. In particular, this uncertainty
could harm our relationships with existing customers, our ability to obtain new
customers and our ability to operate certain aspects of our business.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The continued defense of the lawsuits also could result in continued
diversion of our management&#146;s time and attention away from business operations,
which could harm our business. Negative developments with respect to the
lawsuits could cause the price of our common stock to decline significantly. In
addition, although we are unable to determine the amount, if any, that we may
be required to pay in connection with the resolution of these lawsuits by
settlement or otherwise, the size of any such payments, individually or in the
aggregate, could seriously harm our financial condition. Many of the complaints
associated with these lawsuits do not specify the amount of damages that
plaintiffs seek. As a result, we are unable to estimate the possible range of
damages that might be incurred as a result of the lawsuits. While we maintain
customary business insurance coverage, we have not set aside any financial
reserves relating to potential damages associated with any of these lawsuits.
</FONT>
<P><FONT size="2"><B><I>Failure to complete the settlement of
shareholder derivative action and otherwise resolve pending
securities claims could materially harm our business.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although the Company reached and the court approved settlement
agreements in connection with the securities class action pending in the U.S.
District Court for the Northern District of California, a number of plaintiffs
associated with the acquisition of Peer Logic, Inc. opted out of such
settlement. The case against the Company with respect to these plaintiffs
continues. In addition, the Company is 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, there can be no assurance that fees and
expenses, and any ultimate resolution associated with such litigation, will be
within the coverage limits of our insurance and/or our ability to pay such
amounts. Likewise, there can be no assurance that the Company will be able to
conclude or settle such litigation on terms that coincide with the coverage
limits of our insurance and/or ability to pay upon any final determination. A
failure to definitively resolve class action litigation in which the Company is
involved, could also cast doubt as to the prospects of the Company in the eyes
of our customers, potential customers and investors, and cause the Company&#146;s
stock price to decline.
</FONT>
<P><FONT size="2"><B><I>Although concluded without penalty to the Company, lingering effects of the
recent SEC investigation could harm our business.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2001, the SEC investigated the
Company and certain of its former officers and directors. The investigation related to
non-specified accounting matters, financial reports, other public disclosures
and trading activity in our stock. In February 2002, the SEC announced the
conclusion of the investigation as to the Company. Although the SEC did not
impose any financial or criminal penalties against the Company, we
consented, without admitting or
denying liability, to an administrative order that the Company violated certain
non-fraud provisions of the federal securities laws and to a cease and desist
order. In addition, the SEC and the Department of Justice charged two former
employees of the Company with various violations of the securities
laws. We believe that the
investigation continues with respect to a number of other former executives of
the Company and expect that such investigation may result in further charges against those former
executives although we do not know the status of such investigation. Despite the conclusion of the investigation of the Company,
lingering concerns about the actions leading up to the restatement of
financials for the third quarter of 2000 has nevertheless cast doubt on the
future of the Company 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
has created investor uncertainty and scrutiny in general as to the stability
and veracity of public companies&#146; financial statements. Such doubts stemming
from the Company&#146;s past accounting
</FONT>
<P align="center"><FONT size="2">21</FONT>

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<P><FONT size="2">restatements and such general uncertainty could continue to harm our
business and cause the price of our common stock to continue to fluctuate
and/or decline significantly.
</FONT>

<P><FONT size="2"><B><I>Our failure to carefully manage expenses and growth could cause our operating
results to suffer.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the past, our management of operational expenses and the growth of our
business have contributed to our history of losses. In addition, both the
restructuring and expansion of our operations has in the past placed
significant strains on managerial, operational and financial resources. 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. We will also need to hire additional personnel including
highly skilled sales personnel. Our management may not be able to hire, train,
retain, motivate and manage required personnel. In addition, our management may
not be able to successfully identify, manage and exploit existing and potential
market opportunities. If we cannot manage growth and expenses effectively, our
business and operating results could suffer.
</FONT>



<P><FONT size="2"><B><I>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.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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)&nbsp;having net tangible assets of at least $4
million and (ii)&nbsp;maintaining a minimum bid price per share of
$1. As of June&nbsp;28, 2002 we were in compliance with all Nasdaq National Market listing
requirements. However, there have been recent periods when the closing bid
price per share for our common stock has dropped below $1. Although our bid
price has generally been above $1 per share since November&nbsp;1, 2001, if the bid
price of our common stock price slips below $1 per share for more
than 30&nbsp;trading days,
we may be subject to a delisting action of our common stock on The Nasdaq
National Market. Also effective November&nbsp;1, 2002, we need to comply with
the Nasdaq National Market&#146;s revised quantitative maintenance criteria
including a new minimum requirement of $10.0&nbsp;million in stockholders&#146; equity,
or public float. The Nasdaq National Market&#146;s Audit Committee Rules require
that our audit committee be comprised of at least three independent members.
Although we believe that we currently comply with this requirement and other
Nasdaq National Marketplace Rules, recent proposed amendments to such rules
involve significant changes to our listing requirements, and the
membership of Board committees, and will require review
and potential changes in our business in order to remain in compliance. As a
result, the Company is currently evaluating its compliance with proposed rule
changes to ensure future compliance with new and amended rules. However, there
can be no assurance that we will be able to comply with the quantitative
maintenance criteria or any of the Nasdaq National Market&#146;s
listing requirements and other rules in the
future.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If we fail to maintain continued listing on the Nasdaq National Market and
must move to a market with less liquidity, our financial condition could be
harmed and our stock price would likely 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.
</FONT>
<P><FONT size="2"><B><I>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.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The trading price of our common stock has been and may continue to
experience volatility, wide fluctuations and declines. For example, during the
first and second quarters of 2002, the closing sale prices of our common stock
on the Nasdaq National Market ranged from $3.63 on January&nbsp;8, 2002 to $1.00 on
June&nbsp;26, 2002. The closing price of our stock on June&nbsp;30, 2002 was $1.02 per
share. Our stock price may further decline or fluctuate in response to any
number of factors and events, such as announcements related to litigation,
technological innovations, regulatory scrutiny and new legislation, strategic
and sales relationships, new product and service offerings by us or our
competitors, changes in senior management, changes in 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 and overall market
conditions. 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.
</FONT>
<P><FONT size="2"><B><I>Limitations of our director and officer liability insurance may harm our
business.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our liability insurance for actions taken by officers and directors during
the period from March 1999 to March 2001, the period during which events
related to securities class action lawsuits against us and certain of our
current and former executive officers are alleged to have occurred, provides
only limited liability protection. If these policies do not adequately cover
our expenses related to those lawsuits, our business and financial condition
could be seriously harmed. Our director and officer liability insurance, that
was in place through March 2002, and our current insurance that continues
through March 2003, contain similar provisions.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 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 estimated
future amounts to be paid in connection with legal expenses and others costs of
defense of pending lawsuits.
</FONT>
<P align="center"><FONT size="2">22</FONT>

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<P><FONT size="2"><B><I>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.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The loss of the services of key personnel could harm our business results.
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.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 harm our business and affect our ability to
successfully implement our business objectives.
</FONT>

<P><FONT size="2"><B><I>If we are not successful in finalizing our strategic plans for our operations,
our business could be negatively impacted.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2001, we reorganized our product and service offerings around a
group of core products deemed most imperative to our ability to serve the
messaging and directory infrastructure market. Implementation of the plan
occurred in the latter half of 2001 and, accordingly, products and services
determined to be non-core to our strategy were exited. As a result, revenue
from non-core products and services comprising approximately 37% of total
revenues in the first quarter of 2001 declined to approximately 3% of total
revenues in the fourth quarter of 2001 and to none in 2002. Our strategic plan
also included initiatives aimed at reducing operating costs through headcount
reduction and consolidation of approximately two-thirds of our office space and
related contracts and leases, all in keeping with our increased focus on core
messaging products and services. During the fourth quarter of 2001 we incurred
additional charges in connection with previously announced reductions in force
and were able to finalize the consolidation of additional facilities and
related contracts and expenses associated with those facilities. In 2002, we
have 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. 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.
</FONT>
<P><FONT size="2"><B><I>We may face continued technical, operational and strategic challenges
preventing us from successfully continuing the integration or divestiture of
acquired businesses.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Acquisitions involve risks related to the integration and management of
acquired technology, operations and personnel. In addition, in connection with
our strategic restructuring, the Company 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 from its
core business. 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.
In particular, we are currently evaluating, upgrading or replacing our
financial information systems and establishing uniformity among the systems of
the acquired businesses. With 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, and we
may not achieve anticipated revenues and benefits and/or cost reductions.
</FONT>
<P align="center"><FONT size="2">23</FONT>

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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Further, due in part to the significant underperformance of some of our
acquisitions relative to expectations, we have reviewed the products and
services we sell to customers, the locations in which we operate and the manner
in which we go to market with our core product and service offerings. As a
result of this review, in 2001, we eliminated certain acquired product or
service offerings through termination, sale or other disposition or to sustain
certain products and services at a minimum level where customer commitments
prevent us from eliminating the offering altogether. 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/or the
elimination of revenues along with the associated costs, any of which could
harm our financial condition and operating results.
</FONT>
<P><FONT size="2"><B><I>We currently license many third-party technologies and may need to license
further technologies and we face risks in doing so that could cause our
operating results to suffer.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We intend to continue to license certain technologies from third parties
and incorporate such technologies into our products and services, including web
server technology, virus and anti-spam solutions, storage and encryption technology. 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 Company resources to the development of
such technologies that could materially harm our business and operations.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, we may fail to successfully integrate any licensed 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 cause our
business and operating results to suffer.
</FONT>
<P><FONT size="2"><B><I>If our system security is breached, our business and reputation could suffer.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146; confidential information, including customers&#146;
profiles, passwords, 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. Although we have implemented
network security measures, our servers remain 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 harm our
business and operating results.
</FONT>
<P><FONT size="2"><B><I>Changes in the regulatory environment for the operation of our business or
those of our customers could pose risks.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 the Company&#146;s 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 and/or new regulations and application of laws to our business
could burden our company and those with which we do business. Further, the
adoption of additional laws and regulations could limit the growth of our
business and that of our business partners and customers. Any decreased
generalized demand for our services or the loss of, or 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 harm our financial condition or operating
results. Certain of our service offerings include operations subject to the
Digital Millenium Copyright Act of 1998. The Company has 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 certain services.
</FONT>
<P align="center"><FONT size="2">24</FONT>

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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146; 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-Blilely 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&#146; health care
information.</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Finally, the
Company faces increased regulatory scrutiny and criminal liability
for its executives associated
with various accounting and corporate governance rules promulgated under the
Sarbanes-Oxley Act of 2002. The Company plans to review all of its
accounting policies and practice under the new legislation, including those
related to its relationships with its independent accountants, enhanced
financial disclosures, corporate responsibility and loan practices,
and will comply with such laws in full. Nevertheless, such
increased scrutiny and penalties involve risks to both the Company and its executive
officers and directors in monitoring and insuring compliance.
</FONT>
<P><FONT size="2"><B><I>Unknown software defects could disrupt our services and harm our business and
reputation.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. Although we have not experienced any material
software defects to date, it is possible that, despite testing, 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, any of which
could cause our business to suffer.
</FONT>
<P><FONT size="2"><B><I>We may have liability for Internet content and we may not have adequate
liability insurance.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although we carry general liability and umbrella liability insurance, our
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 harm our reputation and business and
operating results, or could result in the imposition of criminal penalties.
</FONT>
<P><FONT size="2"><B><I>Unplanned system interruptions and capacity constraints could reduce our
ability to provide messaging services and could harm our business reputation.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our customers have, in the past, experienced some interruptions in our
messaging service. We believe that these interruptions will continue to occur
from time to time. These interruptions are due to hardware failures,
unsolicited bulk email, or &#147;spam,&#148; attacks and operating system failures. Our
business will suffer 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 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 business and reputation could suffer dramatically.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have entered into 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.
</FONT>
<P align="center"><FONT size="2">25</FONT>

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<P><FONT size="2"><B><I>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.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. We seek to protect our
source code for our software, documentation and other written materials under
trade secret and copyright laws. We license our software pursuant to agreements
that impose certain restrictions on the licensee&#146;s ability to utilize the
software. Despite these precautions, 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. We also seek to avoid disclosure of our intellectual property by
requiring employees and consultants with access to our proprietary information
to execute confidentiality agreements. 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.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our proprietary rights may not be adequately protected because:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">laws and contractual restrictions may not prevent misappropriation of
our technologies or deter others from developing similar technologies;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">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</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">end user license provisions in our contracts that protect us against
unauthorized use, copying, transfer and disclosure of the licensed
program may be unenforceable.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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, although no claims of alleged patent infringement are currently
pending, 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.
</FONT>
<P><FONT size="2"><B><I>We may not be able to respond to the rapid technological change of the
messaging and directory infrastructure industry.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The messaging directory 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 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.
</FONT>
<P><FONT size="2"><B><I>Our reserves may be insufficient to cover bills we are unable to collect.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 the current economic
conditions continue to decline or if new or unanticipated government
regulations are enacted which affect our customers, they may 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. Although we have established reserves that
we believe are sufficient to cover losses due to delays in or inability to pay
and while we take a consistently conservative position on the collectability of
revenue with respect to particular customers, there can
</FONT>
<P align="center"><FONT size="2">26</FONT>

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<P><FONT size="2">be no assurance that such reserves will be sufficient to cover our losses.
If losses due to delays or inability to pay are greater than our reserves, it
could harm our business, operating results and financial condition.
</FONT>
<P><FONT size="2"><B><I>If we do not successfully address the risks inherent in the expansion of our
international operations, our business could suffer.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We derived 55% of our revenues from international sales in the first half
2002 and 37% of our revenues from international sales in the first half of
2001. We intend to continue to operate in international markets and to spend
significant financial and managerial resources to do so. In particular, we have
recently purchased the remaining interests of our joint venture partners for
our operations in Japan. We plan to expend revenues and 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, financial condition and operating results will 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:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">difficulties and costs of staffing and managing international operations;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">fluctuations in currency exchange rates and imposition of currency exchange controls;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">differing technology standards and language and translation issues;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">difficulties in collecting accounts receivable and longer collection periods;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">changes in regulatory requirements, including U.S. export restrictions on encryption technologies;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">political and economic instability;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">potential adverse tax consequences; and</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">reduced protection for intellectual property rights in some countries.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</FONT>
<P><FONT size="2"><B><I>We rely on a continuous power supply to conduct our operations, and any
significance disruption in California&#146;s energy supply could harm our operations
and increase our expenses.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
2000 and 2001, California experienced a serious energy crisis that
could have and may in the future disrupt our operations and increase our
expenses. In the event of an acute power shortage, that is, when power reserves
for the State of California fall below 1.5%, California has on several
occasions implemented, and may in the future continue to implement, rolling
blackouts throughout the state. If blackouts interrupt our power supply or the
power supply of any of our customers, we, or our customers, may be temporarily
unable to operate. Any interruption in our ability to continue operations could
delay the development of or interfere with the sales of our products. Future
interruptions could damage our reputation, harm our ability to retain existing
customers and to obtain new customers, and could result in lost revenue, any of
which could substantially harm our business and results of operations. Any
interruption in the ability of our customers to continue their operations,
could harm their business, and ultimately could also harm our business if they
were to terminate or fail to renew contracts. We do not carry sufficient
business interruption insurance to compensate us for losses that may occur as a
result of blackouts, and any losses or damages we incur could harm our
business. Furthermore, the deregulation of the energy industry instituted in
1996 by the California government and shortages in wholesale electricity
supplies have caused power prices to increase. If wholesale prices continue to
increase, our operating expenses will likely increase, as our headquarters and
many employees are based in California.
</FONT>
<P><FONT size="2"><B><I>Our articles of incorporation and bylaws contain provisions that could delay or
prevent a change in control.</I></B>
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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:
</FONT>
<P align="center"><FONT size="2">27</FONT>

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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">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 &#147;blank check&#148; preferred stock, with rights
senior to those of our common stock;</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">prohibit shareholder action by written consent; and</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
        <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="91%"><FONT size="2">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.</FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March 2001, we adopted a shareholder rights plan or &#147;poison pill.&#148; This
plan could cause the acquisition of our company by a party not approved by our
board of directors to be prohibitively expensive.
</FONT>
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<!-- link3 " SUPPLEMENTAL ALTERNATIVE MEASUREMENT FINANCIAL DATA" -->
<DIV align="left"><A NAME="007"></A></DIV>
<P align="center"><FONT size="2"><B>SUPPLEMENTAL ALTERNATIVE MEASUREMENT FINANCIAL DATA</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following supplemental alternative measurement financial information
presents Critical Path&#146;s condensed consolidated results of operations during
the three and six-month periods ended June&nbsp;30, 2001 and 2002, excluding the
impact of certain special charges consisting of (i)&nbsp;amortization of intangible
assets associated with purchase business combinations and financing
transactions, (ii)&nbsp;accruals for employee retention bonuses associated with
purchase business combinations, (iii)&nbsp;stock-based compensation associated with
outstanding options and warrants, (iv)&nbsp;one-time charges related to
restructuring initiatives, (v)&nbsp;write-down of investments, (vi)&nbsp;impairment of
long-lived assets, (vii)&nbsp;extraordinary gains on retirement of convertible
subordinated notes, (viii)&nbsp;gain (loss)&nbsp;on adjustment to market of the preferred
stock instrument, and (ix)&nbsp;accretion on redeemable convertible preferred
shares. This supplemental presentation is for informational purposes only, and
is not intended to replace the consolidated operating results prepared and
presented in accordance with generally accepted accounting principles.
</FONT>
<P align="center"><FONT size="2"><B>CRITICAL PATH, INC.<BR>
ALTERNATIVE MEASUREMENT CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS DATA<BR>
Excluding Certain Special Charges<BR>
(In thousands, except per share amounts)</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%">
<TR valign="bottom">
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="46%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>Three Months Ended</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>Six Months Ended</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="7"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="15"><FONT size="1"><B>(Unaudited)</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net revenues</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Software license</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">8,913</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">10,900</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">14,463</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">21,811</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Hosted messaging</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">11,141</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">5,582</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">25,580</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">12,546</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Professional services</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2,900</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2,645</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">6,317</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">4,582</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Maintenance and support</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">4,131</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">3,315</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">7,868</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">7,192</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total net revenues</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">27,085</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">22,442</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">54,228</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">46,131</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cost of net revenues</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Software license</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">126</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">586</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">417</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">873</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Hosted messaging</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">17,440</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">7,570</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">35,378</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">15,387</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Professional services</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2,594</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2,166</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">5,560</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">4,609</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Maintenance and support</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2,414</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2,224</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">5,000</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">4,327</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total cost of net revenues</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">22,574</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">12,546</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">46,355</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">25,196</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Gross profit</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">4,511</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">9,986</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">7,873</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">20,935</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operating expenses</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Sales and marketing</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">15,694</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">11,374</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">34,406</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">22,317</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Research and development</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">8,333</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">5,173</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">18,267</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">10,175</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">General and administrative</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">11,745</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">6,296</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">25,038</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">12,974</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total operating expenses</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">35,772</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">22,843</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">77,711</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">45,466</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loss from operations</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(31,261</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(12,947</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(69,838</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(24,531</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest and other income (expense), net</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">2,895</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">161</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">5,320</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">694</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest expense</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(5,311</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(665</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(10,362</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,235</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Equity in net loss of joint venture</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(397</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,005</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,173</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,408</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loss before income taxes</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(34,074</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(14,456</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(76,053</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(26,480</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Provision for income taxes</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,150</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(594</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,493</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(21</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net loss</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(35,224</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(15,050</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(77,546</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(26,501</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net loss per share &#151; basic and diluted</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.48</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.19</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(1.06</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(0.34</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Weighted average shares &#151; basic and diluted</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">73,794</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">77,790</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">72,966</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">77,152</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">EBITDA(1)</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(19,933</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(5,565</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(47,326</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(9,349</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
        <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="96%"><FONT size="2">Earnings before interest, taxes, depreciation and amortization, equity in
net loss of joint venture and one-time charges identified in the following
table. EBITDA is calculated by excluding from loss from operations
depreciation expense of approximately $11.3&nbsp;million and $22.5&nbsp;million for
the three and six-month periods ended June&nbsp;30, 2001, and depreciation
expense of $7.4&nbsp;million and $15.2&nbsp;million for the three and
six-month
periods ended June&nbsp;30, 2002.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">29</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>




<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table reconciles the alternative measurement financial data
presented above to the consolidated operating results prepared and presented in
accordance with generally accepted accounting principles (&#147;GAAP&#148;).
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="90%">
<TR valign="bottom">
        <TD width="3%">&nbsp;</TD>
        <TD width="56%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="4%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>Three Months Ended</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="7"><FONT size="1"><B>Six Months Ended</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="7"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>June 30,</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="15"><FONT size="1"><B>(Unaudited)</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Supplemental alternative measurement net loss</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(35,224</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(15,050</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(77,546</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(26,501</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amounts excluded from alternative measurement net loss</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of purchased technology</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(5,672</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(4,631</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(11,344</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(9,261</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of intangible assets</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(4,112</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(6,227</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(8,245</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(12,358</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Acquisition-related retention bonuses in operating expenses</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(793</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(963</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(10</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Restructuring expense</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(8,481</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,539</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(8,481</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,539</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Impairment of long-lived assets</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(14,198</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(14,198</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Stock-based expense in cost of revenue</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(1,469</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(418</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(2,772</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(835</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Stock-based expense in operating expenses</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(14,244</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(4,114</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(30,674</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(7,369</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of debt issuance costs in non-operating expense</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(4</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(68</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(20</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(281</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loss on investments in non-operating expense</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(702</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(702</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(104</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Gain on retirement of convertible subordinated notes</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">3,818</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">3,818</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Preferred stock instrument marked to market</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(3,520</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(3,320</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Subtotal
of amounts excluded from alternative measurement net loss</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(45,857</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(20,517</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(73,581</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(35,077</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">GAAP net loss</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(81,081</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(35,567</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(151,127</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(61,578</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accretion on redeemable convertible preferred shares</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(3,261</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&#151;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">(6,467</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="1" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">GAAP net loss attributable to common shares</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(81,081</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(38,828</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(151,127</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD nowrap align="right"><FONT size="2">$</FONT></TD>
        <TD align="right"><FONT size="2">(68,045</FONT></TD>
        <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
        <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><HR size="4" noshade></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2"><B>QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</B>
</FONT>

<!-- link2 "Item&nbsp;3. Quantitative and Qualitative Disclosures About Market Risk" -->
<DIV align="left"><A NAME="008"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;3. </B><B><I>Quantitative and Qualitative Disclosures About Market Risk</I></B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of June&nbsp;30, 2002, our investment portfolio consisted of
available-for-sale securities, excluding those classified as cash equivalents,
of $15.2&nbsp;million. These securities consist of $1.8&nbsp;million of strategic equity
investments in corporate partners, certain of which are publicly traded and
marketable and certain of which are privately held and $13.3&nbsp;million of high
grade, low risk government securities and corporate bonds. These equity
securities are subject to price risk. Critical Path&#146;s long-term obligations
consist of our $38.4&nbsp;million of face value 5.75% Convertible Subordinated Notes
due April 2005, and certain fixed rate capital leases. We do not plan to reduce
or eliminate our market exposure on these securities.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A significant portion of our worldwide 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 adequately. To date, we have not sought to hedge the risks associated
with fluctuations in exchange rates.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Information relating to quantitative and qualitative disclosures about
market risk is set forth in &#147;Management&#146;s Discussion and Analysis of Financial
Condition and Results of Operations.&#148;
</FONT>
<P align="center"><FONT size="2">30</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2"><B>REPORT OF INDEPENDENT ACCOUNTANTS</B>
</FONT>

