CRITICAL PATH INC, S-1, 1999-05-11

CRITICAL PATH INC
S-1, 1999-05-11
BUSINESS SERVICES, NEC

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As filed with the Securities and Exchange Commission on May 11, 1999
Registration No. 333-

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

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933

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CRITICAL PATH, INC.
(Exact name of registrant as specified in its charter)

California 7389 91-1788300
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)

320 1st Street
San Francisco, California 94105
(415) 808-8800
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

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DOUGLAS T. HICKEY
President and Chief Executive Officer
CRITICAL PATH, INC.
320 1st Street
San Francisco, California 94105
(415) 808-8800
(Name, address, including zip code, and telephone number, including area code,
of agent for service of process)

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Copies to:

Alan K. Austin Kenneth L. Guernsey
Mark L. Reinstra Virginia C. Edwards
James C. Creigh John S. Wills
Clay B. Simpson Cooley Godward LLP
Wilson Sonsini Goodrich & Rosati One Maritime Plaza
650 Page Mill Road San Francisco, CA 94111
Palo Alto, CA 94304

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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement numbers of the earlier
effective registration statement for the same offering. [_]

If this form is a post-effective amendment filed pursuant to 462(c) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF FILING FEE
<TABLE>
================================================================================
<CAPTION>
Proposed
Proposed Maximum
Amount Maximum Aggregate
Title of Securities to be Offering Price Offering Amount of
to be Registered Registered Per Share(1) Price Registration Fee
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par
value..................... 4,600,000 $82.56 $379,776,000 $105,578
================================================================================
</TABLE>
(1) Estimated solely for the purpose of computing the amount of registration
fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended,
based on the average of the high and low prices of the Common Stock as
reported on the Nasdaq National Market, on May 5, 1999.

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

================================================================================
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 11, 1999

(logo)

CRITICAL PATH, INC.
4,000,000 Shares
Common Stock

Critical Path, Inc. is offering 3,000,000 shares of its common stock and the
selling shareholders are selling an additional 1,000,000 shares. Our common
stock is traded on the Nasdaq National Market under the symbol "CPTH." The last
reported sale price of our common stock on the Nasdaq National Market on May
10, 1999 was $82.25 per share.

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

Investing in the common stock involves risks.
See "Risk Factors" beginning on page 6.

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<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price................................... $82.25 $329,000,000
Underwriting Discounts and Commissions.................. $ 3.29 $ 13,160,000
Proceeds to Critical Path............................... $78.96 $236,880,000
Proceeds to the selling shareholders.................... $78.96 $ 78,960,000
</TABLE>

The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.

The selling shareholders have granted the underwriters a 30-day option to
purchase up to an additional 600,000 shares of common stock to cover over-
allotments.

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

BancBoston Robertson Stephens Hambrecht & Quist

Dain Rauscher Wessels FAC/Equities
a division of Dain Rauscher Incorporated

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

The date of this prospectus is , 1999.
<PAGE>

You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock. In this prospectus, the
"Company," "Critical Path," "we," "us," and "our" refer to Critical Path, Inc.,
a California corporation.

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary................................................................. 4
Risk Factors............................................................ 6
Use of Proceeds......................................................... 19
Dividend Policy......................................................... 19
Capitalization.......................................................... 20
Dilution................................................................ 21
Selected Consolidated Financial Information............................. 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 23
Business................................................................ 35
Management.............................................................. 54
Certain Transactions.................................................... 63
Principal Shareholders.................................................. 66
Description of Capital Stock............................................ 68
Shares Eligible for Future Sale......................................... 71
Underwriting............................................................ 73
Legal Matters........................................................... 76
Experts................................................................. 76
Where You Can Find More Information..................................... 76
Index to Consolidated Financial Statements.............................. F-1
</TABLE>

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This prospectus contains trademarks and trade names of other companies.

3
<PAGE>

SUMMARY

This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus, including "Risk Factors" and the
Financial Statements, carefully before making an investment decision.