<P><FONT size="2">To the Board of Directors and Shareholders<BR>
of Critical Path, Inc.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have reviewed the accompanying condensed consolidated balance sheet of
Critical Path, Inc. and its subsidiaries as of June&nbsp;30, 2002 and the related
condensed consolidated statements of operations for the three and six-month
periods ended June&nbsp;30, 2002 and the condensed consolidated
statements of cash
flows for the six-month periods ended June&nbsp;30, 2002 and 2001. These financial statements
are the responsibility of the Company&#146;s management.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated interim financial
information for it to be in conformity with accounting principles generally
accepted in the United States of America.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We previously audited in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet as of
December&nbsp;31, 2001, and the related consolidated statements of operations, of
shareholders&#146; equity, and of cash flows for the year then ended (not presented
herein), and in our report dated February&nbsp;5, 2002 we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of December&nbsp;31, 2001, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
</FONT>
<P><FONT size="2">/s/ PricewaterhouseCoopers LLP
</FONT>
<P><FONT size="2">San Jose, CA<BR>
August&nbsp;7, 2002
</FONT>
<P align="center"><FONT size="2">31</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<!-- link1 "PART 2 &#151; OTHER INFORMATION" -->
<DIV align="left"><A NAME="009"></A></DIV>
<P align="center"><FONT size="2"><B>PART 2 &#151; OTHER INFORMATION</B>
</FONT>

<!-- link2 "Item&nbsp;1. Legal Proceedings" -->
<DIV align="left"><A NAME="010"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;1. </B><B><I>Legal Proceedings</I></B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Securities Class&nbsp;Actions in Northern District of California. </I>Beginning on
February&nbsp;2, 2001, a number of securities class action complaints were filed
against the Company, and certain of our former officers and directors in the
United States District Court for the Northern District of California. The
complaints alleged that the Company and certain of its former officers made false or
misleading statements about the Company&#146;s financial results and its
prospects. In addition, on September&nbsp;24, 2001, certain former shareholders of
PeerLogic, Inc. filed a putative class action in the Superior Court of the
State of California alleging that Critical Path breached representations and
warranties made in connection with the acquisition of PeerLogic. On November&nbsp;8,
2001, Critical Path announced that it had reached an agreement in principle to
settle these cases. In February 2002, the Court gave preliminary approval to
the settlement of these cases. In June 2002, the Court entered its final
approval of the settlement. In connection with the settlement, the
Company reached a financial settlement and issued warrants to purchase
up to 850,000&nbsp;shares of common stock at $10.00 per share.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On April&nbsp;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
Critical Path and certain of its former officers. The plaintiff shareholders
opted out of the shareholder litigation settlement which was approved
by the
U.S. District Court for the Northern District of California in June
2002. The complaint alleges breach of contract, unjust
enrichment, common law fraud and violations of federal securities laws and
seeks compensatory and punitive damages in an unnamed amount but in excess of
$200&nbsp;million.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Securities and Exchange Commission Investigation. </I>In 2001, the Securities
and Exchange Commission (the &#147;SEC&#148;) investigated the Company and certain of the
Company&#146;s former officers and directors with respect to
non-specified accounting matters, financial reports, other public disclosures
and trading activity in the Company&#146;s securities. The SEC concluded its
investigation of the Company in January 2002 with no imposition of fines or
penalties. The Company consented without admitting or denying liability, to an
administrative order that the Company violated certain non-fraud provisions of
the federal securities laws and to a cease and desist order. The investigation
has also thus far resulted in charges being filed against two former
officers of the Company. We believe that the investigation of former officers of the Company continues and, while the Company is fully
cooperating with all requests with respect to such investigation, we do not
know the status of such investigation.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Derivative Actions in Northern District of California. </I>Beginning on
February&nbsp;5, 2001, Critical Path was named as a nominal defendant in a number of
derivative actions, purportedly brought on the Company&#146;s behalf, filed in the
Superior Court of the State of California and in the United States District
Court for the Northern District of California. The derivative complaints
alleged that certain of the Company&#146;s former officers and directors breached
their fiduciary duties, engaged in abuses of control, were unjustly enriched by
sales of the Company&#146;s common stock, engaged in insider trading in violation of
California law or published false financial information in violation of
California law. While the plaintiffs sought unspecified damages on the
Company&#146;s behalf, because of the nature of derivative litigation, any recovery
would inure to the Company&#146;s benefit. Contemporaneously with settlement of the
securities class action described above, an agreement in principle was reached
to settle the derivative action.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Securities Class&nbsp;Action in Southern District of New York. </I>Beginning on
July&nbsp;18, 2001, a number of securities class action complaints were filed
against the Company, and certain of our current and former officers and
directors and underwriters connected with our initial public offering of common
stock in the United States District Court for the Southern District of New
York. The purported class action complaints were filed by individuals who
allege that they purchased common stock at the initial public offering of
common stock between March&nbsp;26, 1999 and December&nbsp;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 commissions
received by the underwriters. The complaints have been consolidated into a
single action. The complaints seek an unspecified amount in damages on behalf
of persons who purchased the Company&#146;s stock during the specified period. Similar
complaints have been filed against more than 300 other companies
and additional underwriters.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Lease Dispute. </I>In July 2000, PeerLogic, Inc. signed a lease for office
space in San Francisco, California. In December 2000, we acquired
PeerLogic as a wholly-owned subsidiary. After reviewing its obligations under
the lease, 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
</FONT>
<P align="center"><FONT size="2">32</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P><FONT size="2">Administrator determined that the Company&#146;s proposed use of the leased
premises was not permitted. The landlord appealed this determination and
prevailed before the San Francisco Board of Appeals. We requested a
rehearing on the matter, which the Board of Appeals denied. In July 2002, the
Company filed a Petition for Writ of Administrative Mandamus with the San
Francisco Superior Court, requesting that the Board of Appeals&#146; decision be
reversed and/or remanded for rehearing by the Board, with instructions from the
Court. On April&nbsp;30,
2002, the landlord filed suit in San Francisco Superior Court against the
Company alleging, among other things, breach of the lease. In its complaint,
the landlord sought unspecified compensatory damages for back rent, attorneys&#146;
fees, treble damages under relevant statutes, and unspecified punitive damages.
Litigation in this matter is ongoing.
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The uncertainty associated with these and other unresolved or threatened
lawsuits could seriously harm the Company&#146;s business and financial condition.
In particular, the lawsuits or the continued effects of the investigation could
harm its relationships with existing customers and its ability to obtain new
customers. The continued defense of lawsuits could also result in the diversion
of management&#146;s time and attention away from business operations, which could
harm the Company&#146;s business. Negative developments with respect to the
settlements or the lawsuits could cause the Company&#146;s stock price to decline
significantly. In addition, although the Company is unable to determine the
amount, if any, that it may be required to pay in connection with the
resolution of these lawsuits or the investigation by settlement or otherwise,
and although the Company maintains adequate and customary insurance, the size
of any such payments could seriously harm the Company&#146;s financial condition.
</FONT>

<!-- link2 "Item&nbsp;4. Submission of Matters to a Vote of Security Holders" -->
<DIV align="left"><A NAME="011"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;4. </B><B><I>Submission of Matters to a Vote of Security Holders</I></B>
</FONT>

<P><FONT size="2">The Company held its Annual Meeting of Shareholders on July&nbsp;23, 2002 at 10:00
am in San Francisco, California. During the Annual Meeting of
Shareholders, for which a quorum was met, the
matters that were voted upon by shareholders of (i)&nbsp;the Common
Stock of the Company, and (ii)&nbsp;Series&nbsp;D Cumulative
Redeemable Convertible Participating Preferred Stock, were as follows:
</FONT>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="5%"></TD>
        <TD width="95%"></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. Election of Directors</FONT></TD>
</TR>
<TR valign="top">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. Ratification of the appointment of PricewaterhouseCoopers LLP as the
Company&#146;s independent accountants</FONT></TD>
</TR>
</TABLE>

<P><FONT size="2">The following are the results of the voting:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="5%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="58%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="6%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="7%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="6%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="left" colspan="3"><FONT size="2">1. To
elect Directors for a term expiring at the Annual Meeting of
Shareholders in 2003:</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3" valign="top"><FONT size="1">Shares for</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3" valign="top"><FONT size="1">Shares withheld</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">(i)</FONT></TD>
        <TD><FONT size="2">Common Stock</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">William McGlashan, Jr.</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">57,316,622</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">1,881,270</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Klaus Esser</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">57,315,570</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">1,882,322</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Raul J. Fernandez</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">57,314,195</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">1,883,697</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Jeffrey T. Webber</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">57,327,957</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">1,869,935</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">(ii)&nbsp;</FONT></TD>
        <TD><FONT size="2">Preferred Stock</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD><FONT size="2">&nbsp;</FONT></TD>
<TD><FONT size="2">&nbsp;</FONT></TD>

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">William
McGlashan,&nbsp;Jr.</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">3,127,273</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">0</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
<TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Klaus Esser</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">3,127,273</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">0</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
<TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Raul J. Fernandez</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">3,127,273</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">0</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
<TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Jeffrey T. Webber</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">3,127,273</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">0</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>







</TABLE>
</CENTER>
<P><FONT size="2">2. To ratify the appointment of PricewaterhouseCoopers LLP as the
Company&#146;s independent accountants for the 2002 fiscal year.
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%">
<TR valign="bottom">
        <TD width="25%">&nbsp;</TD>
        <TD width="25%">&nbsp;</TD>
        <TD width="25%">&nbsp;</TD>
        <TD width="25%">&nbsp;</TD>
</TR>

<TR valign="bottom">
        <TD nowrap align="left"><FONT size="2">(i) Shares of Common
Stock:</FONT></TD>
        <TD align="center"><FONT size="1">&nbsp;</FONT></TD>
        <TD align="center"><FONT size="1">&nbsp;</FONT></TD>
        <TD align="center"><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center"><FONT size="1">FOR</FONT></TD>
        <TD nowrap align="center"><FONT size="1">AGAINST</FONT></TD>
        <TD nowrap align="center"><FONT size="1">ABSTAIN</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="center"><FONT size="2">58,709,001</FONT></TD>
        <TD align="center"><FONT size="2">440,582</FONT></TD>
        <TD align="center"><FONT size="2">48,309</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD nowrap align="left"><FONT size="2">(ii) Shares of
Preferred Stock:</FONT></TD>
        <TD nowrap align="center"><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center"><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center"><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD align="center"><FONT size="2">3,127,273</FONT></TD>
        <TD align="center"><FONT size="2">0</FONT></TD>
        <TD align="center"><FONT size="2">0</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">33</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<!-- link2 "Item&nbsp;6. Exhibits and Report on Form&nbsp;8-K" -->
<DIV align="left"><A NAME="012"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;6. </B><B><I>Exhibits and Report on Form&nbsp;8-K</I></B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp; <I>Exhibits</I>
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="90%">
<TR valign="bottom">
        <TD width="6%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="91%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">10.1</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Loan Agreement by and between Registrant and William McGlashan, Jr.
and his spouse dated as of May&nbsp;20, 2002</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">10.2</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Secured Promissory Note and Pledge Agreement by and between Registrant and
William McGlashan, Jr. and his spouse dated as of May&nbsp;20, 2002</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">10.3</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Notice of Early Exercise of Stock Option by and between Registrant
and William McGlashan, Jr. dated as of May&nbsp;8, 2002</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">10.4</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Promissory Note by William McGlashan, Jr. dated as of May&nbsp;7, 2002</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">10.5</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Stock Pledge Agreement by and between Registrant and William McGlashan, Jr. dated May&nbsp;8, 2002
</FONT>
</TD></TR>

<TR><TD><TR><TD><TR><TD><TR><TD></TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">10.6</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Nonstatutory Stock Option Agreement by and between Registrant and
William McGlashan Jr. dated
May&nbsp;8, 2002
</FONT>
</TD></TR>

<TR><TD><TR><TD><TR><TD><TR><TD></TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">10.7</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Separation Agreement and Mutual Release dated as of July&nbsp;21, 2002 by and between Registrant
and David C. Hayden</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">10.8</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Full Recourse Second Amended and Restated Promissory Note issued by
David C. Hayden dated as of July&nbsp;21, 2002</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">15.1</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Letter of PricewaterhouseCoopers LLP on Unaudited Interim Financial Information</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">99.1</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Certifications of Chief Executive and Chief Financial Officers of the
Registrant</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
      <TD width="7%" align="right" nowrap><FONT size="2">(b)</FONT></TD>
        <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="92%"><FONT size="2"><I>Report on Form&nbsp;8-K</I></FONT></TD>
</TR>
</TABLE>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On May&nbsp;13, 2002, we filed a report on Form&nbsp;8-K under Items 5 and 7 noting
the issuance of a press release announcing the resignation of
David C. Hayden from employment with the Company and from the
Company's Board of Directors.
</FONT>
<P align="center"><FONT size="2">34</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<!-- link1 "SIGNATURE" -->
<DIV align="left"><A NAME="013"></A></DIV>
<P align="center"><FONT size="2"><B>SIGNATURE</B>
</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="43%">&nbsp;</TD>
        <TD width="5%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="48%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="3" valign="top" align="left"><FONT size="2">Critical Path, Inc.</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
By:
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><FONT size="2">/s/ Laureen DeBuono</FONT></TD>
</TR>
<TR>
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="center" valign="top"><FONT size="2">Laureen DeBuono<br>
<I>Executive Vice President,<br>
Chief Financial Officer<br></I>
(Duly Authorized Officer and Principal<br>
Financial and Accounting Officer)<br></FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">Date: August&nbsp;14, 2002</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">35</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<!-- link1 "INDEX TO EXHIBITS" -->
<DIV align="left"><A NAME="014"></A></DIV>
<P align="center"><FONT size="2"><B>INDEX TO EXHIBITS</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%">
<TR valign="bottom">
        <TD width="6%">&nbsp;</TD>
        <TD width="3%">&nbsp;</TD>
        <TD width="91%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="center"><FONT size="1"><B>Exhibit</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="center"><FONT size="1"><B>Number</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center"><FONT size="1"><B>Exhibit Description</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD nowrap align="center"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">10.1</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">Loan Agreement
by and between Registrant and William McGlashan, Jr. and his spouse dated as of
May&nbsp;20, 2002</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">10.2</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Secured Promissory Note and Pledge Agreement by and between Registrant and
William McGlashan, Jr. and his spouse dated as of May&nbsp;20, 2002</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">10.3</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Notice of Early Exercise of Stock Option by and between Registrant
and William McGlashan, Jr. dated as of May&nbsp;20, 2002</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">10.4</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Promissory Note by William McGlashan, Jr. dated as of May&nbsp;7, 2002</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">10.5</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Stock Pledge Agreement by and between Registrant and William
McGlashan, Jr. dated May&nbsp;8, 2002</FONT></TD>

</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">10.6</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Nonstatutory Stock Option Agreement by and between Registrant and
William McGlashan Jr. dated
as of May&nbsp;8, 2002</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">10.7</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Separation Agreement and Mutual Release dated as of July&nbsp;21, 2002 by and between Registrant
and David C. Hayden</FONT></TD>
</TR>


<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">10.8</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Full Recourse Second Amended and Restated Promissory Note issued by
David C. Hayden dated as of July&nbsp;21, 2002</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">15.1</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Letter of PricewaterhouseCoopers LLP on Unaudited Interim Financial Information</FONT></TD>
</TR>
<TR><TD><TR><TD><TR><TD><TR><TD>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">99.1</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">Certifications
of Chief Executive and Chief Financial Officers of the
Registrant</font></td></tr>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
      <TD width="1%" align="left" nowrap><FONT size="2">*</FONT></TD>
        <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
        <TD width="98%"><FONT size="2">See Exhibit&nbsp;Index attached hereto, which is incorporated herein by
reference.</FONT></TD>
</TR>
</TABLE>

<P align="center"><FONT size="2">36</FONT>



</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>3
<FILENAME>f83504exv10w1.txt
<DESCRIPTION>EXHIBIT 10.1
<TEXT>
<PAGE>
                                                                    Exhibit 10.1


                                 LOAN AGREEMENT


      THIS LOAN AGREEMENT ("Agreement") is entered into as of the 20th day of
May, 2002, by and among CRITICAL PATH, INC., a California corporation (the
"Lender"), WILLIAM MCGLASHAN and MARIE MCGLASHAN (together, the "Borrower"),

                                 W I T N E S S T H:

      WHEREAS, the Lender and William McGlashan are parties to a First Amended
and Restated Employment Agreement, dated as of January 7, 2002, which provides
for the Lender to make a loan to the Borrower for the purchase of a single
family residence to be designated by Borrower, in his sole discretion, which
shall be the Borrower's principal residence (the "Principal Residence"), in an
amount not to exceed One Million Five Hundred Thousand Dollars ($1,500,000) (the
"Loan");

      WHEREAS, the Lender is willing to make the Loan to the Borrower on the
terms and conditions set forth in this Agreement:

      NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:

      1. Agreement to Make Loan. The Lender hereby agrees to make the Loan,
which shall be funded upon the close of the escrow on the Principal Residence
(the "Closing"); subject, however, to satisfaction of the terms and conditions
hereinafter set forth. Such Loan shall be evidenced by, and governed by, this
Agreement, the terms and conditions of the Secured Promissory Note, dated the
date hereof, in substantially the form attached hereto as Exhibit A, by and
between the Lender and the Borrower (the "Note"), and the Deed of Trust
described in Section 3(d).

      2. Amount of Loan. The Loan shall be in the amount requested by the
Borrower but not more than the purchase price of the Principal Residence;
provided, however, the Loan amount shall not exceed the lesser of (i) the
appraised value of the Principal Residence minus the amount of any loan or loans
secured by a deed of trust recorded on the date of the Closing and senior to the
deed of trust in favor of the Lender, or (ii) One Million Five Hundred Thousand
Dollars ($1,500,000). The Borrower shall deliver a request for the Loan funding,
together with a true, correct and complete copy of the contract for their
purchase of the Principal Residence no less than five business days before the
Loan is to be disbursed.

      3. Conditions Precedent to Loan. The Lender shall not be obligated to fund
the Loan until the Lender is satisfied that each of the following conditions
(the "Conditions Precedent") has been met:


                                       1
<PAGE>
      (a) The Borrower has executed and delivered this Agreement and Note to the
Lender;

      (b) The Borrower has entered into the Pledge Agreement, dated as of the
date hereof, by and between the Lender and the Borrower, in substantially the
form attached hereto as Exhibit B (the "Pledge Agreement") and has assigned the
Pledged Shares (as defined in the Pledge Agreement) of Common Stock of the
Lender as contemplated therein;

      (c) The Borrower has delivered the stock certificates of the Pledged
Shares, power of attorney, and written commitment regarding vested options to
the Lender as provided for in the Pledge Agreement;

      (d) The Borrower has executed and delivered the Deed of Trust with
Assignment of Rents as additional security provided by the Borrower in favor of
a title company reasonably acceptable to Lender (the "Title Company"), for the
benefit of the Lender, dated as of the date hereof, in substantially the form
attached hereto as Exhibit C, although the form attached hereto will be modified
if the Loan is not a first priority lien on the Principal Residence (the "Deed
of Trust"), to the Lender (or, at the Lender's option, to the Title Company as
escrow agent);

      (e) If the Deed of Trust is junior to other deeds of trust on the
Principal Residence, the combined amounts of each of the deeds of trust on the
Principal Residence at the Closing must not be greater than the value of the
appraisal of the Principal Residence;

      (f) The Borrower has delivered to the Lender both (i) a pro forma title
insurance policy, in form and substance satisfactory to the Lender, issued by
the Title Company (the "Pro Forma") and (ii) evidence that the Title Company is
unconditionally and irrevocably committed to issue to the Lender a title
insurance policy in the form of the Pro Forma dated as of the date of Closing;

      (g) The Borrower has entered into escrow instructions with the Title
Company, in form and substance satisfactory to the Lender, with respect to
closing the Loan;

      (h) The Lender has received an appraisal of the Principal Residence from
an appraiser selected or approved by the Lender stating the fair market value of
the Principal Residence, as of date of execution of the purchase and sale
agreement for the Principal Residence, to be not less than the amount required
by this Agreement, and in form and substance otherwise reasonably satisfactory
to Lender;

      (i) The Borrower has obtained hazard insurance on the Principal Residence;

      (j) The Borrower has received in escrow the grant deed from the seller of
the Principal Residence;


                                       2
<PAGE>
      (k) The Lender has received a UCC search report with respect to both
William McGlashan and his spouse, which shall confirm that there are no security
interests, encumbrances or liens on any Collateral (as defined by the Pledge
Agreement); and

      (l) The Lender shall have been notified at least five business days prior
to the anticipated Closing of the date on which such Closing will occur.

      4. Events of Default. Each of the following events shall constitute an
event of default for the purposes of this Agreement (each, an "Event of
Default"):

      (a) any failure to make any payment as required under the Note;

      (b) any breach by the Borrower of the Deed of Trust; or

      (c) any breach by the Borrower of the Pledge Agreement.

      5. Disbursement. Within two business days following its receipt of
Borrower's notice of the Closing date as described in Section 3(l), Lender shall
deliver to Borrower a notice stating that all Conditions Precedent have been
satisfied or waived, or, in the alternative, identifying with particularity any
Conditions Precedent that remain in effect. Provided that all of the Conditions
Precedent have been satisfied or waived, as the Lender shall determine, the
Lender shall disburse the proceeds of the Loan to Title Company for payment of
the purchase price of the Principal Residence at Closing. The Borrower shall be
responsible for all other buyer's Closing costs and expenses.

      6. Subordination of Deed of Trust. Provided that Borrower is not in
default under the Deed of Trust, Lender shall, on written request of Borrower,
subordinate the Deed of Trust to the lien of a new deed of trust or deeds of
trust (i) securing a loan obtained by Borrower for the sole purpose of paying
the hard and soft costs of construction of new or remodeled improvements upon
the Principal Residence, and (ii) securing a loan for the difference, if any,
between the Loan amount and the purchase price of the Principal Residence. The
aggregate amount of the foregoing loans to which the Deed of Trust shall be
subordinated shall not exceed $6,000,000.

      7. Replacement of Principal Residence. The Loan shall be due upon sale of
the Principal Residence, except that Borrower may elect to apply the Loan
proceeds to the purchase of a replacement principal residence and to substitute
the security of the Deed of Trust with the lien of a new Deed of Trust upon the
replacement personal residence, provided that such replacement personal
residence and the purchase thereof satisfies all other terms and conditions of
Section 2 and Section 3.


                                       3
<PAGE>
       8. Notices. All notices shall be deemed sufficiently given on the next
business day following the day on which the same have been sent by a recognized
national overnight courier service for delivery on the next business day at the
respective addresses set forth below. Such parties may, by notice given
hereunder, designate any different addresses to which subsequent notices,
certificates or other communications shall be sent.

            Lender:
            Critical Path, Inc.
            350 The Embarcadero
            San Francisco, CA 94105
            Facsimile:415-541-2303
            Attn: General Counsel

            Borrower:

            William McGlashan
            [________]
            Facsimile:

            With copy to:
            Karen Wentzel, Esq.
            Ritchey Fisher Whitman & Klein
            1717 Embarcadero Road
            Palo Alto, CA 94303

            Facsimile:  (650) 857-1288

      9. Counterparts. This Agreement may be executed in any number of
counterparts and each such duplicate original shall be deemed to be an original.

      10. Headings. The headings of the Paragraphs and sub-paragraphs herein are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.

      11. No Third-Party Beneficiary. The provisions of this Agreement are for
the benefit only of the parties hereto, and their respective successors or
permitted assigns and no third party may seek to enforce, or benefit from, these
provisions. The parties specifically disavow any desire or intention to create
any third party beneficiary hereunder, and specifically declare that no person
or entity, except for the parties hereto, shall have any right hereunder nor any
right of enforcement hereof.


                                       4
<PAGE>
      12. Binding Effect. This Agreement shall be binding upon, inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and assigns.

      13. Attorney Fees. In the event of any action, suit or other proceeding
concerning the negotiation, interpretation, validity, performance or breach of
this Agreement, the prevailing party or parties in such proceeding shall be
entitled to recover all of such party's reasonable attorneys fees, expenses and
costs, not limited to costs of suit, incurred in each and every such action,
suit or other proceedings, including any and all appeals or petitions relating
thereto.

      14. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of California, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of California or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the State of California.

      15. Authority. Each party hereto warrants that the person signing below is
authorized to sign this Agreement on its behalf and to bind it to the terms of
this Agreement. Should any provision of this Agreement be held by a court of
competent jurisdiction to be invalid or illegal, such invalidity or illegality
shall not invalidate the whole of this Agreement, but, rather, the Agreement
shall be construed as if it did not contain the invalid or illegal part, and the
rights and obligations of the parties shall be construed and enforced
accordingly.


                  [remainder of page intentionally left blank]


                                       5
<PAGE>
      IN WITNESS WHEREOF, Lender and Borrower have duly executed and delivered
this Agreement under seal as of the day and year first above written.

                              LENDER:

                              CRITICAL PATH, INC., a California corporation


                              By:  /s/Michael Zukerman
                                 __________________________________
                              Name:________________________________
                              Title:_______________________________



                              BORROWER:

                                WILLIAM MCGLASHAN



                              By:  /s/ William McGlashan
                                 __________________________________
                              Name:_______________________________
                              Title:_______________________________


                              BORROWER:

                              MARIE MCGLASHAN



                              By: /s/ Marie McGlashan
                                 __________________________________
                              Name:_______________________________
                              Title:_______________________________


                                       1
<PAGE>
                                    EXHIBIT A
                         FORM OF SECURED PROMISSORY NOTE
                        (attached as a separate document)
<PAGE>
                                    EXHIBIT B
                              FORM OF DEED OF TRUST
                        (attached as a separate document)
<PAGE>
                                    EXHIBIT C
                            FORM OF PLEDGE AGREEMENT
                        (attached as a separate document)

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>4
<FILENAME>f83504exv10w2.txt
<DESCRIPTION>EXHIBIT 10.2
<TEXT>
<PAGE>
                                                                    Exhibit 10.2


                                PLEDGE AGREEMENT

            THIS PLEDGE AGREEMENT (this "Agreement") is made as of May 20, 2002,
by and among William McGlashan (the "Pledgor") in favor of Critical Path, Inc.,
a California corporation (the "Lender"),

                               W I T N E S S T H:

            WHEREAS, the Pledgor owns, or will own pursuant to the exercise of
options, shares of the common stock of the Lender (the Shares");

            WHEREAS, substantially simultaneously herewith, the Lender will
enter into a loan agreement (the "Loan Agreement") with the Pledgor, pursuant to
which the Lender will make a loan to the Pledgor for the purchase price of a
principal residence that shall not exceed One Million Five Hundred Thousand
Dollars ($1,500,000) (the "Loan"); and

            WHEREAS, it is a condition precedent to the Lender lending money
under the Loan Agreement that the Pledgor shall have executed and delivered this
Agreement, pursuant to which the Pledgor pledges that number of Shares, if any,
that have an aggregate value, when combined with the fair market value of the
Property secured by the Deed of Trust (the "Property") described in the Loan
Agreement (the "Deed of Trust"), of at all times not less than 120% of the total
of (i) the then current outstanding balance of Loan, (ii) all interest thereon,
and (iii) any other loan or other obligation of the Pledgor secured by the
Property and which is senior to the Loan, plus all interest thereon (the
"Pledged Shares"):

            NOW, THEREFORE, in consideration of the premises contained herein
and other good and valuable consideration the receipt and sufficiency of which
are hereby acknowledged, and in order to induce the Lender to loan the Pledgor
such funds as stated above, the Pledgor hereby agrees as follows:

      1. Pledge and Grant of Security Interest. As security for the prompt and
complete payment and performance of any and all obligations, now or hereafter
existing, of the Pledgor under this Agreement or the Loan Agreement, including
any extensions, modifications, substitutions, amendments and renewals hereof or
thereof, whether for principal, interest, fees, premiums, expenses,
reimbursement obligations, indemnification or otherwise, the Pledgor hereby
pledges to the Lender, and grants to the Lender a security interest in, any and
all of the Pledgor's right, title and interest in and to the following, whether
now owned or existing or hereafter acquired or owned (collectively, the
"Collateral"):

      (a) the Pledged Shares;

      (b) all securities or other instruments in addition to, in substitution
of, or in exchange for any of the Pledged Shares (whether as a distribution in
connection with any recapitalization, reorganization or reclassification, a
stock dividend or otherwise);

      (c) any distributions of cash or property in respect of the items
described in the preceding clauses (a) and (b);


                                       1
<PAGE>
      (d) all proceeds and products of any of the foregoing items, however and
whenever acquired and in whatever form; and

      (e) any other property or assets pledged by Pledgor, in order to
substitute for existing Collateral or to provide sufficient security for the
Loan as required hereunder

            Notwithstanding any other provision of this Agreement, the aggregate
of value of the Collateral shall be limited to the value that, when combined
with the fair market value of the Property secured by the Deed of Trust, is at
all times not less than 120% of the aggregate of (i) the outstanding balance of
the Loan, plus all interest thereon, and (ii) any other loan or other obligation
of the Pledgor secured by the Property and which is senior to the Loan, plus all
interest thereon. For the purpose of determining whether or not the Lender has
sufficient security for the Loan, the Lender shall have the right to obtain
independent appraisals of the Property at the Lender's expense, on an annual
basis or prior to the Loan becoming subordinate to any other loan, if ever. If
necessary following such appraisal, Mr. McGlashan shall provide the Company with
an irrevocable power of attorney coupled with an interest giving authority to
the Company to exercise on Pledgor's behalf any vested options following any
Event of Default. If, (a) the value of the Collateral, when combined with the
fair market value of the Property is approximately 90% or less of the total of
(i) the then current outstanding balance of the Loan, plus all interest thereon,
and (ii) any other loan or obligation of the Pledgor secured by the Property and
which is senior to the Loan, plus all interest thereon, (b) there are no
additional Shares available to increase the value of the Collateral, and (c) the
Company's auditor determines that the Company would be required to take a charge
against earnings and treat the Loan as bonus compensation to Pledgor, then
Pledgor shall deliver to the Company other personal or real property security
sufficient to increase the total value of the Collateral and the Property to
100% of the total of (i) the then current outstanding balance of the Loan, plus
all interest thereon, and (ii) any other loan or obligation of the Pledgor
secured by the Property and which is senior to the Loan, plus all interest
thereon. In addition, with respect to any options necessary to satisfy the
Collateral requirement hereunder, Pledgor shall deliver to Lender his written
commitment, in form reasonably acceptable to Lender, that he shall not exercise
or transfer any such options. All such options shall immediately become part of
the Collateral. .

      2. Delivery of Collateral; After-Acquired Collateral.

      (a) Simultaneously with or prior to the execution of this Agreement, all
certificates or instruments representing or evidencing the Collateral shall be
delivered to the Lender and held by or on behalf of the Lender pursuant hereto
and shall be in suitable form for transfer by delivery, or shall be accompanied
by duly executed instruments of transfer or assignment in blank, including
signature guarantees, all in form and substance satisfactory to the Lender. The
Lender shall have the right during the existence of an Event of Default (as
defined in the Note) but without any requirement for prior written notice to the
Pledgor, to transfer to or to register in the name of the Lender or any of its
nominees any or all of the Collateral. Except as provided in Section 12 hereof,
the Pledgor shall maintain all voting rights in the Collateral.

      (b) While this Agreement is in effect, if the Pledgor becomes entitled to
receive or receives any additional Collateral, the Pledgor shall accept such
Collateral on behalf of and for the benefit of the Lender and shall promptly
deliver such additional Collateral to the Lender together


                                       2
<PAGE>
with duly executed forms of assignment, and such additional Collateral shall be
deemed to be part of the Collateral hereunder.

      3. Distributions. While this Agreement is in effect, the Pledgor shall be
entitled to receive all dividends, distributions and other property (cash or
otherwise) paid or distributed in respect to any of the Collateral, except after
an Event of Default, in which case all of which shall be paid to the Lender and
shall be applied promptly to the payment of the principal and then to the
accrued interest under the Loan.

      4. Representations and Warranties of the Pledgor. The Pledgor hereby
represents and warrants to the Lender as of the date hereof and for so long as
any of the Pledgor's obligations or liabilities under the Loan Agreement or this
Agreement remains outstanding:

      (a) the Pledgor has good and indefeasible title to the Collateral and has
the right to grant the security interest provided for herein, and none of the
Collateral is subject to any lien, pledge, charge, encumbrance or security
interest or right or option on the part of any third person to purchase or
otherwise acquire the Collateral or any part thereof. There exists no adverse
claim with respect to the Collateral;

      (b) to the best knowledge of Pledgor, as of the date hereof, all of the
shares of the Collateral are fully vested, and none of the Collateral is subject
to forfeiture of any nature;

      (c) the Pledgor intends this Agreement and the pledge of Collateral
hereunder to create a valid and perfected first priority security interest in
the Collateral;

      (d) to the best knowledge of Pledgor, no security agreement, financing
agreement or other public notice with respect to all or any part of the
Collateral is on file or of record in any public office, except such as may have
been filed in favor of the Lender pursuant to this Agreement;

      (e) to the best knowledge of Pledgor, the execution, delivery and
performance by the Pledgor of this Agreement will not constitute or result in a
breach or default under or conflict with any order, ruling or regulation of any
court or other tribunal or of any governmental commission or agency, or any
agreement or other undertaking, to which the Pledgor is a party or by which the
Pledgor is bound;

      (f) to the best knowledge of Pledgor, none of the Collateral is subject to
any unpaid capital call or dispute, any buy-sell, voting trust, transfer
restriction, preferential right to purchase or similar agreement or any option,
warrant, put or call or similar agreement or other rights or restrictions in
favor of third persons; all of the Collateral is duly authorized, fully paid,
validly issued and non-assessable and was not issued in violation of the rights
of any person; this Agreement accurately describes the Collateral owned and
pledged by the Pledgor;

      (g) to the best knowledge of Pledgor, no dispute, right of setoff,
counterclaim or defense exists with respect to any portion of the Collateral;

      (h) the Pledgor's signature on this Agreement is genuine and the Pledgor
has the legal competence and capacity to execute this Agreement;


                                       3
<PAGE>
      (i) the address given herein as the Pledgor's principal place of residence
is the Pledgor's true and correct principal place of residence; and

      (j) this Agreement constitutes the legal, valid and binding obligation of
the Pledgor.

      5. Covenants of the Pledgor. The Pledgor hereby covenants that, until such
time as all of the outstanding principal of and interest on the Loan has been
repaid and all other obligations of the Pledgor hereunder or thereunder have
been discharged, the Pledgor shall:

      (a) not create, incur, assume or suffer to exist any pledge, security
interest, encumbrance, lien or charge of any kind against the Collateral or the
Pledgor's rights as a holder thereof, other than pursuant to this Agreement;

      (b) promptly execute and deliver at his or her own expense such further
instruments and documents (including Uniform Commercial Code or other applicable
financing statements) and do such further acts and things as the Lender may
reasonably request in order to effect the purposes of this Agreement;

      (c) warrant and defend title to and ownership of the Collateral at his or
her own expense against the claims and demands of all other parties claiming an
interest therein;

      (d) notify the Lender promptly upon change of his or her principal place
of residence;

      (e) upon reasonable request by the Lender, conspicuously mark each of his
or her records pertaining to the Collateral with the following legend:

            THIS INSTRUMENT IS SUBJECT TO A SECURITY INTEREST AND LIEN PURSUANT
            TO A PLEDGE AGREEMENT DATED AS OF MAY 20, 2002 (AS THE SAME HAS BEEN
            AND MAY HEREAFTER BE AMENDED, MODIFIED, OR RESTATED) MADE BY WILLIAM
            MCGLASHAN FOR THE BENEFIT OF THE LENDER NAMED THEREIN.

or other such legend, in form and substance reasonably satisfactory to and as
specified by the Lender, indicating that such Collateral is subject to the
pledge and security interest granted hereby;

      (f) if any of the Collateral is an uncertificated security within the
meaning of the UCC or otherwise not evidenced by any stock certificate or
similar certificate or instrument, the Pledgor agrees to promptly notify the
Lender and take all actions necessary to ensure perfection of the security
interest under prevailing and applicable law, including, as applicable, under
Article 8 or 9 of the UCC, and, without any limitation of the foregoing, prior
to or concurrently with the pledge hereunder of the Collateral to which this
section applies (and as reasonably requested by the Lender thereafter), use
commercially reasonable efforts to ensure that all Collateral that is an
uncertificated security is re-registered in the name of the Lender;


                                       4
<PAGE>
      (g) if any of the Collateral is a certificated security within the meaning
of the UCC, the Pledgor agrees to, simultaneously with or prior to the execution
of this Agreement (and as reasonably requested by the Lender thereafter), take
all actions necessary to ensure perfection of the security interest under
prevailing and applicable law, including, as applicable, under Article 8 or 9 of
the UCC, and, without any limitation of the foregoing, deliver all certificates
or instruments representing or evidencing the Collateral to the Lender,
accompanied by a duly executed assignment separate from the certificate in the
form attached hereto as Exhibit A;

      (h) pay all taxes, assessments and charges assessed with respect to the
Collateral; and

      (i) do all such other things as the Lender may reasonably deem necessary
or appropriate in order to assure to the Lender its security interests under
this Agreement, to the extent that such acts are not inconsistent with any
provision of this Agreement.

      6. Event of Default. Upon the occurrence of an Event of Default (as
defined in the Loan Agreement), the Lender shall have the right to exercise any
and all the rights, powers and remedies of any owner of the Collateral
(including, without limitation, the right to vote the Collateral) and shall have
and may exercise without demand any and all of the rights and remedies granted
to a secured party upon default under the Uniform Commercial Code of California
or otherwise available to the Lender under applicable law. The Pledgor agrees
that in the event the Lender shall, during the existence of an Event of Default,
sell the Collateral or any portion thereof at any private sale or sales, the
Lender shall have the right to rely upon the advice and opinion of independent
appraisers and other personas, which appraisers and other persons are acceptable
to the Lender, as to the best price reasonably obtainable upon such a private
sale thereof. The Pledgor shall have no right to redeem any of the Collateral
after any such sale or assignment. At any such sale or auction, the Lender may
bid for, and become the purchaser of, the whole or any part of the Collateral
offered for sale. In case of any such sale, after deducting the costs,
reasonable attorneys' fees and other expenses of sale and delivery, the
remaining proceeds of such sale shall be applied promptly to the payment first
of accrued interest and then to principal under the Note; provided, however,
that after payment in full of the indebtedness evidenced by the Note, the
balance of the proceeds of sale then remaining shall be paid to the Pledgor and
the Pledgor shall be entitled to the return of any of the Collateral remaining
in the hands of the Lender. Notwithstanding anything herein to the contrary, in
case of any Event of Default, Pledgor shall have, with respect to the
Collateral, all notice and reinstatement rights applicable by California statute
to foreclosure of real property security. In any event, the Pledgor shall not be
liable for any deficiency if the proceeds of sale of the Collateral are
insufficient to pay the accrued and unpaid interest together with the remaining
unpaid principal on the Note.

      7. Costs and Attorneys' Fees. All costs and expenses (including reasonable
attorneys' fees and any transfer, stamp or other similar taxes with respect to
the transfer of any Collateral to the Lender) incurred in exercising any right,
power or remedy conferred by this Agreement or in the enforcement thereof, shall
become part of the indebtedness secured hereunder and be payable immediately
upon demand.

      8. Payment of Loan and Release of Collateral. Upon payment in full of the
Loan and the discharge of all of the Pledgor's obligations under the Loan
Agreement and under this


                                       5
<PAGE>
Agreement, the Lender shall surrender the remaining Collateral, if any, to the
Pledgor together with all forms of assignment. Upon the written request of
Pledgor, to be delivered not more frequently than once every 12 months
hereunder, Lender shall release to Pledgor that portion of the Collateral, if
any, that has an aggregate value, when combined with the fair market value of
the Property, of more than 150% of the total of (i) the then current outstanding
balance of the Loan, (ii) all interest thereon, and (iii) any other loan or
other obligation of the Pledgor secured by the Property and which is senior to
the Loan, plus all interest thereon.

      9. No Waiver; Cumulative Remedies. The Lender shall not by any act, delay,
omission, or otherwise be deemed to have waived any of its rights or remedies
hereunder, and no waiver shall be valid unless in writing, signed by the Lender,
and then only to the extent therein set forth. A waiver by the Lender of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy which the Lender would otherwise have on any future
occasion. No failure to exercise nor any delay in exercising on the part of the
Lender, any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided are cumulative and may be exercised
singly or concurrently, and are not exclusive of any rights or remedies provided
by law.

      10. Notices. All notices and other communications hereunder shall be in
writing and shall be given as described in the Loan Agreement.

      11. Principal Place of Residence. The principal place of residence of the
Pledgor as of the date hereof follows:

      [_______]

      12. Proxy and Power of Attorney. THE PLEDGOR HEREBY IRREVOCABLY GRANTS TO
LENDER THE PLEDGOR'S PROXY EXERCISABLE ONLY DURING THE EXISTENCE OF AN EVENT OF
DEFAULT TO VOTE ANY COLLATERAL AND APPOINTS THE LENDER THE PLEDGOR'S
ATTORNEY-IN-FACT, EXERCISABLE ONLY DURING THE EXISTENCE OF AN EVENT OF DEFAULT
TO PERFORM ALL OBLIGATIONS OF THE PLEDGOR UNDER THIS AGREEMENT. THE PROXY AND
POWER OF ATTORNEY GRANTED HEREIN ARE COUPLED WITH AN INTEREST AND ARE
IRREVOCABLE PRIOR TO PAYMENT IN FULL OF THE INDEBTEDNESS EVIDENCED BY THE NOTE.

      13. Modifications. No amendment, modification, termination, discharge or
waiver of any provision of this Agreement shall be effective unless the same
shall be set forth in writing and signed by the Pledgor and the Lender and then
only to the extent specifically set forth therein.

      14. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any 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.


                                       6
<PAGE>
      15. Entirety. This Agreement, the Note and the Securities Transfer
Agreement represent the entire agreement of the parties hereto and thereto, and
supersede all prior agreements and understandings, oral or written, if any,
including any commitment letters or correspondence relating hereto and thereto.

      16. Governing Law. The rights and liabilities of the parties hereto shall
be determined in accordance with the laws of the State of California, without
regard to conflicts of law principles.

      17. Acknowledgment. The Pledgor hereby acknowledges that (a) he/she has
fully read this Agreement and any and all related matters and documents, and (b)
he/she fully understands all terms of this Agreement and any and all related
matters and documents.

      18. Construction. The language used in this Agreement is the language
chosen by the parties hereto to express their intent, and thus the Pledgor
hereby acknowledges and expressly agrees that the terms of this Agreement shall
not be construed against the Lender under any doctrine or rule which results in
construal against the Lender as drafter hereof.

      19. Successors and Assigns. If the Lender shall designate a successor to
the Lender, such successor shall automatically be substituted for the Lender
hereunder and shall take free from any defenses the Pledgor may have against the
Lender or any other person whatsoever. This Agreement shall be binding on the
Pledgor and the Pledgor's heirs, executors, administrators, successors and
assigns and shall inure to the benefit of the Lender and its successors and
assigns. The Pledgor may not assign this Agreement without the prior written
consent of the Lender, which consent may be withheld by the Lender in its sole
discretion. The Lender may assign this Agreement without the consent of the
Pledgor.

      20. Captions and Headings. Captions and headings are for convenience only,
are not a part of, and shall not be used to construe any provision of, this
Agreement.

      21. Counterparts. This Agreement may be executed in any number of
counterparts, each of which where so executed and delivered shall be an
original, but all of which shall constitute one and the same instrument. It
shall not be necessary in making proof of this Agreement to produce or account
for more than one such counterpart.



                  [remainder of page intentionally left blank]


                                       7
<PAGE>
            IN WITNESS WHEREOF, this Pledge Agreement has been executed as of
the date first written above.


                                    THE PLEDGOR

                                               /s/ William McGlashan
                                    ------------------------------------------
                                                William McGlashan



                                 SPOUSAL CONSENT

      I acknowledge that I have read the foregoing Pledge Agreement (the
"Agreement") and that I know its contents. I am aware that, by its provisions,
my spouse agrees to pledge the shares of capital stock of Critical Path, Inc., a
California corporation (the "Company"), held by him, including my community
interest in them (the "Shares"), to the Company as security for the Loan (as
defined in the Agreement). Furthermore, I acknowledge that I have had the
opportunity to ask such questions of representatives of the Company, and to
receive such answers and financial and other information concerning the Company
and the Agreement, as I have requested or deem necessary for me to understand
and evaluate the Agreement. I hereby consent to the pledge of the Shares,
approve of the provisions of the Agreement, and agree that I will not bequeath
the Shares or any of them, or any interest in them by my will if I predecease my
spouse. I direct that a residuary clause in my will shall not be deemed to apply
to my community interest in the Shares.

      Dated: ___________ , 2002.


                              By:    /s/ Marie McGlashan
                                 ____________________________
                                     Marie McGlashan


                                       8
<PAGE>
                                    EXHIBIT A
                      Assignment Separate from Certificate

                      (attached as a separate document)
<PAGE>
                   STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE



            For value received, the undersigned, William McGlashan, a
shareholder of Critical Path, Inc., a California corporation ("Critical Path"),
hereby sells, assigns, transfers and delivers unto Critical Path _________
shares of the common stock of Critical Path standing in the name of the
undersigned on the books of Critical Path represented by Certificate No.
____.

            Dated:





                                       By ____________________________________
                                                     William McGlashan

<PAGE>
                             SECURED PROMISSORY NOTE

May 20, 2002                                                   San Francisco, CA


1. Borrower's Promise to Pay. In return for a loan that we, the Borrowers, have
received, each of us promises to pay One Million Five Hundred Thousand Dollars
($1,500,000.00) or so much thereof as shall be disbursed hereunder (the
"Principal"), plus interest, to the order of Critical Path, Inc., a California
corporation, whose address is 350 The Embarcadero, San Francisco, CA 94105 (the
"Lender"). We will make all payments under this Note in the form of cash, check,
money order or by transfer of immediately available funds or by setoff against
amounts owed to the Borrower by the Lender. We understand that the Lender may
transfer this Note. The Lender or anyone who takes this Note by transfer and who
is entitled to receive payments hereunder is called the "Note Holder." This Note
is executed pursuant to that certain Loan Agreement dated May 20, 2002, between
Borrower and Lender (the "Loan Agreement").

2. Interest. Interest will be charged on the outstanding Principal balance until
the full amount of Principal has been paid. We understand that the interest rate
is 4.75% per annum. We will pay all of the accrued interest when the Principal
is due.

3. Repayment.

      (a) We will pay the Principal and interest due hereunder immediately upon
the occurrence of any of the following:

      (i)   a sale of the property located at the address listed above, except
            as expressly provided in the Loan Agreement;

      (ii)  the tenth anniversary from the date hereof; or

      (iii) except as provided in subsection 3(a)(i), the property located at
            the address listed above ceases to be the principal residence of the
            Borrowers.