The Company

We are a leading provider of email hosting services designed to allow a wide
range of organizations, including Internet service providers, web hosting
companies, web portals and corporations, to reduce costs and improve customer
service by outsourcing their email systems. We believe we are a leading
provider of email hosting services because our services are designed to support
growth, enhance reliability, allow access to advanced technologies and provide
greater access with high levels of security. In addition, our service is
designed so that our customers can enhance their brand recognition by
maintaining their existing "look and feel" while improving the functionality of
their email service. We intend to build on our expertise in email services to
provide additional Internet messaging services in the future. We have
approximately 250 customers. We seek to establish strategic relationships with
entities that are both commercial partners and/or equity investors or with whom
we have contractualized reseller relationships. We have strategic relationships
with ICQ, a subsidiary of America Online, E*TRADE, Network Solutions, Sprint
and US West.

Email, one of the most popular Internet applications, has broadened from a
simple messaging tool to a widely accepted form of communication for both
personal and business use. According to Electronic Mail & Messaging Systems
("EMMS"), there were approximately 263 million electronic mailboxes worldwide
as of September 30, 1998. EMMS estimates that this number increased to 382
million electronic mailboxes worldwide as of March 31, 1999. According to the
Gartner Group, approximately 300 billion electronic mail messages were sent in
1998. In addition, the complexity of the individual messages is increasing,
allowing email to become a more functional communications tool for both
personal and business use. At the same time, we believe that customers are
increasingly expecting the same reliability from their email service that they
are accustomed to receiving from their telephone service, commonly referred to
as web-tone reliability. Due to this expectation and the expense and expertise
required to maintain a reliable email system, organizations are increasingly
seeking to outsource their email systems.

Our services provide the following benefits to our customers:

. reduced costs associated with acquiring and maintaining hardware and
software and with recruiting and retaining systems engineering and
administrative support;

. a scalable and reliable system architecture designed to support global
service over hundreds of millions of mailboxes across millions of domains
with web-tone reliability;

. access to advanced technologies based on our expertise in rapidly
deploying new technologies, combating system failures and maintaining
network and system security;

. easy access by customers and end-users by designing our services on open
Internet-based standards; and

. control over their own brand and functionality through customized web-
based email interfaces.

Recent Developments

Since our initial public offering, we have announced several strategic
contracts that help us to expand our customer base and broaden our global
reach. We have expanded our relationship with America Online so it now includes
ICQ, AOL Latin America and AOL Enterprise, which provides us with access to one
of the largest concentrated customer bases of e-mail users on the Internet. Our
relationship with Promus provides us with access to 1,362 hotels with more than
194,000 rooms in North and South America. Furthermore, we have significantly
expanded our international customer base to include Asiamail, Avantel, British
Telecom and o.tel.o.

4
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The Offering

<TABLE>
<C> <S>
Common stock offered by Critical Path.............. 3,000,000 shares
Common stock offered by selling shareholders....... 1,000,000 shares
Common stock to be outstanding after the offering.. 38,002,091 shares
Use of proceeds by Critical Path................... Acquisition of businesses
and technologies,
expansion of sales and
marketing activities, open
additional data centers,
expansion of international
operations and general
corporate purposes.
Nasdaq National Market symbol...................... CPTH
</TABLE>

Summary Consolidated Financial Data
(in thousands, except per share data)

Please see Note 1 of Notes to Consolidated Financial Statements for an
explanation of the determination of the number of shares used in computing per
share data. The Pro Forma Consolidated Balance Sheet Data summarized below
reflects the application of the net proceeds from our initial public offering
of $115.5 million. The Pro Forma As Adjusted Consolidated Balance Sheet Data
reflects the sale of the 3,000,000 shares of common stock offered by Critical
Path in this offering at an assumed public offering price of $82.25 per share
and after deducting the estimated underwriting discounts and commissions and
our estimated offering expenses.

<TABLE>
<CAPTION>
March 31, 1999
-----------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(unaudited)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents......................... $22,506 $138,006 374,386
Working capital................................... 18,851 134,351 370,731
Total assets...................................... 32,681 148,181 384,561
Capital lease obligations, long-term.............. 4,095 4,095 4,095
Shareholders' equity.............................. 23,440 138,940 375,320
</TABLE>

Our headquarters are located at 320 1st Street, San Francisco, California
94105 and our telephone number is (415) 808-8800. Our website address is
www.cp.net. The information on our website is not a part of this prospectus.

5
<PAGE>

RISK FACTORS

This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus before
deciding to invest in shares of our common stock. Our business, operating
results and financial condition could be adversely affected by any of the
following risks. The trading price of our common stock could decline due to any
of these risks, and you could lose all or part of your investment. You should
also refer to the other information set forth in this prospectus, including our
financial statements and the related notes.

This prospectus also contains forward-looking statements that involve risks
and uncertainties. These statements relate to our future plans, objectives,
expectations and intentions, and the assumptions underlying or relating to any
of these statements. These statements may be identified by the use of words
such as "expects," "anticipates," "intends," and "plans" and similar
expressions. Our actual results could differ materially from those discussed in
these statements. Factors that could contribute to such differences include,
but are not limited to, those discussed below and elsewhere in this prospectus.

Because we have a limited operating history, it is difficult to evaluate our
business and we may face various risks, expenses and difficulties associated
with early stage companies

Because we have only a limited operating history upon which you can evaluate
our business and prospects, you should consider the risks, expenses and
difficulties that we may encounter when making your investment decision. These
risks include our ability to:

. acquire businesses and technologies;

. expand our sales and marketing activities;

. create and maintain strategic relationships;

. expand our customer base and retain key clients;

. introduce new services;

. manage growing operations;

. compete in a highly competitive market;

. upgrade our systems and infrastructure to handle any increases in
messaging traffic;

. reduce service interruptions; and

. recruit and retain key personnel.

We expect that our operating expenses will increase as we spend resources on
building our business and that this increase may have a negative effect on our
operating results and financial condition

We have spent heavily on technology and infrastructure development. We expect
to continue to spend substantial financial and other resources on developing
and introducing new email service offerings, and expanding our sales and
marketing organizations, strategic relationships and operating infrastructure.
We expect that our cost of revenues, sales and marketing expenses, general and
administrative expenses, operations and customer support expenses, and
depreciation and amortization expenses will continue to increase in absolute
dollars and may increase as a percent of revenues. If our revenues do not
correspondingly increase, our operating results and financial condition could
be negatively affected.

6
<PAGE>

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

We incurred net losses of approximately $1.1 million for the period from
February 19, 1997 (inception) through December 31, 1997, $11.5 million for the
year ended December 31, 1998, and $17.6 million for the three months ended
March 31, 1999. As of March 31, 1999, we had an accumulated deficit of
approximately $30.1 million. We have not achieved profitability in any period,
and we expect to continue to incur net losses for the foreseeable future.
Should we continue to incur net losses in future periods, we may not be able to
increase our number of employees or our investment in capital equipment, sales
and marketing programs, and research and development in accordance with our
present plans. Continuation of our net losses may also require us to secure
additional financing sooner than anticipated. Such financing may not be
available in sufficient amounts, or on terms acceptable to us, and may dilute
existing shareholders. 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, in turn, cause our stock price to
decline.

Due to our limited operating history and the emerging nature of the email
services market, our future revenues are unpredictable, and our quarterly
operating results may fluctuate

We cannot accurately forecast our revenues as a result of our limited
operating history and the emerging nature of the Internet-based email services
market. Our revenues could fall short of our expectations if we experience
delays or cancellations of even a small number of orders. We often offer
volume-based pricing, which may affect our operating margins. A number of
factors are likely to cause fluctuations in our operating results, including,
but not limited to:

. continued growth of the Internet in general and of email usage in
particular;

. demand for outsourced email services;

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

. our ability to upgrade, develop and maintain our systems and
infrastructure;

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

. technical difficulties or system outages;

. the announcement or introduction of new or enhanced services by our
competitors;

. our ability to attract and retain qualified personnel with Internet
industry expertise, particularly sales and marketing personnel;

. the pricing policies of our competitors;

. failure to increase our international sales; and

. governmental regulation surrounding the Internet and email in particular.