      (b) We will pay the Principal and interest due hereunder within twelve
(12) months of the termination of the employment of the undersigned, William
McGlashan, if such termination occurs for any of the following reasons:

      (i)   the voluntary resignation of William McGlashan as chief executive
            officer ("CEO") of the Lender;

      (ii)  the Board of Directors of the Lender terminates William McGlashan
            for Cause (as defined in the First Amended and Restated Employment
            Agreement, by and between the Lender and William McGlashan, dated as
            of January 7, 2002); or

      (iii) the death of William McGlashan.
<PAGE>
      (c) All of our obligations to repay the Principal and interest hereunder
shall terminate upon the occurrence of a Change of Control (as hereinafter
defined) of the Lender that is commenced while William McGlashan is CEO of the
Lender; provided that the consideration received for such Change of Control is
greater than ten dollars ($10) per share of the common stock of the Lender. For
the purposes of this Note, "Change of Control" shall mean any of the following:

            (i) the consummation of a merger or consolidation of the Lender with
            or into another entity or any other corporate reorganization, if
            more than fifty Percent (50%) of the combined voting power of the
            continuing or surviving entity's securities outstanding immediately
            after such merger, consolidation or other reorganization is owned by
            persons who were not shareholders of the Lender immediately prior to
            such merger, consolidation or other reorganization;

            (ii) the sale, transfer or other disposition of all or substantially
            all of the Lender's assets;

            (iii) the dissolution, liquidation or winding up of the Lender; or

            (iv) any transaction as a result of which any person is the
            "beneficial owner" (as defined in Rule 13d-3 under the Securities
            Exchange Act of 1934), directly or indirectly, of securities of the
            Lender representing at least of twenty percent (20%) of the total
            voting power represented by the Lender's then outstanding voting
            securities.

For purposes of this Section 3, the term "person" shall have the same meaning as
when used in sections 13(d) and 14(d) of the Securities Exchange Act but shall
exclude: (A) trustee or other fiduciary or a subsidiary of the Lender; (B) a
corporation owned directly or indirectly by the shareholders of the Lender in
substantially the same proportions as their ownership of the common stock of the
Lender; and (C) the Lender.

A transaction shall not constitute a Change of Control if its sole purpose is to
change the state of the Lender's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Lender's securities immediately before such transactions.

If the foregoing results in forgiveness of the Loan ("Loan Forgiveness"), and if
the Loan forgiveness constitutes income under any applicable tax law, Borrowers
shall timely and fully satisfy any withholding obligations on the Loan
Forgiveness by paying the Company the required withholding amount in cash. To
the extent that Borrowers do not satisfy the withholding requirements on the
Loan Forgiveness, then the amount of actual Loan Forgiveness shall be reduced by
such unsatisfied withholding amount and the amount of such reduction shall
instead be treated as a cash bonus ("Withholding Bonus"). The Withholding Bonus,
however, shall be immediately applied to satisfy the required withholding on the
sum of the reduced Loan Forgiveness amount and the Withholding Bonus. The
Company shall pay the withholding amount to the tax authorities and report such
payment on its filings with such tax authorities.


                                       2
<PAGE>
Purely for illustrating how the Loan Forgiveness reduction provision operates,
if an event occurred which gave rise to a Loan Forgiveness and if the required
withholding amount on $1,500,000 of Loan Forgiveness is $500,000 and if
Borrowers did not satisfy any part of such withholding amount, then the actual
amount of Loan Forgiveness would be reduced to $1,000,000 and the Withholding
Bonus amount would be $500,000 and such Withholding Bonus would be immediately
applied by the Company to satisfy the total withholding obligation.

      (d) All payments made under this Section 3 and Section 5 below shall be
paid to the Lender at the address stated in Section 1 above.

4. Security. Prior to any amounts being disbursed hereunder, this Note is, and
shall be, secured by (i) the Deed of Trust with Assignment of Rents in the form
as attached to the Loan Agreement at Exhibit B, as made by the Borrower in favor
of the trustee named in the Deed of Trust, for the benefit of the Lender, and
(ii) the Pledge Agreement, by and between the Lender and the Borrower, dated as
of the date hereof.

5. Voluntary Prepayment. Any payment made at any time before it is due is a
"Prepayment" under this Note. When we choose to make a Prepayment, we will tell
the Note Holder in writing when we are doing so. We may make a Prepayment or
partial Prepayments without paying any Prepayment charge. All payments under
this Note, including any Prepayment, shall be applied first to accrued interest,
and thereafter to the outstanding principal balance hereof.

6. Loan Charges. If a law, which applies to this loan and which sets maximum
loan charges, is finally interpreted so that the interest or other loan charges
collected or to be collected in connection with this loan exceed the permitted
limits, then: (i) any such loan charge shall be reduced by the amount necessary
to reduce the charge to the permitted limit; and (ii) any sums already collected
from us which exceeded permitted limits will be refunded to us. The Note Holder
may choose to make this refund by reducing the Principal we owe under this Note
or by making a direct payment to us. If a refund reduces the Principal, the
reduction will be treated as a partial Prepayment.

7. Event of Default. Upon the occurrence of an Event of Default (as defined in
the Loan Agreement), the Principal and the interest hereunder will become
immediately due and payable. Upon such an occurrence of an Event of Default, the
Note Holder shall have the right to be reimbursed by us for all costs and
expenses incurred in enforcing this Note to the extent not prohibited by
applicable law. Those expenses include, without limitation, reasonable
attorneys' fees.

8. Giving of Notices. Unless applicable law requires a different method, any
notice that must be given to us under this Note shall be given as described in
the Loan Agreement.

9. Obligations of Persons under this Note. If more than one person signs this
Note, each person is fully and personally obligated to keep all of the promises
made in this Note, including the promise to pay the full amount owed. Any person
who is a guarantor, surety or endorser of this Note is also obligated to do
these things. Any person who takes over these obligations,


                                       3
<PAGE>
including the obligations of a guarantor, surety or endorser of this Note, is
also obligated to keep all of the promises in this Note.

10. Waivers. We and any other person who has obligations under this Note waive
the rights of presentment and notice of dishonor. "Presentment" means the right
to require the Note Holder to demand payment of amounts due. "Notice of
Dishonor" means the right to require the Note Holder to give notice to other
persons that amounts due have not been paid.

11. Lost or Destroyed Loan Documents. If this Note or the Deed of Trust is lost,
stolen, mutilated or destroyed, Borrower will deliver a new Note or Deed of
Trust to Lender on the same terms and conditions as this Note or the Deed of
Trust, with a notation of the unpaid principal in substitution of the prior Note
or Deed of Trust. Lender shall furnish to Borrower reasonable evidence that the
Note or Deed of Trust was lost, stolen, mutilated or destroyed and any indemnity
or other supporting documentation that may be reasonably required by Borrower in
connection with the replacement of this Note or the Deed of Trust.

12. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of California, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of California or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the State of California.

13. Defined Terms. All defined terms beginning with capital letters and not
defined in this Note shall have the meaning given them in the Loan Agreement.

      IN WITNESS WHEREOF, Borrower has executed this Secured Promissory Note as
of the date and year first above written.



  /s/ William McGlashan
--------------------------------------
William McGlashan



  /s/ Marie McGlashan
--------------------------------------
Marie McGlashan


                                       4
<PAGE>
RECORDING REQUESTED BY




AND WHEN RECORDED MAIL TO




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


                                  DEED OF TRUST
                 WITH ASSIGNMENT OF RENTS AS ADDITIONAL SECURITY

      This DEED OF TRUST WITH ASSIGNMENT OF RENTS AS ADDITIONAL SECURITY (this
"Deed of Trust") is made between WILLIAM MCGLASHAN and MARIE MCGLASHAN herein
collectively called TRUSTOR, whose address is __________________
_____________________, [TITLE COMPANY], a ___________________, herein called
TRUSTEE, and CRITICAL PATH, INC., a California corporation, herein called
BENEFICIARY. Trustor irrevocably grants, transfers and assigns to Trustee in
trust, with power of sale that property in ________________ County
_______________ California, described as:

                          [Property legal description]

(the "Property") together with the rents, issues and profits thereof, subject,
however, to the right, power and authority hereinafter given to and conferred
upon Beneficiary to collect and apply such rents, issues and profits.

      For the purpose of securing (1) payment of the sum of $
______________________ with interest thereon according to the terms of that
certain Secured Promissory Note of even date herewith made by Trustor, payable
to order of Beneficiary (the "Note"), and extensions or renewals thereof; (2)
the performance of each agreement of Trustor incorporated by reference or
contained herein or reciting it is so secured including, without limitation,
that certain Loan Agreement of even date herewith between Trustor and
Beneficiary (the "Loan Agreement") and that certain Pledge Agreement of even
date herewith between Trustor and Beneficiary; (3) payment of additional sums
and interest thereon that may hereafter be loaned to Trustor, or his successors
or assigns, when evidenced by a promissory note or notes reciting that they are
secured by this Deed of Trust.

      Except as provided in the Loan Agreement, if the Trustor shall convey or
alienate the Property or any part thereof or any interest therein or shall be
divested of his title in any manner or way, whether voluntary or involuntary,
any indebtedness or obligation secured hereby, irrespective of the maturity date
expressed in any note evidencing the same, including the Note, at the option of
the holder hereof and without demand or notice shall become due and payable
immediately.
<PAGE>
      To protect and maintain the security of this Deed of Trust, and with
respect to the Property, which is described above, Trustor expressly makes each
and all of the agreements, and adopts and agrees to perform and be bound by each
and all of the terms and provisions set forth below, and it is mutually agreed
that all of the terms and provisions set forth below shall inure to and bind the
parties hereto, with respect to the Property.

      A. To protect and maintain the security of this Deed of Trust, Trustor
agrees:

      1. To keep the Property in good condition and repair; not to remove or
demolish any building thereon; to complete or restore promptly and in good and
workmanlike manner any building that may be constructed, damaged or destroyed
thereon and to pay when due all claims for labor performed and materials
furnished therefor; to comply with all laws affecting the Property or requiring
any alterations or improvements to be made thereon; not to commit or permit
waste thereof; not to commit, suffer, or permit any act upon the Property in
violation of law; and do all other acts that from the character or use of the
Property may be reasonably necessary.

      2. To promptly perform and observe, or cause to be performed or observed,
all of the terms, covenants and conditions of all instruments of record
affecting the Property, and to do or to cause to be done all things necessary to
preserve intact and unimpaired any and all easements, appurtenances and other
interests and rights benefitting or constituting any portion of the Property.

      3. To provide, maintain and deliver to Beneficiary fire insurance and such
other insurance (including, without limitation, flood or other hazard insurance
and Comprehensive General Liability insurance) as Beneficiary may reasonably
require from time to time, satisfactory to and with loss payable to Beneficiary.
The amount collected under any fire or other insurance policy may be applied by
Beneficiary upon any indebtedness secured hereby and in such order as
Beneficiary may determine, or at option of Beneficiary the entire amount so
collected or any part thereof may be released to Trustor. Such application or
release shall not cure or waive any default or notice of default hereunder or
invalidate any act done pursuant to such notice.

      4. To appear in and defend any action or proceeding purporting to affect
the security hereof or the rights or powers of Beneficiary or Trustee; and to
pay all costs and expenses, including cost of evidence of title and attorney's
fees in a reasonable sum, in any action or proceeding in which Beneficiary or
Trustee may appear, and in any suit brought by Beneficiary to foreclose this
Deed of Trust.

      5. To pay: at least ten days before delinquency all taxes and assessments
affecting the Property, including assessments on appurtenant water stock (and,
at Beneficiary's option, to provide to Beneficiary evidence of such payment);
when due, all encumbrances, charges and liens, with interest, on the Property or
any part thereof, which appear to be prior or superior hereto; all costs, fees
and expenses of this Trust.

      6. To pay immediately and without demand all sums expended by Beneficiary
or Trustee pursuant to the provisions hereof, with interest from date of
expenditure at the maximum


                                     - 2 -
<PAGE>
rate allowed by law in effect at the date hereof, and to pay for any statement
provided for by law in effect at the date hereof regarding the obligation
secured hereby, any amount demanded by the Beneficiary not to exceed the maximum
allowed by law at the time when said statement is demanded.

      Should Trustor fail to make any payment or to do any act as herein
provided, then Beneficiary or Trustee, but without obligation so to do and
without notice to or demand upon Trustor and without releasing Trustor from any
obligation hereof, shall have the right to make or do the same in such manner
and to such extent as either may deem necessary to protect the security hereof,
Beneficiary or Trustee being authorized to enter upon the Property for such
purposes; appear in and defend any action or proceeding purporting to affect the
security hereof or the rights or powers of Beneficiary or Trustee; pay,
purchase, contest or compromise any encumbrance, charge, or lien which in the
judgement of either appears to be prior or superior hereto; and, in exercising
any such powers, pay necessary expenses, employ counsel and pay his or her
reasonable fees.

      7. To exonerate, protect, indemnify and defend Beneficiary and Trustee
from, and save them harmless against, any and all liability, reasonable expenses
(including attorneys' fees and disbursements), or damage of any kind or nature,
and from any suits, claims and demands, or on account of any matter or thing,
whether in suit or not, arising from (i) the ownership or use of the Property;
(ii) any failure of the Property to be in compliance with any applicable laws;
or (iii) Borrower's breach of any of Borrower's covenants and obligations
contained in the Note or this Deed of Trust.

      Trustor's foregoing obligations under this Paragraph 7 shall not be
affected by the absence or unavailability of insurance covering the same or by
the failure or refusal by any insurance carrier to perform any obligation on its
part under any such policy of covering insurance. If any claim, action or
proceeding is made or brought against Trustee or Beneficiary that is subject to
the indemnity set forth in this Paragraph 7, Trustor shall resist or defend
against the same, if necessary, in the name of Trustee or Beneficiary, by
attorneys for Trustor's insurance carrier (if the same is covered by insurance)
or otherwise by attorneys approved by Beneficiary. Notwithstanding the
foregoing, Trustee and Beneficiary, in their discretion, have the right to
engage their own attorneys to resist or defend, or assist therein, and Trustor
shall pay, or, on demand, shall reimburse Trustee or Beneficiary for the payment
of, the reasonable fees and disbursements of said attorneys.

      B. It is mutually agreed that:

      1. Any award of damages in connection with any condemnation for public use
of or injury to the Property or any part thereof is hereby assigned and shall be
paid to Beneficiary who shall have the right to apply or release such moneys
received by him or her in the same manner and with the same effect as above
provided for regarding disposition of proceeds of fire or other insurance.

      2. By accepting payment of any sum secured hereby after its due date,
Beneficiary does not waive his or her right either to require prompt payment
when due of all other sums so secured or to declare default for failure so to
pay.


                                     - 3 -
<PAGE>
      3. At any time or from time to time, without liability therefor and
without notice, upon written request of Beneficiary and presentation of this
Deed of Trust and the Note for endorsement, and without affecting the personal
liability of any person for payment of the indebtedness secured hereby, Trustee
has the right to: reconvey any part of the Property; consent to the making of
any map or plat thereof; join in granting any easement thereon; or join in any
extension agreement or any agreement subordinating the lien or charge hereof.

      4. Upon written request of Beneficiary stating that all sums secured
hereby have been paid, and upon surrender of this Deed of Trust and the Note
(and any other note that is secured by the Deed of Trust) to Trustee for
cancellation and retention or other disposition as Trustee in its sole
discretion may choose and upon payment of its fees, Trustee shall reconvey,
without warranty, the property then held hereunder. The recitals in such
reconveyance of any matters or facts shall be conclusive proof of the
truthfulness thereof. The Grantee in such reconveyance may be described as "the
person or persons legally entitled thereto."

      5. All sums payable by Trustor under this Deed of Trust shall be paid
without notice, demand, counterclaim, setoff, deduction or defense and without
abatement, suspension, deferment, diminution or reduction, and the obligations
and liabilities of Trustor hereunder shall in no way be released, discharged or
otherwise affected (except as otherwise provided by this Deed of Trust) by
reason of: (i) any casualty or condemnation or similar taking of the Property or
any part thereof; (ii) any restriction or prevention of or interference with any
use of the Property or any part thereof; (iii) any title defect or encumbrance
or any eviction from the Property or any part thereof by title paramount or
otherwise; (iv) insolvency, reorganization, composition, adjustment,
dissolution, liquidation or other like proceeding relating to Beneficiary, or
any action taken with respect to this Deed of Trust by any trustee or receiver
of Beneficiary, or by any court, in any such proceeding; all of items (i)
through (iv) above applying whether or not Trustor shall have notice or
knowledge of any of the same. Except as expressly provided herein, Trustor
waives all rights now or hereafter conferred by statute or otherwise to any
abatement, suspension, deferment, diminution or reduction of any obligations
secured hereby.

      6. As additional security, Trustor hereby gives to and confers upon
Beneficiary the right, power and authority, during the continuance of these
Trusts, to collect the rents, issues and profits of the Property, reserving unto
Trustor the right, prior to any Event of Default, as defined in the Loan
Agreement (an "Event of Default"), to collect and retain such rents, issues and
profits as they become due and payable. Upon any Event of Default, Beneficiary
has the right to, at any time without notice, either in person, by agent, or by
a receiver to be appointed by a court, and without regard to the adequacy of any
security for the indebtedness hereby secured, enter upon and take possession of
the Property or any part thereof, in his or her own name sue for or otherwise
collect such rents, issues, and profits, including those past due and unpaid,
and apply the same, less costs and expenses of operation and collection,
including reasonable attorney's fees, upon any indebtedness secured hereby, and
in such order as Beneficiary may determine. The entering upon and taking
possession of the Property , the collection of such rents, issues and profits
and the application thereof as aforesaid, shall not cure or waive any Event of
Default or notice of such Event of Default hereunder or invalidate any act done
pursuant to such notice.

      7. Upon any Event of Default, Beneficiary shall have the right to declare
all sums secured hereby immediately due and payable by delivery to Trustee of
written declaration of


                                     - 4 -
<PAGE>
default and demand for sale and of written notice of default and of election to
cause to be sold the Property, which notice Trustee shall cause to be filed for
record. Beneficiary also shall deposit with Trustee this Deed of Trust, the Note
and all documents evidencing expenditures secured hereby.

      After the lapse of such time as may then be required by law following the
recordation of said notice of default, and notice of sale having been given as
then required by law, Trustee, without demand on Trustor, shall sell the
Property at the time and place fixed by Trustee in said notice of sale, either
as a whole or in separate parcels, and in such order as it may determine, at
public auction to the highest bidder for cash in lawful money of the United
States, payable at time of sale. Trustee shall have the right to postpone sale
of all or any portion of the Property by public announcement at such time and
place of sale, and from time to time thereafter shall have the right to postpone
such sale by public announcement at the time fixed by the preceding
postponement. Trustee shall deliver to such purchaser its deed conveying the
property so sold, but without any covenant or warranty, express or implied. The
recitals in such deed of any matters or facts shall be conclusive proof of the
truthfulness thereof. Any person, including Trustor, Trustee, or Beneficiary,
may purchase at such sale.

      After deducting all costs, fees and expenses of Trustee and of this Trust,
including cost of evidence of title in connection with sale, Trustee shall apply
the proceeds of sale to payment of: all sums expended under the terms hereof,
not then repaid, with accrued interest at the amount allowed by law in effect at
the date hereof; all other sums then secured hereby; and the remainder, if any,
to the person or persons legally entitled thereto.

      8. Beneficiary, or any successor in ownership of any indebtedness secured
hereby, has the right to, from time to time, by instrument in writing,
substitute a successor or successors to any Trustee named herein or acting
hereunder, which instrument, executed by the Beneficiary and duly acknowledged
and recorded in the office of the recorder of the county or counties where the
Property is situated, shall be conclusive proof of proper substitution of such
successor Trustee or Trustees, who shall, without conveyance from the Trustee
predecessor, succeed to all its title, estate, rights, powers and duties. Said
instrument must contain the name of the original Trustor, Trustee and
Beneficiary hereunder, the book and page where this Deed of Trust is recorded
and the name and address of the new Trustee.

      9. This Deed of Trust applies to, inures to the benefit of, and binds all
parties hereto, their heirs, legatees, devisees, administrators, executors,
successors, and assigns. The term Beneficiary shall mean the owner and holder,
including pledgees of the Note secured hereby, whether or not named as
Beneficiary herein. In this Deed of Trust, whenever the context so requires, the
masculine gender includes the feminine and/or the neuter, and the singular
number includes the plural.

      10. The Trustee accepts this Trust when this Deed of Trust, duty executed
and acknowledged, is made a public record as provided by law. Trustee is not
obligated to notify any party hereto of pending sale under any other deed of
trust or of any action or proceeding in which Trustor, Beneficiary or Trustee
shall be a party unless brought by Trustee.


                                     - 5 -
<PAGE>
      11. A copy of any notice of default and any notice of sale hereunder shall
be mailed to Trustor at his address hereinbefore set forth.

      12. All waivers of rights, powers and remedies by any party hereto must be
in writing. No delay, omission or failure by Beneficiary or Trustee to exercise
any right, power or remedy to which it may be entitled by reason of any Event of
Default or default by the other party shall impair any such right, power or
remedy, nor shall such be construed as a release by Beneficiary or Trustee of
such right, power or remedy or as a waiver of or acquiescence in any such Event
of Default or other default. Any waiver by any party of any right, power or
remedy in any instance shall not constitute a waiver of the same or any other
right, power or remedy in any other instance.

      13. The parties listed above as Trustor shall each be jointly and
severally liable for each obligation of Trustor herein.

      14. This Deed of Trust shall be automatically subordinate to a deed of
trust or deeds of trust to be executed by Trustor and recorded in the county
where the Property is located to secure (a) a loan (hereinafter referred to as
the "Construction Loan") obtained for the purpose of the construction of
improvements on the Property, and (b) a loan for the difference, if any between
the Loan amount and the purchase price of the Principal Residence the ("Third
Party Purchase Money Loan", (the Construction Loan and the Third Party Purchase
Money Loan are referred to, collectively, as the "Third Party Loans") provided
that the conditions listed below are satisfied. The following are the conditions
to this subordination:

      (i) At the time of recordation of the deed of trust securing the Third
Party Loans (the "Third Party Loans Deed of Trust"), no unrescinded Notice of
Default of this Deed of Trust appear of record.

      (ii)  The total amount of the Third Party Loans shall not exceed
$6,000,000

      (iii) All funds derived from the Construction Loan shall be used only for
the construction of improvement on the Property and, to the extent permitted in
this Deed of Trust, for the payment of loan fees, interest, or charges directly
connection with the construction of improvement on the Property.

      (iv) The total amount of the Third Party Loans plus the Note and all
accrued interest thereon shall not exceed 100 percent of the anticipated value
of the Property (as determined by an independent appraisal) after completion of
the construction of improvements financed by the Construction Loan.

      (v)   The maximum loan fees, interest, or other loan charges that may
be imposed by each of the Third Party Loans are:  (a) Loan fees; 3 percent of
the principal amount: (b) Interest; 10 percent per annum; and (c) Other loan
charges:  a sum not to exceed 2 percent of the principal amount.

      (vi) The Construction Loan shall be payable in equal monthly installments
of principal and interest, or interest only, over a period of time of not less
than six months or more than ten years, with the total balance all due and
payable at the end of that period. The Third Party


                                     - 6 -
<PAGE>
Purchase Money Loan shall be payable in equal monthly installments of principal
and interest, or interest only, over a period of time of not less than ten years
or more than thirty years, with the total balance all due and payable at the end
of that period.

      (vii) Additional payments may be made, without penalty, on the principal
and accrued interest of the Third Party Loans at any time prior to maturity.

      (viii) The Third Party Loans shall each be made by a federal or state
bank, life insurance company, federal or state savings and loan association, or
other institutional lender regulated by federal or state authority.

      (ix) If the Construction Loan does not automatically convert to a
permanent loan or if it otherwise terminates within the allowable term of loan,
as such term is described in Subsection 14(vi) this Deed of Trust shall
automatically subordinate to a deed of trust, to be executed by Trustor and
recorded in the county where the Property is located, to secure a "take-out" or
other permanent loan to replace the Construction Loan and Construction Loan Deed
of Trust (hereinafter referred to as the "Permanent Loan"), provided that the
Permanent Loan otherwise satisfies the foregoing conditions to subordination.