In addition to the factors set forth above, our operating results will 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
expect to incur substantial non-cash charges associated with the grant of a
warrant to America Online. In addition to amortization of the initial fair
value of this warrant, which totaled $16.5 million, we expect that future
changes in the trading price of our common stock at the end of each quarter and
at the date certain milestones are achieved, will cause additional substantial
changes in the ultimate amount of such amortization. For example, we recognized
a $7.9 million non-cash charge to advertising expense during the first quarter
of 1999 in connection with the amortization of the America Online warrant.

7
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Due to lead times required to purchase, install and test equipment, we
typically need to purchase equipment well in advance of the receipt of any
expected revenues. Delays in obtaining this equipment could result in
unexpected revenue shortfalls. Small variations in the timing of the
recognition of specific revenues could cause significant variations in
operating results from quarter to quarter.

Period-to-period comparisons of our operating results are not a good
indication of our future performance. It is likely that our operating results
in some quarters will be below market expectations. In this event, the price of
our common stock is likely to decline.

Acquisitions could result in dilution, operating difficulties and other harmful
consequences

We expect that we will use a portion of the net proceeds to Critical Path of
this offering to acquire or invest in businesses, products, services and
technologies that complement or augment our service offerings and customer
base. We are currently engaged in discussions with a number of companies
regarding strategic acquisitions or investments. Although these discussions are
ongoing, we have not signed any definitive agreements and we cannot assure you
that any of these discussions will result in actual acquisitions. To be
successful, we will need to identify suitable acquisition candidates, integrate
disparate technologies and corporate cultures and manage a geographically
dispersed company. We cannot assure you that we will be able to do this
successfully. Acquisitions could divert our attention from other business
concerns and could expose us to unforeseen liabilities. In addition, we may
lose key employees while integrating any new companies.

We expect that we will pay for some of our acquisitions by issuing additional
common stock and this would dilute our shareholders. We may also use cash to
make acquisitions. It may be necessary for us to raise additional funds through
public or private financings. We cannot assure you that we will be able to
raise additional funds at any particular point in the future or on terms that
are favorable to us. In addition, we may be required to amortize significant
amounts of goodwill and other intangible assets in connection with future
acquisitions, which would materially increase our operating expenses.

If we fail to expand our sales and marketing activities, we may be unable to
expand our business

Our ability to increase our revenues will depend on our ability to
successfully recruit, train and retain sales and marketing personnel. As of
March 31, 1999, we had 61 sales and marketing personnel. We plan to continue to
invest significant resources to expand our sales and marketing organizations.
Competition for additional qualified personnel is intense and we may not be
able to hire and retain personnel with relevant experience. We have recently
hired most of our sales and marketing personnel, including our Vice President
of Sales, who joined us in November 1998.

The complexity and implementation of our Internet messaging services require
highly trained sales and marketing personnel to educate prospective customers
regarding the use and benefits of our services. Our current and prospective
customers, in turn, must be able to educate their end-users. With our
relatively brief operating history and our plans for expansion, we have
considerable need to recruit, train, and retain qualified staff. Any delays or
difficulties we encounter in these staffing efforts would impair our ability to
attract new customers and to enhance our relationships with existing customers.
This in turn would adversely impact the timing and extent of our revenues.
Because the majority of our sales and marketing personnel have recently joined
Critical Path and have limited experience working

8
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together, our sales and marketing organizations may not be able to compete
successfully against bigger and more experienced sales and marketing
organizations of our competitors. If we do not successfully expand our sales
and marketing activities, our business could suffer and our stock price could
decline.

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

Our customers have in the past experienced some interruptions in our email
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 "spam," attacks and operating system failures. For example, in
October 1998, our customers experienced a four-hour service interruption due to
an operating system failure. Our revenues depend on the number of end-users who
use our email services. Our business will suffer if we experience frequent or
long system interruptions that result in the unavailability or reduced
performance of our 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.

We have entered into service agreements with some of our customers that
require certain minimum performance standards, including standards regarding
the availability and response time of our email 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. Any unplanned
interruption of services may adversely affect our ability to attract and retain
customers.