      (x) Within 10 days after written request therefor from Trustor,
Beneficiary shall execute and record a separate agreement of subordination, in
recordable form, in favor of the Third Party Loan to which this Deed of Trust is
subordinated, and deliver the subordination agreement to the Third Party Loan
lender or lender's title company designated by Trustor. Within 10 days after
receipt of a written request therefor from Trustor, Beneficiary shall execute a
separate agreement of subordination, in recordable form, in favor of the
Permanent Loan to which this Deed of Trust is subordinated, and deliver the
subordination agreement to the Permanent Loan lender or lender's title company
designated by Trustor.

      IN WITNESS WHEROF, the undersigned has caused this Deed of Trust to be
executed and delivered under seal as of the day and year first above written.



                                         ----------------------------------
                                         WILLIAM MCGLASHAN



                                         ----------------------------------
                                         MARIE MCGLASHAN



                                     - 7 -
<PAGE>
                 CERTIFICATE OF ACKNOWLEDGEMENT OF NOTARY PUBLIC

STATE OF CALIFORNIA,   )
                       )
COUNTY OF              )

      On _________________________ before me, __________________________,
personally appeared ________________________________ personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s), acted, executed the instrument.

      WHEREAS my hand and official seal.

                                                  -----------------------------
                                                  (Signature of Notary Public)





                 CERTIFICATE OF ACKNOWLEDGEMENT OF NOTARY PUBLIC

STATE OF CALIFORNIA,   )
                       )
COUNTY OF              )


      On _________________________ before me, __________________________,
personally appeared ________________________________ personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s), acted, executed the instrument.

      WHEREAS my hand and official seal.

                                                  ----------------------------
                                                  (Signature of Notary Public)


                                     - 8 -



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>5
<FILENAME>f83504exv10w3.txt
<DESCRIPTION>EXHIBIT 10.3
<TEXT>
<PAGE>
                                                                    Exhibit 10.3


        CRITICAL PATH, INC. AMENDED AND RESTATED 1998 STOCK OPTION PLAN
               NOTICE OF EXERCISE OF STOCK OPTION (EARLY EXERCISE)


OPTIONEE INFORMATION:

Name:    William McGlashan, Jr.              Social Security Number:

Address: _______________________________     Phone Number (Work): ___________

         _______________________________     Phone Number (Home): ___________



OPTION INFORMATION:

Date of Grant:  May 8, 2002
                                             Type of Option: [X] Nonstatutory or
Total number of shares of Common Stock of                    [ ] Incentive
Critical Path, Inc. (the "Company")
covered by option: 1,000,000 shares          Exercise Price per Share: $1.74



EXERCISE INFORMATION:

Number of shares of Common Stock of the Company for which option is being
exercised now: 1,000,000.  (These shares are referred to below as the
"Purchased Shares.")

Total Exercise Price for the Purchased Shares:  $1,740,000.

Form of payment enclosed [CHECK ALL THAT APPLY]:

[ ] Check for $________,  [ ] Certificate(s) for _________ shares of the Common
    made payable to           Stock of the Company that I have owned for at
    "Critical Path, Inc."     least six months or have purchased in the open
                              market. (These shares will be valued as of the
                              date when this notice is received by the Company.)

[X] Full-recourse         [ ] Attestation Form covering _________ shares of the
    promissory note for       Common Stock of the Company. (These shares will be
    $1,740,000, payable       valued as of the date this notice is received by
    to "Critical Path,        the Company.)
    Inc."

Name(s) in which the Purchased Shares should be registered [YOU MUST CHECK ONE]:

[ ] In my name only                            My spouse's name (if applicable):

[ ] In the names of my spouse and myself as
    community property

[ ] In the names of my spouse and myself as    _________________________________
    joint tenants with the right of
    survivorship

The certificate for the Purchased         ______________________________________
Shares should be sent to the following
address:                                  ______________________________________

                                          ______________________________________


<PAGE>
ACKNOWLEDGMENTS:

1. I understand that all sales of Purchased Shares are subject to compliance
   with the Company's policy on securities trades and the Restrictions on Resale
   provision of the Option Agreement. I also understand that the Purchased
   Shares and any proceeds from the sale of Purchased Shares may be subject to
   Forfeiture pursuant to the terms of the Option Agreement.

2. I hereby acknowledge that I received and read a copy of the prospectus
   describing the Company's AMENDED AND RESTATED 1998 STOCK OPTION PLAN and the
   tax consequences of an exercise.

3. In the case of a nonstatutory option, I understand that I must recognize
   ordinary income equal to the spread between the fair market value of the
   Purchased Shares on the date of exercise and the exercise price. I further
   understand that I am required to pay withholding taxes at the time of
   exercising a nonstatutory option.

4. I acknowledge that the Purchased Shares may remain subject to the Company's
   right of repurchase at the exercise price in accordance with the applicable
   Option Agreement. I acknowledge that I am acquiring the Purchased Shares
   subject to all other terms of the Option Agreement.

5. I acknowledge that I have received information regarding the federal income
   tax consequences of an option exercise and the tax election under section
   83(b) of the Internal Revenue Code. In the event that I choose to make a
   section 83(b) election, I acknowledge that it is my responsibility--and not
   the Company's responsibility--to file the election in a timely manner, even
   if I ask the Company or its agents to make the filing on my behalf. I
   acknowledge that the Company has encouraged me to consult my own adviser to
   determine the tax consequences of acquiring the Purchased Shares at this
   time.

SIGNATURE:

/s/ William McGlashan     May 8, 2002
---------------------

<PAGE>
                             SECTION 83(b) ELECTION

This statement is made under Section 83(b) of the Internal Revenue Code of 1986,
as amended, pursuant to Treasury Regulations Section 1.83-2.

      (1)   The taxpayer who performed the services is:

            Name:     William McGlashan, Jr.

            Address:  ______________________________________
                      ______________________________________

            Social Security No.:

      (2)   The property with respect to which the election is made is 1,000,000
            shares of the common stock of Critical Path, Inc.

      (3)   The property was transferred on May 8, 2002.

      (4)   The taxable year for which the election is made is the calendar year
            2002.

      (5)   The property is subject to a repurchase right pursuant to which the
            issuer has the right to acquire the property at the original
            purchase price if for any reason taxpayer's service with the issuer
            is terminated. The issuer's repurchase right lapses in a series of
            installments over a 3-year period ending on May 8, 2005.

      (6)   The fair market value of such property at the time of transfer
            (determined without regard to any restriction other than a
            restriction which by its terms will never lapse) is $1.74 per share.

      (7)   The amount paid for such property is $1.74 per share.

      (8)   A copy of this statement was furnished to Critical Path, Inc. for
            whom taxpayer rendered the services underlying the transfer of such
            property.

      (9)   This statement is executed on May 8, 2002.



                                          /s/ William McGlashan
______________________________________    ______________________________________
Signature of Spouse (if any)              Signature of Taxpayer

THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE CENTER WHERE THE
OPTIONEE FILES HIS OR HER FEDERAL INCOME TAX RETURNS AND MUST BE FILED WITHIN 30
DAYS AFTER THE DATE OF PURCHASE. THIS FILING SHOULD BE MADE BY REGISTERED OR
CERTIFIED MAIL, RETURN RECEIPT REQUESTED. THE OPTIONEE MUST RETAIN TWO COPIES OF
THE COMPLETED FORM FOR FILING WITH HIS OR HER FEDERAL AND STATE TAX RETURNS FOR
THE CURRENT TAX YEAR AND AN ADDITIONAL COPY FOR HIS OR HER RECORDS.



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.4
<SEQUENCE>6
<FILENAME>f83504exv10w4.txt
<DESCRIPTION>EXHIBIT 10.4
<TEXT>
<PAGE>
                                                                    Exhibit 10.4

                                PROMISSORY NOTE

$1,740,000                                                           May 7, 2002
                                                       San Francisco, California

FOR VALUE RECEIVED, the undersigned Borrower promises to pay to Critical Path,
Inc. (the "Company"), at its principal offices at 350 The Embarcadero, San
Francisco, CA 94105-1204, the principal sum of One Million Seven Hundred Forty
Thousand Dollars ($1,740,000), together with interest from the date of this Note
on the unpaid principal balance upon the terms and conditions specified below.
Borrower is using this sum of money to exercise an option granted on May 8, 2002
to purchase 1,000,000 shares of Company common stock (the "Shares") and is
simultaneously pledging the Shares as collateral.

            1.    Principal and Interest.  The principal balance of this Note
together with interest accrued and unpaid to date shall be due and payable
five (5) years from the date of this Note.

            2.    Rate of Interest. No interest shall accrue under the Note
until Borrower has vested in one or more of the Shares. On the first date that
any of the Shares vest, Interest shall begin to accrue under the Note on the
applicable portion of the unpaid principal balance at a rate equal to the rate
of interest that would be charged Borrower by XYZ Bank if Borrower were to
borrow on margin on the terms available through his account with XYZ Bank (the
"Reference Rate"). The interest rate will thereafter adjust to the Reference
Rate then in effect on the first day of each calendar quarter beginning at least
90 days from the first vesting date applicable to the Shares and monthly
thereafter until the Note has been paid in full. The applicable portion of the
principal that shall bear interest shall equal the portion of the principal that
represents the purchase price, calculated at $1.74 per share, for the number of
Shares that are vested as of the monthly interest adjustment date. As vested
Shares are released from collateral, they shall reduce the number of Shares
treated as vested for purposes of the foregoing sentence.

            3.    Prepayment.  Prepayment of principal and interest may be
made at any time without penalty.

            4.    Events of Acceleration.  The entire unpaid principal sum
and unpaid interest of this Note shall become immediately due and payable
upon one or more of the following events:

                  A.    the date that Borrower shall cease to be employed by
Critical Path, Inc.;

                  B.    the failure of the Borrower to pay when due the
principal balance and accrued interest on this Note and the continuation of
such default for more than thirty (30) days; or

                  C.    the insolvency of the Borrower, the commission of an act
of bankruptcy by the Borrower, the execution by the Borrower of a general
assignment for the benefit of creditors, the filing by or against the Borrower
of a petition in bankruptcy or a petition


<PAGE>

for relief under the provisions of the federal bankruptcy act or another state
or federal law for the relief of debtors and the continuation of such petition
without dismissal for a period of ninety (90) days or more; or

                  D.    the occurrence of a material event of default under
the Stock Pledge Agreement securing this Note or any obligation secured
thereby.

            5.    Security. Payment of this Note shall be secured by a Stock
Pledge Agreement to be executed by Borrower and covering the Shares. Borrower,
however, shall remain personally liable for payment of this Note, and assets of
the Borrower, in addition to the collateral under the Stock Pledge Agreement,
may be applied to the satisfaction of the Borrower's obligations hereunder.

            6.    Collection.  If action is instituted to collect this Note,
the Borrower promises to pay all reasonable costs and expenses (including
reasonable attorney fees) incurred in connection with such action.

            7.    Waiver. No previous waiver and no failure or delay by the
Company or Borrower in acting with respect to the terms of this Note or the
Stock Pledge Agreement shall constitute a waiver of any breach, default, or
failure of condition under this Note, the Stock Pledge Agreement, or the
obligations secured thereby. A waiver of any term of this Note, the Stock Pledge
Agreement, or of any of the obligations secured thereby must be made in writing
and signed by a duly authorized officer of the Company and shall be limited to
the express terms of such waiver.

      Borrower hereby expressly waives presentment and demand for payment at
such time as any payments are due under this Note.

            8.    Conflicting Agreements.  In the event of any
inconsistencies between the terms of this Note and the terms of any other
document related to the loan evidenced by the Note, the terms of this Note
shall prevail.

            9.    Governing Law.  This Note shall be construed in accordance
with the laws of the State of California.


                                                  /s/ William McGlashan
                                        ----------------------------------------
                                        Signature of Borrower: William McGlashan
                                        Address:    350 The Embarcadero
                                                    San Francisco, CA 94105-1204



                                       2

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>7
<FILENAME>f83504exv10w5.txt
<DESCRIPTION>EXHIBIT 10.5
<TEXT>
<PAGE>
                                                                    Exhibit 10.5


                             STOCK PLEDGE AGREEMENT

            In order to secure payment of that certain May 8, 2002 promissory
note (the "Note") payable to Critical Path, Inc., a California corporation (the
"Company") having its corporate offices at 350 The Embarcadero, San Francisco,
CA 94105-1204, in the principal amount of One Million Seven Hundred Forty
Thousand Dollars ($1,740,000), which Note the Borrower delivered to exercise an
option to purchase shares of Company common stock, the Borrower hereby grants
the Company a security interest in, and assigns, transfers to and pledges with
the Company, the following securities and other property:

                  (i)   the 1,000,000 shares of Company common stock ("Common
Stock") delivered to and deposited with the Company as collateral for the
Note; and

                  (ii)  any and all new, additional or different securities or
other property subsequently distributed with respect to the shares identified in
subparagraph (i) that are to be delivered to and deposited with the Company
pursuant to the requirements of paragraph 3 of this Agreement; and

                  (iii) any and all other property and money that is delivered
to or comes into the possession of the Company pursuant to the terms and
provisions of this Agreement; and

                  (iv)  the proceeds of any sale, exchange or disposition of the
property and securities described in subparagraphs (i), (ii) or (iii) above.

            All securities, property and money to be assigned to, transferred to
and pledged with the Company shall be herein referred to as the "Collateral" and
shall be accompanied by one or more stock power assignments properly endorsed by
the Borrower. The Company shall hold the Collateral in accordance with the
following terms and provisions:

            1.    Warranties. The Borrower hereby warrants that the Borrower is
the owner of the Collateral and has the right to pledge the Collateral and that
the Collateral is free from all liens, advance claims and other security
interests (other than those created hereby).

            2.    Rights and Powers.  The Company may, without obligation to
do so, exercise one or more of the following rights and powers with respect
to the Collateral:

                  (a)   accept in its discretion, but subject to the applicable
limitations of paragraphs 7(a), (c) and (d), other property of the Borrower in
exchange for all or part of the Collateral and release Collateral to the
Borrower to the extent necessary to effect such exchange, and in such event the
money, property or securities received in the exchange shall be held by the
Company as substitute security for the Note and all other indebtedness secured
hereunder;

                  (b)   perform such acts as are necessary to preserve and
protect the Collateral and the rights, powers and remedies granted with respect
to such Collateral by this Agreement; and



                                       1
<PAGE>
                  (c)   transfer record ownership of the Collateral to the
Company or its nominee and receive, endorse and give receipt for, or collect by
legal proceedings or otherwise, dividends or other distributions made or paid
with respect to the Collateral, provided and only if there exists at the time an
outstanding event of default under paragraph 8 of this Agreement.

            Any action by the Company pursuant to the provisions of this
paragraph 2 may be taken without notice to the Borrower. Expenses reasonably
incurred in connection with such action shall be payable by the Borrower and
form part of the indebtedness secured hereunder as provided in paragraph 9.

            So long as there exists no event of default under paragraph 8 of
this Agreement, the Borrower may exercise all shareholder voting rights and be
entitled to receive any and all regular cash dividends paid on the Collateral.
Accordingly, until such time as an event of default occurs under this Agreement,
all proxy statements and other shareholder materials pertaining to the
Collateral shall be delivered to the Borrower at the address indicated below.

            Any cash sums that the Company may receive in the exercise of its
rights and powers under paragraph 2(b) above shall be applied to the payment of
the Note and any other indebtedness secured hereunder, in such order of
application as the Company deems appropriate. Any remaining cash shall be paid
over to the Borrower.

            3.    Duty to Deliver. Any new, additional or different securities
that may now or hereafter become distributable with respect to the Collateral by
reason of (i) any stock dividend, stock split or reclassification of the capital
stock of the Company, or (ii) any merger, consolidation or other reorganization
affecting the capital structure of the Company, shall, upon receipt by the
Borrower, be promptly delivered to and deposited with the Company as part of the
Collateral hereunder. Such securities shall be accompanied by one or more
properly-endorsed stock power assignments.

            4.    Care of Collateral. The Company shall exercise reasonable care
in the custody and preservation of the Collateral, but shall have no obligation
to initiate any action with respect to, or otherwise inform the Borrower of, any
conversion, call, exchange right, preemptive right, subscription right, purchase
offer or other right or privilege relating to or affecting the Collateral;
provided, however, that the Company will notify the Borrower of any such rights
of the Borrower to protect against adverse claims or to protect the Collateral
against the possibility of a decline in market value. The Company shall not be
obligated to take any action with respect to the Collateral requested by the
Borrower unless the request is made in writing and the Company determines that
the requested action will not unreasonably jeopardize the value of the
Collateral as security for the note and other indebtedness secured hereunder.

            The Company may at any time release and deliver all or part of the
Collateral to the Borrower, and the receipt thereof by the Borrower shall
constitute a complete and full acquittance for the Collateral so released and
delivered. The Company shall accordingly be discharged from any further
liability or responsibility for the Collateral, and the released Collateral
shall no longer be subject to the provisions of this Agreement. However, any and
all



                                       2
<PAGE>
releases of the Collateral shall be effected in compliance with the applicable
limitations of paragraphs 7(a) and 7(c).

            5.    Payment of Taxes and Other Charges. The Borrower shall pay,
prior to the delinquency date, all taxes, liens, assessments and other charges
against the Collateral, and in the event of the Borrower's failure to do so, the
Company may at its election pay any or all of such taxes and charges without
contesting the validity or legality thereof. The payments so made shall become
part of the indebtedness secured hereunder and until paid shall bear interest at
the minimum per annum rate, compounded annually, required to avoid the
imputation of interest income to the Company and compensation income to the
Borrower under the federal tax laws.

            6.    Transfer of Collateral. In connection with the transfer or
assignment of the note (whether by negotiation, discount or otherwise), the
Company may transfer all or any part of the Collateral, and the transferee shall
thereupon succeed to all the rights, powers and remedies granted the Company
hereunder with respect to the Collateral so transferred. Upon such transfer, the
Company shall be fully discharged from all liability and responsibility for the
transferred Collateral.

            7.    Release of Collateral. Provided (i) all indebtedness secured
hereunder (other than payments not yet due and payable under the Note) shall at
the time have been paid in full or cancelled and (ii) there does not otherwise
exist any event of default under paragraph 8, the pledged shares of Common
Stock, together with any additional Collateral that may hereafter be pledged and
deposited hereunder, shall be released from pledge and returned to the Borrower
in accordance with the following provisions:

                  (a)   Upon payment or prepayment of principal under the Note,
together with payment of all accrued interest to date, one or more shares of
Common Stock held as Collateral hereunder shall (subject to the applicable
limitations of paragraphs 7(c) and (d) below) be released to the Borrower within
three (3) days after such payment or prepayment. The number of shares to be so
released shall be equal to the number obtained by multiplying (i) the total
number of shares of Common Stock held under this Agreement at the time of the
payment or prepayment, by (ii) a fraction of the numerator of which shall be the
amount of the principal paid or prepaid and the denominator of which shall be
the unpaid principal balance of the Note immediately prior to such payment or
prepayment. In no event, however, shall any fractional shares be released. In
addition, one or more shares of Common Stock held as Collateral hereunder shall
(subject to the applicable limitations of paragraphs 7(c) and (d) below) be
released to a stock broker designated in writing by the Borrower and acceptable
to the Company for the sole purpose of effecting an immediate sale of the
released shares and provided that such stock broker agrees to forward any
proceeds (up to the balance of principal and interest due under the Note)
directly to the Company to be used to satisfy the Note.

                  (b)   Any additional Collateral that may hereafter be pledged
and deposited with the Company (pursuant to the requirements of paragraph 3)
with respect to the shares of Common Stock pledged hereunder shall be released
at the same time the particular shares of Common Stock to which the additional
Collateral relates are to be released in accordance with the applicable
provisions of paragraph 7(a). Under no circumstances, however,



                                       3
<PAGE>
shall any shares of Common Stock or any other Collateral be released if
previously applied to the payment of any indebtedness secured hereunder.

                  (c)   In no event, however, shall any shares of Common Stock
be released pursuant to the provisions of paragraphs 7(a) or 7(b) if, and to the
extent, the fair market value of the Common Stock and all other Collateral that
would otherwise remain in pledge hereunder after such release were affected
would be less than the unpaid balance of the Note (principal and accrued
interest).

                  (d)   In the event the securities constituting the Collateral
become "margin securities" (within the meaning of Regulation U of the Federal
Reserve Board), then the value of the Collateral securing the note shall not be
less than fifty percent (50%) of the current market value of such securities,
except to the extent the Plan Lender rules permit an exemption from the "maximum
loan value" rules of Regulation U. Accordingly, the number of shares to be
released pursuant to paragraph 7(a) or (b) shall be reduced to the extent
necessary to comply with Regulation U.

            8.    Events of Default.  The occurrence of one or more of the
following events shall constitute an event of default under this agreement:

                  (a)   the failure of the Borrower to pay the principal and
accrued interest when due under the Note;

                  (b)   the failure of the Borrower to perform a material
obligation imposed upon the Borrower by reason of this agreement; or

                  (c)   the breach of any warranty of the Borrower contained
in this agreement.

            Upon the occurrence of any such event of default, the Company may,
at its election, declare the Note and all other indebtedness secured hereunder
to become immediately due and payable and may exercise any or all of the rights
and remedies granted to a secured party under the provisions of the California
Uniform Commercial Code (as now or hereafter in effect), including (without
limitation) the power to dispose of the Collateral by public or private sale or
to accept the Collateral in full payment of the Note and all other indebtedness
secured hereunder.

            Any proceeds realized from the disposition of the Collateral
pursuant to the foregoing power of sale shall be applied first to the payment of
reasonable expenses incurred by the Company in connection with the disposition,
then to the payment of the Note and finally to any other indebtedness secured
hereunder. Any surplus proceeds shall be paid over to the Borrower. However, in
the event such proceeds prove insufficient to satisfy all obligations of the
Borrower under the Note, than the Borrower shall remain personally liable for
the resulting deficiency.

            9.    Other Remedies. The rights, powers and remedies granted to the
Company and Borrower pursuant to the provisions of this agreement shall be in
addition to all rights, powers and remedies granted to the Company and Borrower
under any statute or rule of



                                       4
<PAGE>
law. Any forbearance, failure or delay by the Company or Borrower in exercising
any right, power or remedy under this agreement shall not be deemed to be a
waiver of such right, power or remedy. Any single or partial exercise of any
right, power or remedy under this agreement shall not preclude the further
exercise thereof, and every right, power and remedy of the Company and Borrower
under this agreement shall continue in full force and effect unless such right,
power or remedy is specifically waived by an instrument executed by the Company
or Borrower, as the case may be.

            10.   Costs and Expenses. All reasonable costs and expenses
(including reasonable attorneys fees) incurred by the Company in the exercise or
enforcement of any right, power or remedy granted it under this Agreement shall
become part of the indebtedness secured hereunder and shall constitute a
personal liability of the Borrower payable immediately upon demand and bearing
interest until paid at the Company's bank interest rate then being earned by the
Company on its deposits.

            11.   Applicable Law.  This Agreement shall be governed by and
construed in accordance with the laws of the State of California and shall be
binding upon the executors, administrators, heirs and assigns of the Borrower.

            12.   Arbitration. Any controversy between the parties hereto
involving the construction or application of any terms, covenants or conditions
of this Agreement or the Note, or any claims arising out of or relating to this
Agreement or the Note, or the breach hereof or thereof, will be submitted to and
settled by final and binding arbitration in San Francisco, California, in
accordance with the rules of the American Arbitration then in effect, and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. In the event of any arbitration under this
Agreement or the Note, the prevailing party shall be entitled to recover from
the losing party reasonable expenses, attorneys' fees, and costs incurred
therein or in the enforcement or collection of any judgment or award rendered
therein. The "prevailing party" means the party determined by the arbitrator to
have most nearly prevailed, even if such party did not prevail in all matters,
not necessarily the one in whose favor a judgment is rendered.