We depend on strategic relationships and other sales channels and the loss of
any of our strategic relationships could harm our business and have an adverse
impact on our revenue

We depend on our strategic relationships to expand our distribution channels
and to undertake joint product development and marketing efforts. Our ability
to increase revenues depends upon marketing our services through new and
existing strategic relationships. We have entered into written agreements with
ICQ, a subsidiary of America Online, E*TRADE, Network Solutions, Sprint and U S
WEST, among others. We depend on a broad acceptance of outsourced email
services on the part of potential partners and acceptance of us as the supplier
for these outsourced email services. We also depend on joint marketing and
product development through our strategic relationships to achieve market
acceptance and brand recognition. For example, through our relationship with
E*TRADE, we can conduct shared advertising campaigns and include our messaging
services in E*TRADE's international strategic relationships. Our agreements
with our 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 30-120 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. If we lose any of our
strategic relationships, fail to renew these agreements or relationships or
fail to develop new strategic relationships, our business will suffer. The loss
of any of our key strategic relationships would have an adverse impact on our
current and future revenue. For example, E*TRADE accounted for approximately
62% of our 1998 net revenues and TABNet, a wholly

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<PAGE>

owned subsidiary of Verio, accounted for approximately 30% of our 1998 net
revenues, excluding the value of stock purchase rights received by customers.
In the quarter ended March 31, 1999, E*TRADE accounted for approximately 48% of
our net revenues and TABNet accounted for 32% of our net revenue, excluding the
value of stock purchase rights received by customers. In addition to our
strategic relationships, we also depend on the ability of our customers to sell
and market our services to their end-users.

We have experienced rapid growth which has placed a strain on our resources and
our failure to manage our growth could cause our business to suffer

We recently began to expand our operations rapidly and intend to continue
this expansion. The number of our employees increased from 17 on December 31,
1997 to 93 on December 31, 1998. As of March 31, 1999, we had 182 employees.
This expansion has placed, and is expected to continue to place, a significant
strain on our managerial, operational and financial resources. To manage any
further growth, we will need to improve or replace our existing operational,
customer service and financial systems, procedures and controls. Any failure by
us to properly manage these system 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 continue the expansion of our operations and employee base. 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 effectively, our business and operating results could
suffer.

We may not be able to respond to the rapid technological change of the Internet
messaging industry

The Internet messaging 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 our prospective customers. If we
don't properly identify the feature preferences of prospective customers, or if
we fail to deliver email features which meet the standards of these customers,
our ability to market our service successfully and to increase our revenues
could be impaired. The development of proprietary technology and necessary
service enhancements entail significant technical and business risks and
require substantial expenditures and lead-time. We may not be able to keep pace
with the latest technological developments. We may also not be able to use new
technologies effectively or adapt our services to customer requirements or
emerging industry standards. If we cannot, for technical, legal, financial or
other reasons, adapt or respond in a cost-effective and timely manner to
changing market conditions or customer requirements, our business and operating
results would suffer.

If our system security is breached, our business and reputation could suffer

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 they are
successful, they could obtain our customers' confidential information,
including our customers' profiles, passwords, financial account information,
credit card numbers or

10
<PAGE>

other personal information. We may be liable to our customers for any breach in
our security and any breach could harm our reputation. We rely on encryption
technology licensed from third parties. Although we have implemented network
security measures, our servers are vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions, which could lead to
interruptions, delays or loss of data. We may be required to expend significant
capital and other resources to license encryption technology and additional
technologies to protect against security breaches or to alleviate problems
caused by any breach. Our failure to prevent security breaches may have a
material adverse effect on our business and operating results.

We depend on broad market acceptance for outsourced Internet-based email
service

The market for outsourced Internet-based email service is new and rapidly
evolving. Concerns over the security of online services and the privacy of
users may inhibit the growth of the Internet and commercial online services. We
cannot estimate the size or growth rate of the potential market for our service
offerings, and we do not know whether our service will achieve broad market
acceptance. To date, substantially all of our revenues have been derived from
sales of our email service offerings and we currently expect that our email
service offerings will account for substantially all of our revenues for the
foreseeable future. We depend on the widespread acceptance and use of
outsourcing as an effective solution for email. If the market for outsourced
email fails to grow or grows more slowly than we currently anticipate, our
business would suffer dramatically.