                                       5
<PAGE>
            13.   Severability. If any provision of this Agreement is held to be
invalid under applicable law, then such provision shall be ineffective only to
the extent of such invalidity, and neither the remainder of such provision nor
any other provisions of this Agreement shall be affected thereby.

            IN WITNESS WHEREOF, this Agreement has been executed by the Borrower
on this 8 day of May, 2002.

                                        /s/ William McGlashan
                                        ________________________________________
                                        Signature of Borrower: William McGlashan

                                        Address:    350 The Embarcadero
                                                    San Francisco, CA 94105-1204



Agreed to and Accepted by:

CRITICAL PATH, INC.


By: /s/ Michael Zukerman
    __________________________________

Title: SVP & General Counsel
      _______________________________

Dated:  May 8, 2002



                                       6

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.6
<SEQUENCE>8
<FILENAME>f83504exv10w6.txt
<DESCRIPTION>EXHIBIT 10.6
<TEXT>
<PAGE>
                                                                    Exhibit 10.6

                               CRITICAL PATH, INC.
                   AMENDED AND RESTATED 1998 STOCK OPTION PLAN

                       NONSTATUTORY STOCK OPTION AGREEMENT

Critical Path, Inc., a California corporation (the "Company"), granted an Option
on May 8, 2002 to purchase shares of its common stock (the "Shares") to the
Optionee named below. The terms and conditions of that Option grant are set
forth in this cover sheet, the attachment, the Company's 1998 Stock Option Plan
(the "Plan") and in the Optionee's employment agreement with the Company dated
August 1, 2001 as may be amended and in effect from time to time.

Date of Option Grant:   May 8, 2002
                     -----------------

Name of Optionee:       William McGlashan, Jr.
                 -------------------------------

Optionee's Social Security Number:
                                  ---------------

Number of Shares Covered by Option:       1,000,000
                                   ------------------

Exercise Price per Share:     $1.74
                         --------------

Vesting Start Date:     May 8, 2002
                   --------------------

      BY SIGNING THIS COVER SHEET, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS
DESCRIBED IN THE ATTACHED AGREEMENT AND IN THE PLAN, A COPY OF WHICH IS ALSO
ENCLOSED.

Optionee:                     /s/ William McGlashan
          ______________________________________________________________________
                                   (Signature)

Company:  ______________________________________________________________________
                                   (Signature)

Title: ________________________________________


Attachment


<PAGE>

                               CRITICAL PATH, INC.
                   AMENDED AND RESTATED 1998 STOCK OPTION PLAN

                       NONSTATUTORY STOCK OPTION AGREEMENT

NONSTATUTORY STOCK        This option is not intended to be an incentive stock
OPTION                    option under section 422 of the Internal Revenue Code
                          and will be interpreted accordingly.

VESTING                   The option is immediately exercisable. The Shares
                          under this option will vest in accordance with the
                          vesting schedule indicated below:

NUMBER OF OPTIONS         VESTING EVENT

1,000,000                 Vesting in one-third of the Shares under this option
                          on the first anniversary of the Vesting Start Date
                          listed on the cover sheet to this Agreement and
                          vesting thereafter in equal quarterly installments
                          from the first anniversary of the Vesting Start Date
                          for a period of two (2) years subject to continued
                          employment with the Company during that period and all
                          other terms and conditions as described herein. Shares
                          that are not yet vested under this Agreement are
                          referred to as Restricted Shares.

                          Your option vesting will cease in the event that your
                          employment and service as a Company director both
                          terminate for any reason. Your option vesting will
                          also cease upon your voluntary resignation of
                          employment or upon a termination for Cause (as such
                          terms are defined in your employment agreement with
                          the Company).

Repurchase Right          If your employment and service as a Company director
                          both terminate for any reason, then your Shares will
                          be automatically repurchased by the Company to the
                          extent that they have not vested before the
                          termination date and do not vest as a result of the
                          termination. This means that the Restricted Shares
                          will immediately revert to the Company.  You will
                          receive a payment for Restricted Shares that are
                          repurchased equal to the price you paid per share.
                          The Company determines when your employment or service
                          terminates for purposes of computing your vested
                          Shares and the date of repurchase.



                                       1
<PAGE>
                          In the event of a Change in Control of the Company,
                          100% of your then-unvested Option Shares (meaning 100%
                          of your unvested Option Shares that are otherwise
                          scheduled to vest on each vesting date had a Change in
                          Control not occurred) shall become vested provided
                          that you are employed by the Company on the date the
                          negotiations or communications began (as determined by
                          the Board in good faith) which lead to the Change in
                          Control.

                          For purposes of this Agreement, a "Change in Control"
                          of the Company shall be defined as the occurrence of
                          any one of the following:

                             (i)   the consummation of a merger or consolidation
                                   of the Company with or into another entity or
                                   any other corporate reorganization, if more
                                   than 50% of the combined voting power of the
                                   continuing or surviving entity's securities
                                   outstanding immediately after such merger,
                                   consolidation or other reorganization is
                                   owned by persons who were not shareholders of
                                   the Company immediately prior to such merger,
                                   consolidation or other reorganization;

                             (ii)  the sale, transfer or other disposition of
                                   all or substantially all of the Company's
                                   assets;

                             (iii) the dissolution, liquidation or winding up of
                                   the Company;

                             (iv)  any transaction as a result of which any
                                   person is the "beneficial owner" (as defined
                                   in Rule 13d-3 under the Securities Exchange
                                   Act of 1934), directly or indirectly, of
                                   securities of the Company representing at
                                   least 20% of the total voting power
                                   represented by the Company's then outstanding
                                   voting securities.

                          For purposes of this section, the term "person" shall
                          have the same meaning as when used in sections 13(d)
                          and 14(d) of the Securities Exchange Act but shall
                          exclude: (A) trustee or other fiduciary holding
                          securities under an employee benefit plan of the
                          Company or a subsidiary of the Company; (B) a
                          corporation owned directly or indirectly by the
                          shareholders of the Company in substantially the same
                          proportions as their ownership of the common stock of
                          the Company; and (C) the Company.

                          A transaction shall not constitute a Change in Control
                          if its sole purpose is to change the state of the
                          Company's incorporation or to create a holding company
                          that will be owned in substantially the same
                          proportions by the persons who held the Company's
                          securities immediately before such transactions.



                                       2
<PAGE>
TERM                      Your option will expire in any event at the close of
                          business at Company headquarters on the day before the
                          10th anniversary of the Date of Grant, as shown on the
                          cover sheet. It will expire earlier if your employment
                          and your service as a Company director terminate, as
                          described in this Agreement.

REGULAR                   If your employment and your service as a Company
TERMINATION               director terminate for any reason except Cause, death
                          or Disability, then your option will expire at the
                          close of business at Company headquarters on the 90th
                          day after your termination date.

CAUSE                     If your employment or service as a Company director
                          terminates on account of Cause, then your option will
                          expire immediately and any unvested, exercised Shares
                          shall revert to the Company pursuant to its repurchase
                          right.

DEATH                     In the event of your death during the period of your
                          employment or service as a Company director, your
                          option will expire at the close of business at Company
                          headquarters on the date six months after the date of
                          death. During that six-month period, your estate or
                          heirs may exercise your option.

DISABILITY                If your employment and service as a Company director
                          terminate because of your Disability, then your option
                          will expire at the close of business at Company
                          headquarters on the date six months after your
                          termination date.

                          "Disability" means that you are unable to engage in
                          any substantial gainful activity by reason of any
                          medically determinable physical or mental impairment.

LEAVES OF ABSENCE         For purposes of this option, your employment does not
                          terminate when you go on a bona fide leave of absence,
                          that was approved by the Company in writing, if the
                          terms of the leave provide for continued service
                          crediting, or when continued service crediting is
                          required by applicable law.  Your employment
                          terminates in any event when the approved leave ends
                          if you fail or refuse to return to active service.

                          Consistent with the terms of this Agreement and your
                          Employment Agreement, the Company determines which
                          leaves count for this purpose, and when your
                          employment terminates for all purposes under the Plan.



                                       3
<PAGE>
RESTRICTIONS ON           The Company will not permit you to exercise this
EXERCISE                  option if the issuance of Shares at that time would
                          violate any law or regulation.

NOTICE OF EXERCISE        When you wish to exercise this option, you must notify
                          the Company by filing the proper "Notice of Exercise"
                          form at the address given on the form.  Your notice
                          must specify how many Shares you wish to purchase.
                          Your notice must also specify how your Shares should
                          be registered (in your name only or in your and your
                          spouse's names as community property or as joint
                          tenants with right of survivorship).  The notice will
                          be effective when received by the Company.

                          If someone else wants to exercise this option after
                          your death, that person must prove to the Company's
                          satisfaction that he or she is entitled to do so.

FORM OF PAYMENT           When you submit your notice of exercise, you must
                          include payment of the option price for the Shares you
                          are purchasing. Payment may be made in one (or a
                          combination) of the following forms:

                          - Your personal check, a cashier's check or a money
                            order.

                          - By delivery (on a form prescribed by the Committee)
                            of an irrevocable direction to a securities broker
                            to sell vested Shares and to deliver all or part of
                            the sale proceeds to the Company in payment of the
                            aggregate Exercise Price.

                          - By delivery (on a form prescribed by the Committee)
                            of your full-recourse promissory note.

WITHHOLDING TAXES         You will not be allowed to exercise this option unless
                          you make acceptable arrangements to pay any
                          withholding or other taxes that may be due as a result
                          of the option exercise or the sale of the Shares
                          acquired upon exercise of this option.

RESTRICTIONS              By signing this Agreement, you agree not to sell any
ON RESALE                 option Shares at a time when applicable laws or
                          regulations or Company or underwriter trading policies
                          prohibit a sale.

                          You represent and agree that the Shares to be acquired
                          upon exercising this option will be acquired for
                          investment, and not with a view to the sale or
                          distribution thereof.

                          In the event that the sale of Shares under the Plan is
                          not registered under the Securities Act but an
                          exemption is available which



                                       4
<PAGE>
                          requires an investment representation or other
                          representation, you shall represent and agree at the
                          time of exercise to make such representations as are
                          deemed necessary or appropriate by the Company and its
                          counsel.

                          Prior to any Change in Control of the Company, the
                          shares acquired under this option can be sold or
                          transferred only pursuant to an SEC Rule 10b5-1
                          trading plan that is pre-approved by the Board of
                          Director's Compensation Committee.

STOCK CERTIFICATES        Your Restricted Shares will be held for you by the
                          Company. After shares have vested, a stock certificate
                          for those shares will be released to you.

83(b) ELECTION            The acquisition of the Shares may result in adverse
                          tax consequences that may be avoided or mitigated by
                          filing an election under Code Section 83(b).  Such
                          election may be filed only within 30 days after the
                          date of purchase.  The form for making the
                          Section 83(b) election is attached.  YOU SHOULD
                          CONSULT WITH YOUR TAX ADVISOR TO DETERMINE THE TAX
                          CONSEQUENCES OF ACQUIRING THE SHARES AND THE
                          ADVANTAGES AND DISADVANTAGES OF FILING THE
                          Section 83(b) ELECTION.  YOU ACKNOWLEDGE THAT IT IS
                          YOUR SOLE RESPONSIBILITY TO FILE A TIMELY ELECTION
                          UNDER SECTION 83(b).

TRANSFER OF OPTION        Prior to your death, only you may exercise this
                          option. You cannot transfer or assign this option. For
                          instance, you may not sell this option or use it as
                          security for a loan. If you attempt to do any of these
                          things, this option will immediately become invalid.
                          You may, however, dispose of this option in your will.

                          Regardless of any marital property settlement
                          agreement, the Company is not obligated to honor a
                          notice of exercise from your spouse or former spouse,
                          nor is the Company obligated to recognize such
                          individual's interest in your option in any other way.

NO RETENTION RIGHTS       Your option or this Agreement does not give you the
                          right to be retained by the Company (or any
                          subsidiaries) in any capacity. The Company (and any
                          subsidiaries) reserves the right to terminate your
                          Service at any time and for any reason.

SHAREHOLDER RIGHTS        You, or your estate or heirs, have no rights as a
                          shareholder of the Company until a certificate for
                          your option Shares has been issued. No adjustments are
                          made for dividends or other rights if the applicable
                          record date occurs before your stock certificate is
                          issued, except as described in the Plan.



                                       5
<PAGE>
ADJUSTMENTS               In the event of a stock split, a stock dividend or a
                          similar change in the Company stock, the number of
                          Shares covered by this option and the exercise price
                          per share may be adjusted pursuant to the Plan. Your
                          option shall be subject to the terms of the agreement
                          of merger, liquidation or reorganization in the event
                          the Company is subject to such corporate activity,
                          except to the extent the foregoing conflict with or
                          are in any way inconsistent with Section 8 of your
                          employment agreement.

FORFEITURE                If, at any time within one year after termination of
                          employment, you engage in either of the following:
                          (i) your commission of a felony or an act constituting
                          common law fraud, in each case having a material
                          adverse effect on the business or affairs of the
                          Company or its affiliates or stockholders; or (ii)
                          your willful or intentional breach of Company
                          confidential information obligations, in each case
                          having a material adverse effect on the business or
                          affairs of the Company or its affiliates or
                          stockholders; then (1) this option shall terminate and
                          be forfeited effective the date on which you enter
                          into such activity, unless terminated or forfeited
                          sooner by operation of another term or condition of
                          this option or the Plan, (2) any stock acquired by you
                          pursuant to the exercise of this option during the
                          Forfeiture Period (as defined below) shall be
                          forfeited, and (3) any gain realized by you from the
                          sale of stock acquired through the exercise of this
                          option during the Forfeiture Period shall be paid by
                          you to the Company.  The "Forfeiture Period" shall
                          mean the period commencing six months prior to your
                          termination of employment and ending one year from
                          your termination of employment.

RIGHT OF SET OFF          By accepting this Agreement, you consent to a
                          deduction from any amounts the Company owes you from
                          time to time, to the extent of the amounts you owe the
                          Company under the paragraph above.  If the Company
                          does not recover by means of set-off the full amount
                          you owe it, calculated as set forth above, you agree
                          to pay immediately the unpaid balance to the Company
                          upon the Company's demand.

LEGENDS                   All certificates representing the Shares issued upon
                          exercise of this option shall have endorsed thereon
                          the applicable legends.

APPLICABLE LAW            This Agreement will be interpreted and enforced under
                          the laws of the State of California.



                                       6
<PAGE>
THE PLAN AND OTHER        The text of the Plan and your employment agreement are
AGREEMENTS                incorporated in this Agreement by reference. Certain
                          capitalized terms used in this Agreement are defined
                          in the Plan or your employment agreement.

                          This Agreement, the Plan and your employment agreement
                          with the Company dated August 1, 2001, as may be
                          amended and in effect from time to time, constitute
                          the entire understanding between you and the Company
                          regarding this option. Any prior agreements,
                          commitments or negotiations concerning this option are
                          superseded.

BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF THE TERMS AND
CONDITIONS DESCRIBED ABOVE AND IN THE PLAN, EXCEPT TO THE EXTENT MODIFIED BY
YOUR EMPLOYMENT AGREEMENT AND THIS AGREEMENT.



                                       7



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>9
<FILENAME>f83504exv10w7.txt
<DESCRIPTION>EXHIBIT 10.7
<TEXT>
<PAGE>
                                                                    Exhibit 10.7


                    SEPARATION AGREEMENT AND MUTUAL RELEASE

      This Separation Agreement and Mutual Release (the "Agreement") is entered
into as of July 21, 2002 by and between Critical Path, Inc., a California
corporation (the "Company"), and David C. Hayden ("Executive") (together "the
Parties"). This Agreement is effective only if it has been executed by the
Parties and the revocation period has expired as set forth in Sections 19(c) and
(d) below (the "Effective Date").

      WHEREAS, Executive was employed by the Company as Chairman and Executive
Chairman pursuant to the terms of a letter agreement dated August 1, 2001 and as
amended on February 12, 2002 (the "Letter Agreement");

      WHEREAS, the Parties have mutually agreed (i) to terminate their
employment relationship, (ii) that Executive has voluntarily resigned from the
Company's Board of Directors (the "Board") provided that this Agreement is
executed and (iii) that they will release each other from any and all claims as
of the Effective Date; and

      WHEREAS, the Parties have mutually agreed to treat the termination of
employment as eligible for payment of the separation benefits provided under the
Letter Agreement with the following modifications: (i) Executive will forfeit
his right to receive a $2,500,000 loan from the Company to exercise his stock
options in consideration of the extension of the period within which he may
exercise his stock options, (ii) the Company will pay the separation payment
provided for under the Letter Agreement in a lump sum and (iii) if there is a
corporate transaction prior to September 30, 2003, Executive will be eligible
for additional option vesting with all of the foregoing benefits subject to
Executive's compliance with additional post-termination obligations.

      NOW, THEREFORE, in consideration of the mutual promises contained herein,
the Parties agree as follows:

      1.    TERMINATION OF EMPLOYMENT. Executive and the Company acknowledge and
agree that Executive's employment with the Company terminated by mutual
agreement effective as of the close of business on May 17, 2002 (the "SEPARATION
DATE") and that pursuant to that agreement Executive voluntarily resigned as an
employee and officer of the Company. For purposes of Executive's letter
agreement and stock options, such termination and resignation shall be deemed to
be a termination of employment by the Company without Cause. Provided this
Agreement is executed, Executive and the



                                      -1-
<PAGE>
Company further acknowledge and agree that Executive voluntarily resigned as
director of the Company as of the Separation Date.

      2.    SEPARATION BENEFITS. In consideration for the release of claims set
forth below and other obligations under this Agreement and in full satisfaction
of its obligations to Executive under the terms of the Letter Agreement, and
provided this Agreement is signed by Executive and not revoked under Section 19
herein, and further provided that Executive remains in full compliance with all
of his obligations to the Company under this Agreement, the Company agrees to
provide the separation benefits specified in Section 3 below to Executive.
Benefits previously provided to Executive shall not be subject to forfeiture
under this Section, but benefits that have not yet been provided (such as, for
example, Executive's ability to exercise his stock options in the future) and
the Company's obligations under this Agreement will be subject to cancellation
upon written notice to Executive of a material breach of Executive's obligations
or covenants followed by Executive's failure to cure such breach within 10 days
of notice. Upon written notice of such a breach, all separation benefits (and
the Company's obligations) shall be suspended pending the Company's
determination of whether Executive has cured the breach within the 10 day time
period. Except as set forth in Section 3(b), Executive acknowledges that as of
the Separation Date, Executive shall have no right, title or interest in or to
any other shares of the Company's capital stock or any other payments or
benefits under any other agreement (oral or written) or plan with the Company.

      3.    PAYMENTS AND BENEFITS.

            (a)   Consideration. As of the first day of the month following the
Effective Date, and in consideration of the release of Executive's claims
against the Company, the Company will pay to Executive a one time cash lump
payment of $350,000 after taking into account applicable income and employment
state and federal taxes (which the Company will pay) and assuming an aggregate
marginal tax rate of 45%.

            (b)   Stock Options. Executive's right to exercise all of his
Company stock options shall continue until 1:00pm PST on July 1, 2005. Any and
all such sales of the shares underlying Executive's options shall be made
pursuant to the Company-acknowledged Rule 10b5-1 trading plan that is provided
in Exhibit A to this Agreement except for any sales made in a manner consistent
with the Company's rights under Exhibits A and B. Exhibit A is a part of this
Agreement and shall be executed by Executive and will become effective only upon
the effectiveness of this Agreement. As of the Effective Date, Executive will
have a total of 6,168,000 vested options that are exercisable. Executive shall
not be



                                      -2-
<PAGE>
eligible for a loan from the Company to exercise any of his stock options
notwithstanding anything to the contrary in his Letter Agreement and/or stock
option agreements.

            (c)   Promissory Note. The Executive's promissory note (as amended
and restated on February 12, 2002) to pay the Company $1,950,000 plus interest
(the "Promissory Note") shall be amended and restated as provided in Exhibit B
(the "Second Restated Promissory Note") and such Second Restated Promissory Note
shall provide that the repayment due date will be extended until June 30, 2005,
provided, however, that prepayment of the loaned amounts shall occur upon the
exercise of the stock options as provided in the Second Restated Promissory
Note, and repayment can be accelerated by the Company upon a default (which
default conditions are specified in the Second Restated Promissory Note). The
loan, however, will not be defaulted for failure to pay interest annually or
before the expiration of the loan term. Exhibit B is a part of this Agreement
and it (and the accompanying Power of Attorney) shall be executed by Executive
and will become effective only upon the effectiveness of this Agreement.

            (d)   Benefits. The Company will directly pay for Executive's COBRA
costs through May 31, 2003. Executive will not accrue vacation time and will not
be eligible to participate in the Company's 401(k) plan, Employee Stock Purchase
Plan or any other Company benefit plan or program after the Separation Date.

            (e)   Change in Control. If there is an effective closing of a
Change in Control of the Company prior to September 30, 2003, then Executive's
remaining unvested stock options shall become immediately vested and be
exercisable until 1:00pm PST on September 30, 2003 and will be subject to the
Exhibit A Rule 10b5-1 trading plan. For purposes of this Agreement, a "Change in
Control" of the Company shall be defined as the occurrence of any one of the
following:

            (i)   The consummation of a merger or consolidation of the Company
            with or into another entity or any other corporate reorganization,
            if more than 50% of the combined voting power of the continuing or
            surviving entity's securities outstanding immediately after such
            merger, consolidation or other reorganization is owned by persons
            who were not shareholders of the Company immediately prior to such
            merger, consolidation or other reorganization;

            (ii)  The sale, transfer or other disposition of all or
            substantially all of the Company's assets;

            (iii) The dissolution, liquidation or winding up of the Company;

            (iv)  Any transaction as a result of which any person is the
            "beneficial owner" (as defined in Rule 13d-3 under the Securities
            Exchange Act of 1934), directly or indirectly, of securities of the
            Company representing at least 20% of the total voting power
            represented by the Company's then outstanding voting securities.
            For purposes of this




                                      -3-
<PAGE>

            Paragraph (iv), the term "person" shall have the same meaning as
            when used in sections 13(d) and 14(d) of the Securities Exchange Act
            of 1934 but shall exclude:

                  (A)   A trustee or other fiduciary holding securities under an
                  employee benefit plan of the Company or a subsidiary of the
                  Company;

                  (B)   A corporation owned directly or indirectly by the
                  shareholders of the Company in substantially the same
                  proportions as their ownership of the common stock of the
                  Company; and

                  (C)   The Company.

A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transactions.

            (f)   Legal Fees. The Company will pay the law firm of Bartko,
Zankel, Tarrant & Miller, Executive's legal counsel, for their legal fees
incurred in documenting this Agreement (not to exceed $50,000) provided that
such fees are reasonable and necessary and are fully documented to the Company
in itemized billing invoices and that such fees represent hourly charges for
time actually incurred at reasonable billing rates. The Company shall not pay
for any legal fees incurred after the Effective Date. The invoice(s) for such
fees must be sent to the Company within 45 days after the Effective Date. The
Company shall not withhold for any taxes for any payments made under this
Section 3(f).

      4.    CONFIDENTIAL INFORMATION. In addition to applicable law, Executive
agrees to continue to be bound by and comply with the Proprietary Information
and Inventions Agreement and the Mutual Agreement of Confidentiality that were
executed by and between Executive and the Company and these confidentiality
obligations shall survive the termination of this Agreement.

      5.    RESERVED SECTION.

      6.    CONFLICTING OBLIGATIONS. Executive certifies that Executive has no
outstanding agreement or obligation that is in conflict with any of the
provisions of this Agreement, or that would preclude Executive from complying
with the provisions hereof, and further certifies that Executive will not enter
into any such conflicting agreement.

      7.    NON-DISPARAGEMENT. Each party agrees not to make any unfavorable or
disparaging written or oral remarks about the other to third parties. However,
Executive acknowledges and agrees that the Company's non-disparagement
obligation pursuant to this Agreement shall extend solely to the actions of the
Company's current or future directors and officers and the Company employees
directly responsible for the Company's public relations and press releases
during the period of their service to




                                      -4-
<PAGE>
the Company. The Company agrees that its officers and directors will not direct
Company employees to make disparaging remarks about Executive. For purposes of
this Agreement, "Officers" are those persons meeting the definition provided
under Rule 16a-1(f) of the Securities Exchange Act of 1934 as amended.

      8.    ARBITRATION AND EQUITABLE RELIEF.

            (a)   Disputes. Except as provided in Section 8(c) below, the
Company and the Executive agree that any dispute or controversy arising under or
in conjunction with this Agreement will be settled exclusively by arbitration in
San Francisco, California. Any claim for arbitration shall be filed in writing
with the arbitrator selected by both Parties within 3 business days after either
party has notified the other in writing that it desires a dispute between them
to be settled by arbitration. In the event the Parties cannot agree on such
arbitrator within such three-day period, each party will select an arbitrator
and inform the other party in writing of such arbitrator's name and address
within two business days after the end of such three-day period and the two
arbitrators so selected will as soon thereafter as possible select a third
arbitrator; provided, however, that in the event of a failure by either party to
select an arbitrator and notify the other party of such selection within the
time period provided above, the arbitrator selected by the other party will be
the sole arbitrator of the dispute. The arbitration hearing will be held within
seven days (or as soon thereafter as possible) after the selection of the
arbitrator. Hearing procedures which will expedite the hearing may be ordered at
the arbitrator's discretion and the arbitrator may close the hearing in his or
her discretion after determining that he/she has heard sufficient evidence. The
decision of the arbitrator will be issued as expeditiously as possible and in no
event later than five business days after the hearing and the decision will be
binding upon the parties and judgment in accordance with that decision may be
entered in any court having jurisdiction therefor. Punitive damages will not be
awarded.

            (b)   Consent to Personal Jurisdiction. The arbitrator(s) will apply
California law to the merits of any dispute or claim, without deference to
conflicts of law rules. Executive hereby consents to the personal jurisdiction
of the state and federal courts located in California for any action or
proceeding arising from or relating to this Agreement or relating to any
arbitration in which the parties are participants.

            (c)   Equitable Relief. The parties may apply to any court of
competent jurisdiction for a temporary restraining order, preliminary
injunction, or other interim or conservatory relief as necessary, without breach
of this arbitration agreement and without abridgment of the powers of the
arbitrator.



                                      -5-
<PAGE>
            (d)   Acknowledgment. EXECUTIVE HAS READ AND UNDERSTANDS THIS
AGREEMENT, WHICH DISCUSSES ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING
THIS AGREEMENT, EXECUTIVE AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING
TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY,
CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF, TO BINDING
ARBITRATION, EXCEPT AS PROVIDED IN SECTION 8(c), AND THAT THIS ARBITRATION
CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO
THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE RELATIONSHIP
BETWEEN THE PARTIES.

      9.    GOVERNING LAW. This Agreement will be governed by the internal
substantive laws, but not the choice of law rules, of the State of California.

      10.   ATTORNEY'S FEES. In any action brought by one of the parties to
enforce or interpret the provisions of this Agreement, the prevailing party will
be entitled to reasonable attorney's fees, in addition to any other relief to
which that party may be entitled under this Agreement.

      11.   ASSIGNMENT. This Agreement and all rights under this Agreement will
be binding upon and inure to the benefit of and be enforceable by the Parties
hereto and their respective owners, agents, officers, shareholders, employees,
directors, attorneys, subsidiaries, parents, affiliates, successors, personal or
legal representatives, executors, administrators, heirs, distributes, devisees,
legatees, and assigns. This Agreement is personal in nature, and neither of the
Parties to this Agreement will, without the written consent of the other, assign
or transfer this Agreement or any right or obligation under this Agreement to
any other person or entity; except that the rights and obligations of the
Company under this Agreement may be assigned (without the consent of the
Executive) to an entity which becomes the successor to the Company as the result
of a merger or other corporate reorganization or sale of substantially all the
assets to a successor which continues the business of the Company or any other
subsidiary of the Company, provided, that such assignment will not relieve the
Company of its obligations hereunder.

      12.   NOTICES. For purposes of this Agreement, notices and other
communications provided for in this Agreement will be in writing and will be
delivered personally or sent by United States certified mail, return receipt
requested, postage prepaid, addressed as follows:

      If to the Executive:    David C. Hayden

                                    [______]

                                      -6-

<PAGE>
      With a copy to:         John J. Bartko, Esq.
                              Bartko, Zankel, Tarrant & Miller, Professional
                              Corporation
                              900 Front Street #300
                              San Francisco, CA 94111


      If to the Company:      Critical Path, Inc.
                              350 The Embarcadero
                              San Francisco, CA 94105-1204
                              Attn: Board of Directors

or to such other address or the attention of such other person as the recipient
party has previously furnished to the other party in writing in accordance with
this Section 12. Such notices or other communications will be effective upon
delivery or, if earlier, three days after they have been mailed as provided
above.

      13.   INTEGRATION. This Agreement, this Agreement's Exhibits (the Rule
10b5-1 Trading Plan and the Second Amended and Restated Secured Promissory
Note), the Executive's stock option agreements with the Company (as amended by
this Agreement), the Proprietary Information and Inventions Agreement and the
Mutual Agreement of Confidentiality represent the entire agreement and
understanding between the parties as to the subject matter hereof and supersedes
all prior agreements (including but not limited to the Letter Agreement and
Promissory Note) whether written or oral. Except as amended herein, the
provisions contained in the Executive's stock option agreements remain in
effect.

      14.   MODIFICATION. This Agreement may only be amended in a writing signed
by Executive and the Chief Executive Officer of the Company. No waiver,
alteration, or modification of any of the provisions of this Agreement will be
binding unless in writing and signed by the party against whom enforcement of
the change or modification is sought. Failure or delay on the part of either
party hereto to enforce any right, power, or privilege hereunder will not be
deemed to constitute a waiver thereof. Additionally, a waiver by either party or
a breach of any promise hereof by the other party will not operate as or be
construed to constitute a waiver of any subsequent waiver by such other party.

      15.   RIGHT TO ADVICE OF COUNSEL. Executive acknowledges that he has had
the opportunity to fully review this Agreement and, if he so chooses, to consult
with counsel, and is fully aware of his rights and obligations under this
Agreement.



                                      -7-
<PAGE>
      16.   RELEASE OF EXECUTIVE. In exchange for Executive's promises set forth
herein, all of which are good and valuable consideration, the Company agrees to
and does hereby release and forever discharge Executive from any rights, claims,
actions and demands it has against Executive under, as a result of, or arising
out of Executive's prior employment as an employee pursuant to the Letter
Agreement, from any and all other rights, claims, actions, demands, causes of
action, obligations, attorneys' fees, costs, damages, and liabilities of
whatever kind or nature, in law or in equity that the Company may have and as of
the Separation Date (whether or not known) including but not limited to any
claims it may have under any other federal, state or local Constitution,
Statute, Ordinance and/or Regulation and/or those arising under common law
including but not limited to tort, express and/or implied contract and/or
implied contract, arising out of or, in any way, related to Executive's
employment or service as a director with the Company.

      17.   CIVIL CODE SECTION 1542. The Parties represent that they are not
aware of any claim by either of them other than the claims that are released by
this Agreement. The Parties also represent that they do not presently intend to
bring any claims on their own behalf or on behalf of any other person or entity
against any other person or entity referred to herein. Executive and the Company
acknowledge that they are familiar with the provisions of California Civil Code
Section 1542, 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.

Executive and the Company, being aware of said Code section, agree to expressly
waive any rights they may have thereunder, as well as under any other statute or
common law principles of similar effect.

      18.   EXECUTIVE'S COVENANTS.

            (a)   General. The Executive agrees that for all periods described
in this Agreement, he shall conduct himself reasonably with respect to the
Company and its employees, directors, shareholders, consultants, customers,
affiliates and agents. Executive shall also provide the Company with itemized
receipts for his business expenses incurred as of the Separation Date as soon as
practicable but in no event later than July 31, 2002.

            (b)   Reserved Section.



                                      -8-
<PAGE>
            (c)   Confidentiality of this Agreement. Executive agrees to use his
reasonable 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 "Separation Information").
Executive hereto agrees to take every reasonable precaution to prevent
disclosure of any Separation Information to third parties, except for
disclosures required by law or necessary to effectuate the terms of this
Agreement.

            (d)   Cooperation. Executive shall fully cooperate in the defense of
any action brought by any third party against the Company that relates in any
way to Executive `s acts or omissions while employed by the Company or in the
defense of any action brought by any third party relating to litigation pending
against the Company as of the Separation Date.

            (e)   Company Resources. As of the execution of this Agreement,
Executive will no longer represent that he is an officer or employee or director
of the Company. As soon as practicable following execution of this Agreement,
Executive will return all Company property to the Company including but not
limited to Confidential Information, keys, computers, cell phones, pagers,
monitors, business cards, devices, records, data, notes, reports, proposals,
lists, correspondence, specifications, drawings, blueprints, sketches,
laboratory notebooks, flow charts, materials, equipment, other documents or
property, or copies or reproductions of any aforementioned items belonging to
the Company. Executive will also no longer utilize any Company property or enter
onto any Company premises without the prior written approval of the Company's
Chief Executive Officer. Executive further agrees to have no direct contact with
Company employees (other than the Chief Executive Officer or Elece Hemple)
during normal business hours except as specifically requested in writing by the
Company's Chief Executive Officer; provided, however, that Executive shall not
be deemed to have violated this provision if the contact was initiated by the
Company employee(s).

            (f)   Non-Solicitation. Executive agrees that until September 30,
2003, he shall not either directly or indirectly solicit, induce, recruit or
encourage any of the Company's employees (other than Elece Hemple) or
consultants to terminate their relationship with the Company, or attempt to
solicit, induce, recruit, encourage any of the Company's employees (other than
Elece Hemple) or consultants to terminate their relationship with the Company,
or attempt to solicit, induce, recruit, encourage or take away employees or
consultants of the Company, either for himself or for any other person or
entity. Further, Executive shall not attempt to negatively influence any of the
Company's



                                      -9-
<PAGE>
clients or customers from purchasing Company products or services or to solicit
or influence or attempt to influence any client, customer or other person either
directly or indirectly, to direct his or its purchase of products and/or
services to any person, firm, corporation, institution or other entity in
competition with the business of the Company.

            (g)   No Further Employment. Executive understands and agrees that
he is not entitled to any further or future employment with the Company or
further or future compensation and/or payments of any kind from the Company
other than those specifically provided for under this Agreement. Executive
warrants and represents that he shall not hereafter reapply for or otherwise
seek any position of employment with the Company and he shall not institute or
participate in any claim, action, lawsuit or proceeding against the Company for
any failure to employ or re-employ him after the Effective Date.

            (h)   Breach of Agreement. Executive acknowledges that upon material
breach of any provision of this Agreement, the Company would sustain irreparable
harm from such breach, and, therefore, Executive agrees that in addition to any
other remedies which the Company may have for any material breach of this
Agreement or otherwise, the Company shall be entitled to obtain equitable relief
including specific performance, injunctions and restraining the Executive from
committing or continuing any such violation of this Agreement. Executive further
agrees that if the Company ceases such obligations as a result of the
Executive's material breach of this Agreement, Executive's waiver and release
set forth in this Agreement shall remain in full force and effect at all times
in the future.

      19.   EXECUTIVE'S RELEASE OF CLAIMS. In exchange for the Company's
promises set forth herein, all of which are good and valuable consideration,
Executive hereby releases and forever discharges the Company of and from any and
all rights, claims, actions, demands, causes of action, obligations, attorneys'
fees, costs, damages, and liabilities of whatever kind or nature, in law or in
equity, that Executive may have (whether known or not known) (except for his
claims to indemnification to the extent permitted under the Company's bylaws or
pre-existing indemnification agreements or as permitted by California law or as
may be available to Executive under the Company's directors' and officers'
liability insurance coverage) and except as provided in this Agreement and the
Executive's stock option agreements (collectively, "Claims"), accruing to him as
of the Effective Date, that he has ever had, including but not limited to Claims
based on and/or arising under Title VII of the Civil Rights



                                      -10-
<PAGE>
Act of 1964, as amended, The Americans with Disabilities Act, The Family Medical
Leave Act, The Equal Pay Act, The Employee Retirement Income Security Act, The
Fair Labor Standards Act, and/or the California Fair Employment and Housing Act;
The California Constitution, The California Government Code, The California
Labor Code, The Industrial Welfare Commission's Orders, The Securities Act of
1933, The Securities Exchange Act of 1934 and any and all other Claims he may
have under any other federal, state or local Constitution, Statute, Ordinance
and/or Regulation; and all other Claims arising under common law including but
not limited to tort, express and/or implied contract and/or quasi-contract,
arising out of or, in any way, related to Executive's previous relationship with
the Company as an employee or director. Furthermore, Executive acknowledges that
he is waiving and releasing any rights he may have under the Age Discrimination
in Employment Act of 1967 ("ADEA"), as amended, and that this waiver and release
is knowing and voluntary. Executive acknowledges that the consideration given
for this waiver and release is in addition to anything of value to which
Executive was already entitled. Executive further acknowledges that he has been
advised by this writing that:

            (a)   he should consult with an attorney prior to executing this
                  Agreement;

            (b)   he has at least twenty-one (21) days within which to consider
                  this Agreement;

            (c)   he has up to seven (7) days following the execution of this
                  Agreement by the parties to revoke the Agreement; and

            (d)   this Agreement shall not be effective until the revocation
                  period in Section 19(c) has expired.

      The Company and Executive agree that the release set forth in this Section
19 shall be and remain in effect in all respects as a complete general release
as to the matters released.

      20.   LABOR CODE SECTION 206.5. Executive agrees that the Company has paid
to Executive his accrued salary and accrued vacation as of the Separation Date
and that these payments represent all such monies due to Executive through the
Effective Date. In light of the payment by the Company of all wages due, or to
become due to Executive, California Labor Code Section 206.5 is not applicable
to the Parties hereto. That section provides in pertinent part as follows:

                  No employer shall require the execution of any release of any
                  claim or right on account of wages due, or to become due, or
                  made as an advance on wages to be earned, unless payment of
                  such wages has been made.

      21.   SEVERABILITY.  Whenever possible, each provision of this
Agreement will be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement




                                      -11-
<PAGE>
is held to be invalid, illegal or unenforceable in any respect under any
applicable law or rule in any jurisdiction, such invalidity, illegality or
unenforceability will not affect any other provision or any other jurisdiction,
but this Agreement will be reformed, construed and enforced in such jurisdiction
as if such invalid, illegal or unenforceable provision had never been contained
herein.

      22.   COUNTERPARTS.  This Agreement may be executed in counterparts,
each of which will be deemed an original, and which together will be a single
instrument.

      23.   NO REPRESENTATIONS. Each party represents that it has had the
opportunity to consult with an attorney, and has carefully read and understands
the scope and effect of the provisions of this Agreement. Neither party has
relied upon any representations or statements made by the other party hereto
which are not specifically set forth in this Agreement.

      24.   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.
Executive represents and warrants that he has the capacity to act on his own
behalf and on behalf of all who might claim through him 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.



                                      -12-
<PAGE>
      25.   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.  The
Parties acknowledge that:

            (a)   They have read this Agreement;

            (b)   They have been represented in the preparation, negotiation,
                  and execution of this Agreement by legal counsel of their own
                  choice or that they have voluntarily declined to seek such
                  counsel;

            (c)   They understand the terms and consequences of this Agreement
                  and of the releases it contains;

            (d)   They are fully aware of the legal and binding effect of this
                  Agreement.

      IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the day and year first above written.


DAVID C. HAYDEN, EXECUTIVE                CRITICAL PATH, INC.

By: /s/ David Hayden                      By: /s/ William McGlashan
    __________________________________        __________________________________

Date: July 21, 2002                       Name: ________________________________


AGREED: STOREY HAYDEN                     Title: _______________________________

By: /s/ Storey Hayden                     Date: July 21, 2002
    __________________________________



                                      -13-
<PAGE>

                                    EXHIBIT A

                            RULE 10b5-1 TRADING PLAN


<PAGE>

                                    EXHIBIT B

               SECOND AMENDED AND RESTATED SECURED PROMISSORY NOTE


<PAGE>

                            RULE 10b5-1 TRADING PLAN

      This plan to sell the common shares (the "Sales Plan") of Critical Path,
Inc. (the "Issuer"), is hereby adopted as of July 21, 2002 by and between Issuer
and David C. Hayden (the "Seller"). This Sales Plan will become effective if and
only if the Separation Agreement and Mutual Release, entered into by and between
Issuer and Seller on July 21, 2002 (the "Separation Agreement") becomes
effective (the "Effective Date").

      WHEREAS, the Seller desires to establish this Sales Plan to facilitate the
sale of Seller's shares of common stock of the Issuer (the "Stock") in
compliance with Rule 10b5-1 under the Securities Exchange Act of 1934, as
amended, (the "Exchange Act") and to achieve an orderly disposition of Seller's
shares;

      WHEREAS, as of the Effective Date, the Seller holds vested options to
purchase up to 6,168,000 shares of Stock (the "Options");

      WHEREAS, as of the Effective Date, the Seller owes the Issuer $1,950,000
plus accrued interest pursuant to a Full Recourse Second Amended and Restated
Secured Promissory Note by and between Seller and Issuer dated as of July 21,
2002 (the "Promissory Note") in which Seller reaffirmed the security interest in
the Options and underlying shares that Seller had previously granted to Issuer;

      WHEREAS, Seller desires to use the proceeds from sales effected under this
Sales Plan (and outside the Sales Plan involving Seller's shares that were
acquired pursuant to the exercise of his stock options) to help pay the amounts
due under the Promissory Note;

      WHEREAS, the Stock is principally traded on the NASDAQ national market
system (the "Exchange");

      WHEREAS, Seller will select a qualified broker ("Broker") that will
perform the obligations of Broker under this Sales Plan and that such Broker
shall execute a counterpart signature to this Sales Plan and become a party to
this Sales Plan but that the failure of Seller to timely obtain a Broker shall
not invalidate this Sales Plan or the obligations of Seller under this Sales
Plan;

      NOW, THEREFORE, the Seller hereby agrees to the following:


<PAGE>

 1. PLANNED SALES FOR SELLER'S EMPLOYEE STOCK OPTION PLAN SHARES

            Seller shall effect a sale of 100,000 shares of Stock acquired
            pursuant to the exercise of the Options after the Effective Date
            through Broker at the then-prevailing market price(s) on the first
            business day of every week when the Exchange is open for trading
            provided that the pre-tax gain is at least $4.00 per share.

            The ordering of Seller's shares to be sold by Broker shall be
            accomplished in a manner such that the shares with the lowest Option
            per share exercise price shall be sold first in time. Broker shall
            promptly place (or have placed) market orders to sell as many of the
            above shares as possible during such applicable trading days. The
            Seller shall execute in advance all documentation required by Issuer
            and Broker so that the actions contemplated by this paragraph can be
            executed, if necessary, in a same day Option exercise/sale of shares
            transaction. The itemized schedule below shows Seller's Options and
            their exercise prices. All of the Options shown in the table below
            expire no later than 1:00pm PST July 1, 2005.

<TABLE>
            Option Grant Date      Per Share Exercise Price     # of Shares
            -----------------      ------------------------     -----------
<S>                                <C>                          <C>
            July 31, 2001                    $0.36               4,000,000
            Nov. 9, 2001                     $1.13               2,168,000
                                             -----               ---------
            Total                                                6,168,000
</TABLE>

            Additionally, if any of Seller's unvested stock options become
            vested as a result of an Issuer "Change in Control" (as defined in
            the Separation Agreement) prior to September 30, 2003, then such
            stock options shall also become subject to being sold under this
            Sales Plan (provided, however, that such additional stock options
            shall expire no later than 1:00pm PST on September 30, 2003). Any
            leftover, unsold shares from paragraph 1 after



                                      A-2
<PAGE>
            its respective trading period has passed shall be carried forward to
            be sold in the subsequent selling time periods in accordance with
            the trading instructions under this Sales Plan.

            The proceeds from any sales consummated under this Sales Plan (or
            outside this Sales Plan involving Seller's shares that were acquired
            pursuant to the exercise of his stock options) shall be first
            applied by the Broker to the Company to satisfy (i) the option
            exercise price, (ii) federal and state income and employment taxes
            payable on such amounts, (iii) the actual amount of the reasonable
            broker fees and commissions payable to unrelated third parties in
            connection with such exercise and (iv) the outstanding balance on
            the Promissory Note before the remainder (if any) is distributed to
            Seller (or any assigns or creditors of Seller). Except as otherwise
            specifically provided herein, all sales made under this Sales Plan
            shall be executed pursuant to the regular operating procedures of
            the Broker.

 2. EFFECTIVE DATE. This Sales Plan is effective as of the Effective Date with
    the first such possible sales under this Sales Plan commencing at least
    thirty (30) days after the Effective Date.

 3. CESSATION OF SALES. Sales under this Sales Plan shall be suspended upon
    either (i) the date that the Issuer or any other person publicly announces a
    tender or exchange offer with respect to the Stock, (ii) the date of a
    public announcement of a merger, acquisition, reorganization,
    recapitalization or comparable transaction affecting the securities of the
    Issuer as a result of which the Stock is exchanged or converted into shares
    of another company, (iii) the date on which Issuer receives notice of the
    commencement of any proceedings in respect of or triggered by Seller's
    bankruptcy or insolvency, or (iv) the date that an officer in Issuer's legal
    department notifies either Seller or Broker that sales under the Sales Plan
    are suspended pursuant to the Issuer's insider trading policy or any other
    Issuer policy in Issuer's sole discretion. No further sales shall be made
    under this Sales Plan after its suspension until Issuer notifies Broker and
    Seller that trading may resume under the Sales Plan.

 4. TERMINATION OF SALES PLAN. This Sales Plan shall terminate on the earlier
    of:



                                      A-3
<PAGE>

            (i)   the date that the Seller no longer holds any shares of Stock
                  or options to purchase Stock identified in paragraph 1 above;

            (ii)  the death of the Seller;

            (iii) the date that the principal and accrued interest under the
                  Promissory Note is paid in full to the Company and the
                  Promissory Note is thereby canceled;

            (iv)  the date that an officer in Issuer's legal department, in
                  Issuer's sole discretion, notifies either Seller or Broker
                  that this Sales Plan is terminated pursuant to the Issuer's
                  insider trading policy or any other Issuer policy; or

            (v)   1:00pm PST on July 1, 2005 (the "Expiration Date").

            No further sales shall be made under this Sales Plan after its
            termination.

 5. MARKET DISRUPTION OR OTHER RESTRICTIONS. Seller understands that Broker may
    not be able to effect a sale due to a market disruption or a legal,
    regulatory or contractual restriction applicable to the Broker. If any sale
    cannot be executed as required by paragraph 1, due to a market disruption, a
    legal, regulatory or contractual restriction applicable to the Broker or any
    other event, Seller understands that Broker shall effect such sale(s) as
    soon as practicable after the cessation or termination of such market
    disruption, applicable restriction or other event.