We expect the email services market will be very competitive and we will need
to compete successfully in this market

We expect that the market for Internet-based email service will be intensely
competitive. In addition to competing with companies that develop and maintain
in-house solutions, we compete with email service providers, such as USA.NET,
Inc. and mail.com, and with product-based companies, such as Software.com, Inc.
and Lotus Development Corporation. We believe that competition will increase
and that companies such as Microsoft Corporation, which currently offers email
products primarily to Internet service providers who provide access to the
Internet, web hosting companies, World Wide Web sites intended to be major
starting site for users when they connect to the Internet, commonly referred to
as web portals, and corporations, may leverage their existing relationships and
capabilities to offer email services.

We believe competition will increase as our 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. Further, any delays in the general market acceptance of the
email hosting concept would likely harm our competitive position. Any such
delay would allow our competitors additional time to improve their service or
product offerings, and also provide time for new competitors to develop email
service solutions 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.

A limited number of customers account for a high percentage of our revenues and
the loss of a major customer or failure to attract new customers could harm our
business

In 1998, E*TRADE accounted for approximately 62% of our net revenues and
TABNet accounted for approximately 30% of our net revenues, excluding the value
of stock purchase rights

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received by customers. In the quarter ended March 31, 1999, E*TRADE accounted
for approximately 48% of our net revenues and TABNet accounted for
approximately 32% of our net revenues, excluding the value of stock purchase
rights received by customers. We expect that sales of our 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 attract new customers in our target
markets. The loss of a major customer or our inability to attract new customers
could have a material adverse effect on our business. Our agreements with our
customers have terms of one to three years with automatic one year renewals and
can be terminated by either party without cause upon 30-120 days' notice.

If we do not successfully address service design risks, our reputation could be
damaged and our business and operating results could suffer

We must accurately forecast the features and functionality required by target
customers. In addition, we must design and implement service enhancements that
meet customer requirements in a timely and efficient manner. We may not
successfully determine customer requirements and we may be unable to satisfy
customer demands. Furthermore, we may not be able to design and implement a
service incorporating desired features in a timely and efficient manner. In
addition, if any new service we launch is not favorably received by customers
and end-users, our reputation could be damaged. If we fail to accurately
determine customer feature requirements or service enhancements or to market
services containing such features or enhancements in a timely and efficient
manner, our business and operating results could suffer materially.

We need to upgrade our systems and infrastructure to accommodate increases in
email traffic

We must continue to expand and adapt our network infrastructure as the number
of users and the amount of information they wish to transmit increases, and as
their requirements change. The expansion and adaptation of our network
infrastructure will require substantial financial, operational and management
resources. Due to the limited deployment of our services to date, the ability
of our network to connect and manage a substantially larger number of customers
at high transmission speeds is unknown, and we face risks related to the
network's ability to operate with higher customer levels while maintaining
expected performance.

As the frequency and complexity of messaging increases, we will need to make
additional investments in our infrastructure, which may be expensive. In
addition, we may not be able to accurately project the rate or timing of email
traffic increases or upgrade our systems and infrastructure to accommodate
future traffic levels. We may also not be able to achieve or maintain a
sufficiently high capacity of data transmission as customer usage increases.
Customer demand for our services could be greatly reduced if we fail to
maintain high capacity data transmission. In addition, as we upgrade our
network infrastructure to increase capacity available to our customers, we are
likely to encounter equipment or software incompatibility which may cause
delays in implementations. We may not be able to expand or adapt our network
infrastructure to meet additional demand or our customers' changing
requirements in a timely manner or at all. If we fail to do so, our business
and operating results could suffer materially.