 6. SELLER REPRESENTATIONS. As of the Effective Date, Seller represents and
    warrants that Seller is not aware of material, nonpublic information with
    respect to the Issuer or any securities of the Issuer (including the Stock)
    that would serve as the basis for any sales made under this Sales Plan and
    is entering into this Sales Plan in good faith and not as part of a plan or
    scheme to evade the prohibitions of Rule 10b5-1. Seller agrees that he is
    fully aware of Issuer's insider trading policies and agrees to continue to
    fully comply with such insider trading policies while this Sales Plan is in
    effect. Seller agrees that Seller shall immediately notify Broker if the
    Seller becomes subject to a legal or regulatory restriction or undertaking
    that would prevent the Broker from making sales under this Sales Plan, and,
    in such a case, trading shall be immediately suspended under the Sales Plan
    and any resumption of trading shall not occur until an officer in Issuer's
    legal department has acknowledged that trading



                                      A-4
<PAGE>
    may resume under this Sales Plan. Seller further represents and warrants
    that except for the rights of the Issuer the Stock to be sold under this
    Sales Plan are owned free and clear by Seller (subject only to the
    compliance by Seller with the exercise provisions of the Options) and will
    be timely delivered to Broker for sales to be executed. While this Sales
    Plan is in effect, Seller also represents that, unless he first gives Issuer
    five business days advance written notice (in order that Issuer may elect to
    purchase from Seller the shares to be sold or to arrange a private sale to a
    third party on the same terms as Seller will be selling such shares), he
    will not sell (or pledge or hypothecate) any of the shares underlying the
    Options (or shares underlying the options that vest as a result of a Change
    in Control) except as provided under this Sales Plan, provided, however that
    this Sales Plan shall not in any way impact or hinder Issuer's rights to
    cancel the Options or require a same day Option exercise/sale of the
    underlying shares pursuant to the Promissory Note. Upon a public
    announcement of a prospective "Change in Control" of the Issuer (as defined
    in the Separation Agreement), the five business days notice obligation for
    Seller in the preceding sentence will not be applicable if the prospective
    acquirer of Issuer agrees in writing to waive such requirement.

 7. RULE 10b5-1 COMPLIANCE. It is the intent of this Sales Plan that it comply
    with the requirements of Rule 10b5-1(c)(1)(i)(B) under the Exchange Act and
    this Sales Plan shall be interpreted to comply with the requirements of Rule
    10b5-1(c). Seller represents and warrants that Seller shall not directly or
    indirectly seek to influence Broker with respect to how Broker performs its
    duties under this Sales Plan. Seller agrees that Seller shall not, directly
    or indirectly, communicate any information relating to the Stock or the
    Issuer to any employee of Broker or Issuer who is involved, directly or
    indirectly, in executing this Sales Plan at any time while this Sales Plan
    is in effect. Additionally, Seller shall not communicate with Broker about
    (i) any future sales to be executed under this Sales Plan and (ii) any
    pending sales while this Sales Plan is in effect.

 8. RULE 144 COMPLIANCE. If Seller is subject to Rule 144 under the Securities
    Act of 1933, as amended, then Seller agrees to fully comply with all
    applicable requirements under Rule 144 and Seller understands that Broker
    will conduct all sales in accordance with the Rule 144 manner of sale
    requirement and in no event shall Broker effect any sale if such sale would
    exceed the then applicable volume limitation under Rule 144, assuming
    Broker's sales under



                                      A-5
<PAGE>
    this Sales Plan are the only sales subject to that limitation. Seller agrees
    not to take, and agrees to cause any person or entity with which Seller
    would be required to aggregate sales of Stock pursuant to paragraph (a)(2)
    or (e) of Rule 144 not to take, any action that would cause the sales not to
    comply with Rule 144. Seller shall be responsible for making (but may
    request Broker to effect on Seller's behalf) all required Form 144 filings.

 9. EXCHANGE ACT COMPLIANCE. Seller shall make all filings, if any, required
    under Sections 13 and 16 of the Exchange Act and shall comply with all such
    laws and regulations of the Exchange Act.

10. INTEGRATION. This Sales Plan supersedes any prior automatic or formula-based
    sales plans and shall be governed by and construed in accordance with the
    laws of the State of California.

11. AMENDMENTS. This Sales Plan may be modified, amended or terminated by the
    Seller only by a writing signed by the Seller at a time when the Seller is
    able to make and does make all the representations and warranties specified
    in paragraph 6 and elsewhere in this Sales Plan and further provided that
    Issuer acknowledges such amendment in writing. The effective date of any
    amendment to this Sales Plan shall not occur until thirty (30) days after
    Issuer acknowledgement of the amendment pursuant to paragraph 12 and this
    pre-amended Sales Plan shall continue to be in effect during such sixty day
    period.

12. ISSUER ACKNOWLEDGEMENT. This Sales Plan (and any subsequent modifications or
    amendments under paragraph 11) is effective only if the Issuer provides
    written acknowledgement of the amended Sales Plan.

13. BROKER REPRESENTATIONS. By signing below, Broker represents to Seller and
    Issuer that Broker will be able to competently perform all of the duties for
    Broker that are set forth in this Sales Plan and also timely and accurately
    execute the transactions contemplated by this Sales Plan. Broker further
    agrees not to use any information about any planned sales under this Sales
    Plan in connection with purchases or sales of, or trading in, any securities
    of the Issuer, or derivative securities thereof, or provide other people
    with such information or recommend that other people buy or sell securities
    based upon such information. Broker agrees to promptly notify Seller and
    Issuer if at some point in the future, Broker is unable to perform its
    obligations under this Sales Plan.



                                      A-6
<PAGE>
14. ADJUSTMENTS. In the event of a subdivision of the outstanding Stock, a
    declaration of a dividend payable in Stock, a declaration of a dividend
    payable in a form other than Stock in an amount that has a material effect
    on the price of the Issuer's shares, a combination or consolidation of the
    outstanding Stock (by reclassification or otherwise) into a lesser number of
    shares of Stock, a recapitalization, a spin-off or a similar occurrence,
    then all prices, number of shares and number of options referenced in this
    Sales Plan shall be adjusted as appropriate and consistent with any
    adjustments that are made to other Issuer shareholders and optionees.

15. DISCLOSURE. Seller and Broker each agree that the Issuer, in its sole
    discretion, may publicly disclose the existence and terms of this Sales
    Plan.

16. COMMUNICATIONS. Seller and Broker agree that any communications or
    correspondence (or notices) between Seller and Broker with respect to this
    Sales Plan shall solely be in writing, with a copy of all such writings
    contemporaneously provided to Issuer by Seller, and such correspondence
    shall be deemed to have been duly received by the recipient as of the first
    business day following (a) transmission by a nationally recognized overnight
    delivery service or by registered or certified mail, postage prepaid or (b)
    transmission by a confirmed facsimile transmission or (c) electronic mail.
    All such correspondence shall be addressed to each recipient at their
    respective locations specified below on the signature page.

17. AUTHORIZATION. Seller and Broker each authorize Issuer's legal department
    and other insider trading personnel to take any necessary steps to ensure
    that this Sales Plan complies with all of Issuer's policies.

18. SELLER RELEASE AND INDEMNIFICATION. In consideration of entering into this
    Sales Plan, Seller agrees to fully and forever waive, release and discharge
    any and all claims, demands, or causes of action (including for related
    attorneys' fees and court and litigation costs and expenses), whether known
    or unknown, against Issuer or its predecessors, successors, or past or
    present subsidiaries, officers, directors, agents, employees and assigns,
    with respect to the following matter(s) that may arise under this Sales
    Plan: (i) any decision by the Issuer to suspend trading under this Sales
    Plan or terminate this Sales Plan, (ii) invasion of privacy, (iii) any
    failure or refusal of the Issuer to consent to a trade under this Sales
    Plan, or (iv) any issues or errors with respect to the adoption, operation,
    execution of trades or termination of this Sales Plan, (with all such
    matters collectively referred to as "Seller Released Matters"),



                                      A-7
<PAGE>
    and Seller further agrees to defend, indemnify and hold Issuer harmless from
    any liability that may arise from the Seller Released Matters.

19. BROKER LIMITED RELEASE AND INDEMNIFICATION. In consideration of entering
    into this Sales Plan, Broker agrees to fully and forever waive, release and
    discharge any and all claims, demands, or causes of action (including for
    related attorneys' fees and court and litigation costs and expenses),
    whether known or unknown, against Issuer or its predecessors, successors, or
    past or present subsidiaries, officers, directors, agents, employees and
    assigns (excluding however the Seller), with respect to any matter(s) that
    may arise under this Sales Plan to the extent that it is caused by Broker's
    "Culpable Conduct," which is defined as (i) Broker's errors of omission or
    commission or (ii) Broker's negligence or (iii) Broker's misconduct or
    misfeasance or (iv) Broker's failure to perform its obligations under this
    Plan (with all such matters collectively referred to as "Broker Released
    Matters"); excluding from the scope of such Broker Released Matters any
    matter, or any proportionate share of a matter, not caused by Broker's
    Culpable Conduct. Broker further agrees to defend, indemnify and hold Issuer
    harmless from any liability that may arise from the Broker Released Matters
    solely to the extent of any Broker's Culpable Conduct.

20. COUNTERPARTS. This Sales Plan may be executed in one or more counterparts,
    each of which shall be deemed to be an original, but all of which together
    shall constitute one and the same instrument.

                            [SIGNATURE PAGE FOLLOWS]



                                      A-8
<PAGE>
    IN WITNESS WHEREOF, the undersigned have executed this Sales Plan as of the
date first written above.


                                          ______________________________________
                                          DAVID C. HAYDEN
                                          PHONE
                                          FAX
                                          EMAIL


AGREED:
BROKER



______________________________________
Name:
Title:
ADDRESS
PHONE
FAX
EMAIL



ACKNOWLEDGED:

CRITICAL PATH, INC.



______________________________________
Name:
Title:
350 The Embarcadero
San Francisco, CA 94105-1204
PHONE
FAX
EMAIL



                                      A-9

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.8
<SEQUENCE>10
<FILENAME>f83504exv10w8.txt
<DESCRIPTION>EXHIBIT 10.8
<TEXT>
<PAGE>
                                                                    Exhibit 10.8

                                  FULL RECOURSE
               SECOND AMENDED AND RESTATED SECURED PROMISSORY NOTE

$1,950,000                                             San Francisco, California
                                                             As of July 21, 2002


      For value received, the undersigned promises to pay to Critical Path,
Inc., a California corporation (the "Company"), in immediately available funds
and in the lawful currency of the United States of America at its offices
located at 350 The Embarcadero, San Francisco, California 94105-1204 or at such
other location as the Company or any other holder hereof may designate from time
to time the principal sum of $1,950,000, together with interest on said sum
accruing from February 12, 2002 until such principal sum has been repaid in full
at a rate of 6.75% per annum, compounded annually (calculated based on a year of
365/366 days, as applicable).

      1.    PAYMENTS AND PREPAYMENTS.

      (a)   Principal and Interest Payments. Except as otherwise provided
herein, all outstanding principal and interest on this Note shall be due and
payable in full on June 30, 2005. Interest shall accrue annually until paid in
full (and shall include interest that has accrued through the date immediately
before February 12, 2002 at the rate of 6.75% per annum on the $1,500,000 that
the Company previously loaned to the undersigned pursuant to that certain
Promissory Note, dated August 13, 2001, duly executed by the undersigned in
favor of the Company) (such Promissory Note, the "Original Note").

      (b)   Default Interest. Upon the occurrence and during the continuance of
an Event of Default (as defined herein), the undersigned shall pay interest on
all amounts outstanding under this Note at a rate of 8.75% per annum (calculated
based on a year of 365/366 days, as applicable).

      (c)   Optional Prepayments. The undersigned may, at his option and without
penalty, prepay the principal amount of this Note in whole or in part upon five
(5) business days' notice to the Company.

      (d)   Mandatory Prepayments. Immediately upon the undersigned's voluntary
or involuntary exercise of all or any portion of the undersigned's stock options
to purchase common shares of the Company's stock as described below, the
undersigned shall prepay the obligations hereunder in an aggregate principal
amount equal to 100% of the Net Proceeds obtained as a result of such exercise.
For purposes of this Note, "Net Proceeds" means the aggregate sales price
received by the undersigned from such exercise less the sum of (i) the option
exercise price, (ii) federal and state income and employment taxes payable on
such amounts and (iii) the actual amount of the reasonable broker fees and
commissions payable to unrelated third parties in connection with such exercise.

      (e)   Other Payment Terms. Subject to Subparagraph 1(d), all payments made
by the undersigned under this Note shall be applied first to any costs, expenses
and charges then



                                      B-1
<PAGE>
payable by the undersigned hereunder, second to accrued interest then due (if
any), and then to outstanding principal. Whenever any payment due hereunder
shall fall due on a day which is not a business day, such payment shall be made
on the next succeeding business day.

      2.    SECURITY.

      (a)   Reaffirmation of Security Interest. As security for the timely
payment and performance of the undersigned's obligations under this Note, the
undersigned hereby reaffirms its pledge and grant to the Company of a first
priority perfected security interest in all of the undersigned's right, title
and interest, whether now owned or hereafter acquired, in and to (i) the
undersigned's stock options to purchase common shares of the Company's stock,
(ii) the shares of the Company's common stock acquired pursuant to such option
exercises and (iii) the proceeds thereof (collectively, the "Collateral"). Such
Collateral shall be held by the Company as secured party until full repayment of
all principal and interest arising under this Note. The undersigned further
acknowledges and agrees that the common shares underlying such stock options are
subject to the security interest granted under this Subparagraph (a).

      (b)   Continued Perfection of the Security Interest. The undersigned
agrees to take all actions reasonably requested by the Company and reasonably
necessary to perfect, to continue the perfection of, and to otherwise give
notice of, the security interest re-affirmed and granted hereunder, including,
but not limited to, (i) authorizing the Company to file UCC-1 financing
statements against the undersigned describing the Collateral with the Secretary
of State of the State of California and (ii) authorizing the Company to record
in its books and records the existence of such security interest and that the
Company has the right to originate instructions with respect to such portion of
the Collateral that constitutes a "security entitlement"(as defined in Division
8 of the UCC) without further consent by the undersigned in accordance with
Section 8106 of the UCC.

      (c)   Power of Attorney. In connection with the foregoing security
interest, the undersigned hereby reaffirms its grant to the Company of an
irrevocable Power of Attorney, by re-executing the Power of Attorney form
attached hereto as Exhibit 1.

      (d)   Covenant. The undersigned covenants that he shall provide the
Company with 10 business days advance written notice of the undersigned's
intention to file for protection under the federal bankruptcy laws or any other
proceeding under any other laws relating to bankruptcy, insolvency,
reorganization, arrangement, debt adjustment or debtor relief.

      3.    DEFAULT.

      (a)   Optional Acceleration.  The Company may declare all amounts
outstanding under this Note immediately due and payable in full upon the
occurrence of any of the following:

                  (i)   The failure of the undersigned to make any payment of
            principal required under this Note when due and such failure shall
            have continued for more than ten (10) days after receipt by the
            undersigned of written notice thereof from the Company (it being
            expressly understood by the Company that the failure of



                                      B-2
<PAGE>
            the undersigned to pay interest annually before the maturity date
            hereof shall not constitute a default hereunder); or

                  (ii)  (A) The failure of the undersigned to perform, keep or
            observe any of its covenants, conditions, promises, agreements or
            obligations set forth in this Note or (B) the occurrence of a
            material breach by the undersigned of the second sentence in section
            3(b) under that certain Separation Agreement and Mutual Release
            entered into as of July 21, 2002 (the "Separation Agreement") or (C)
            the occurrence of a material breach by the undersigned of sections
            18(d) or 19 in the Separation Agreement or (D) the occurrence of a
            material breach by the undersigned of paragraph 1 in Exhibit A to
            the Separation Agreement or of undersigned's failure to comply with
            his five business days advance notice obligation to the Company
            specified under paragraph 6 in such Exhibit A, and in any case such
            failure shall have continued for more than ten (10) days after
            receipt by the undersigned of written notice thereof from the
            Company. Any declaration of a default (and any resulting act of
            foreclosure) by the Company under this subparagraph shall be subject
            to review under the arbitration provisions provided under the
            Separation Agreement.

            (b)   Automatic Acceleration.  All amounts outstanding under this
      Note shall be immediately due and payable in full, without demand or
      notice of any kind, upon the occurrence of any of the following:

                  (i)   The commencement by or against the undersigned of any
            case under the federal bankruptcy laws or any other proceeding under
            any other laws relating to bankruptcy, insolvency, reorganization,
            arrangement, debt adjustment or debtor relief unless in the case of
            a case brought against the undersigned such case is dismissed within
            90 days;

                  (ii)  Any assignment by the undersigned for the benefit of its
            creditors; or

                  (iii) The appointment for a period of more than 90 days of a
            receiver, trustee, custodian or similar official for all or
            substantially all of the undersigned's property or assets.

            (c) Remedies. Upon the occurrence of any one or more of the events
      described in Subparagraphs (a) and (b) above (each an "Event of Default"),
      the Company shall have the right, with or without notice to the
      undersigned, as to any or all of the Collateral, by any available judicial
      procedure, or without judicial process (provided, however, that it is in
      compliance with the California Uniform Commercial Code (the "UCC")), to
      exercise any and all rights afforded to a secured party under the UCC or
      other applicable law including but not limited to the rights of the
      Company set forth in subsection 2(a) hereof. All of the Company's rights
      and remedies with respect to the Collateral, whether established hereby or
      by any other agreements, instruments or documents or by law shall be
      cumulative and may be exercised singly or concurrently.



                                      B-3
<PAGE>
      4.    MISCELLANEOUS. This Note shall inure to the benefit of the Company's
successors and beneficiaries. If any amounts owing under this Note are not paid
when due, the undersigned shall pay all costs and expenses, including reasonable
attorneys' fees, incurred by the Company in the collection or enforcement of
this Note. To the extent permitted by law, the undersigned waives diligence,
presentment, demand, notice of nonpayment, protest, notice of protest and notice
of every kind. This Note shall be governed by and construed in accordance with
the laws of the State of California. Paragraph and subparagraph headings in this
Note are for convenience of reference only and are not part of the substance
hereof. This Note amends and restates in its entirety that certain Full Recourse
Amended and Restated Promissory Note, dated as of February 12, 2002, duly
executed by the undersigned in favor of the Company and shall become effective
upon the effectiveness of the Separation Agreement.


                                                /s/ David C. Hayden
                                          ______________________________________
                                                    David C. Hayden



                                      B-4
<PAGE>

                           EXHIBIT 1 TO FULL RECOURSE
               SECOND AMENDED AND RESTATED SECURED PROMISSORY NOTE

                                POWER OF ATTORNEY

      This Power of Attorney is executed and delivered by David C. Hayden
("Grantor") to Critical Path, Inc., a California corporation (hereinafter
referred to as "Attorney"), under that certain Full Recourse Second Amended and
Restated Secured Promissory Note, dated as of July 21, 2002 (the "Restated
Note"), and other related documents (the "Loan Documents"). No person to whom
this Power of Attorney is presented, as authority for Attorney to take any
action or actions contemplated hereby, shall be required to inquire into or seek
confirmation from Grantor as to the authority of Attorney to take any action
described below, or as to the existence of or fulfillment of any condition to
this Power of Attorney, which is intended to grant to Attorney unconditionally
the authority to take and perform the actions contemplated herein, and Grantor
irrevocable waives any right to commence any suit or action, in law or equity,
against any person or entity which acts in reliance upon or acknowledges the
authority granted under this Power of Attorney. The Power of Attorney granted
hereby is coupled with an interest, and may not be revoked or canceled by
Grantor without Attorney's written consent.

      Grantor hereby irrevocably constitutes and appoints Attorney (and all
officers, employees or agents designated by Attorney), with full power of
substitution, as Grantor's true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of Grantor and in the
name of Grantor or in its own name, from time to time in Attorney's discretion,
to take any and all appropriate action and to execute and deliver any and all
documents and instruments which may be necessary or desirable to accomplish the
purposes of the Loan Documents and, without limiting the generality of the
foregoing, Grantor hereby grants to Attorney the power and right, on behalf of
Grantor, without notice to or assent by Grantor, and at any time after a default
pursuant to Section 3 of the Restated Note, to do the following: (a) (i) cancel
any portion or all of Grantor's stock options (in order to apply the difference
between the then-fair market value of the underlying shares and the aggregate
option exercise price to satisfy any liability Grantor may owe to Attorney (even
if such liability is not then currently due) and/or (ii) exercise any portion or
all of Grantor's options (including any options that may be awarded to Grantor
in the future) to purchase shares of Attorney's common stock and to hold,
retire, collect, sell or dispose of the shares (or the proceeds of such shares)
acquired pursuant to such option exercises to satisfy any liability Grantor may
owe to Attorney (even if such liability is not then currently due); (b) pay or
discharge any taxes, liens, security interests, or other encumbrances levied or
placed on or threatened against Grantor or its property; (c) defend any suit,
action or proceeding brought against Grantor if Grantor does not defend such
suit, action or proceeding; (d) to file such financing statements with respect
to any security agreement, with or without Grantor's signature, or to file a
photocopy of any security agreement in substitution for a financing statement,
as Attorney may deem appropriate and to execute in Grantor's name such financing
statements and amendments thereto and continuation statements which may require
Grantor's signature; and (e) execute, in connection with any sale provided for
in any Loan Document, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the collateral and to otherwise direct
such sale or resale, all as though Attorney were the absolute owner of the
property of Grantor for all purposes, and to do, at Attorney's option and
Grantor's expense, at



                                      B-5
<PAGE>
any time or from time to time, all acts and other things that Attorney
reasonably deems necessary to perfect, preserve, or realize upon Grantor's
property or assets and Attorney's liens thereon, all as fully and effectively as
Grantor might do. Grantor hereby ratifies, to the extent permitted by law, all
that said Attorney shall lawfully do or cause to be done by virtue hereof.

      IN WITNESS WHEREOF, this Power of Attorney is executed by Grantor this
21st day of July 2002.


                                          "GRANTOR"

                                          DAVID C. HAYDEN


                                          /s/ David Hayden
                                          ______________________________________



                                      B-6

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-15.1
<SEQUENCE>11
<FILENAME>f83504exv15w1.txt
<DESCRIPTION>EXHIBIT 15.1
<TEXT>
<PAGE>
                                                                   EXHIBIT 15.1





August 13, 2002

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Commissioners:

We are aware that our report dated August 7, 2002 on our review of interim
financial information of Critical Path, Inc. (the "Company") as of and for the
period ended June 30, 2002 and included in the Company's quarterly report on
Form 10-Q for the quarter then ended is incorporated by reference its
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).

Very truly yours,


/s/  PricewaterhouseCoopers LLP


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>12
<FILENAME>f83504exv99w1.txt
<DESCRIPTION>EXHIBIT 99.1
<TEXT>
<PAGE>
                                                                   EXHIBIT 99.1





        STATEMENT OF CHIEF EXECUTIVE OFFICER UNDER 18 U.S.C. SECTION 1350


     I, William 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 Quarterly Report of the Company on Form 10-Q for the period ending
June 30, 2002 (the "Report") and filed with the U.S. Securities and Exchange
Commission on the date hereof,  fully complies with the requirements of section
13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, and

    (ii) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.



                                /s/ William McGlashan
                                --------------------------

                                William McGlashan, Jr.
                                       Chief Executive Officer and Chairman of
                                       the Board of Directors


                                August 14, 2002

<PAGE>






       STATEMENT OF CHIEF FINANCIAL OFFICER UNDER 18 U.S.C. SECTION 1350


      I, Laureen DeBuono, 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 Quarterly Report of the Company on Form 10-Q for the period ending
June 30, 2002 (the "Report"), and filed with the U.S. Securities and Exchange
Commission on the date hereof, fully complies with the requirements of section
13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, and

     (ii) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.



                                /s/ Laureen DeBuono
                                -----------------------

                                Laureen DeBuono
                                Executive Vice President and Chief
                                Financial Officer


                                August 14, 2002



</TEXT>
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