If we do not successfully address the risks inherent in the expansion of our
international operations, our business could suffer

We intend to continue to expand into international markets and to spend
significant financial and managerial resources to do so. If our revenues from
international operations do not exceed the

12
<PAGE>

expense of establishing and maintaining these operations, our business,
financial condition and operating results will suffer. At present, we have
sales and operations subsidiaries in Germany and the United Kingdom. We have
limited experience in international operations and may not be able to compete
effectively in international markets. We face certain risks inherent in
conducting business internationally, such as:

. unexpected changes in regulatory requirements;

. difficulties and costs of staffing and managing international operations;

. differing technology standards;

. difficulties in collecting accounts receivable and longer collection
periods;

. political and economic instability;

. fluctuations in currency exchange rates;

. imposition of currency exchange controls;

. potentially adverse tax consequences; and

. reduced protection for intellectual property rights in certain countries.

Any of these factors could adversely affect our international operations and,
consequently, our business and operating results. Specifically, failure by us
to successfully manage our 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.

Because we provide our email messaging services over the Internet, our business
could suffer if efficient transmission of data over the Internet is interrupted

The recent growth in the use of the Internet has caused frequent
interruptions and delays in accessing the Internet and transmitting data over
the Internet. To date we have not experienced a significant adverse effect from
these interruptions. However, because we provide email messaging services over
the Internet, interruptions or delays in Internet transmissions will adversely
affect our customers' ability to send or receive their email messages. We rely
on the speed and reliability of the networks operated by third parties.
Therefore, our market depends on improvements being made to the entire Internet
infrastructure to alleviate overloading and congestion.

We depend on telecommunications network suppliers such as MCI WorldCom and
Sprint to transmit email messages across their networks. In addition, to
deliver our services, we rely on a number of public and private peering
interconnections, which are arrangements among access providers to carry one
another's traffic. If these providers were to discontinue these arrangements,
and alternative providers did not emerge or were to increase the cost of
providing access, our ability to transmit our email traffic would be reduced.
If we were to increase our current prices to accommodate any increase in the
cost of providing access, it could negatively impact our sales. If we did not
increase our prices in response to rising access costs, our margins would be
negatively affected. Furthermore, if additional capacity is not added as
traffic increases, our ability to distribute content rapidly and reliably
through these networks will be adversely affected.

If we encounter system failure, we may not be able to provide adequate service
and our business and reputation could be damaged

Our ability to successfully receive and send email messages and provide
acceptable levels of customer service largely depends on the efficient and
uninterrupted operation of our computer and

13
<PAGE>

communications hardware and network systems. Substantially all of our computer
and communications systems are located in Palo Alto and San Francisco,
California and Laurel, Maryland. Our systems and operations are vulnerable to
damage or interruption from fire, flood, earthquake, power loss,
telecommunications failure and similar events. The occurrence of any of the
foregoing risks could subject us to contractual monetary penalties if we fail
to meet our minimum performance standards, and could have a material adverse
effect on our business and operating results and damage our reputation.

We must recruit and retain our key employees to expand our business

Our success depends on the skills, experience and performance of our senior
management and other key personnel, many of whom have worked together for only
a short period of time. For example, our Chief Executive Officer, Chief
Financial Officer, Vice President of Sales and Vice President and Chief
Information Officer have joined us within the past twelve months. The loss of
the services of any of our senior management or other key personnel, including
our founder, David Hayden, and our President and Chief Executive Officer,
Douglas Hickey, could materially and adversely affect our business. We do not
have long-term employment agreements with any of our senior management and
other key personnel. Our success also depends on our ability to recruit, retain
and motivate other highly skilled sales and marketing, technical and managerial
personnel. Competition for these people is intense, and we may not be able to
successfully recruit, train or retain qualified personnel. In particular, we
may not be able to hire a sufficient number of qualified software developers
for our email services. If we fail to retain and recruit necessary sales and
marketing, technical and managerial personnel, our business and our ability to
develop new services and to provide acceptable levels of customer service could
suffer.

Unknown software defects could disrupt our services, which could harm our
business and reputation

Our service offerings depend on complex software, both internally developed
and licensed from third parties. Complex software often contains defects,
particularly when first introduced or when new versions are released. Although
we conduct extensive testing, we may not discover software defects that affect
our 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 by us, defects may occur in the software. These
defects could cause service interruptions, which could damage our reputation or
increase our service costs, cause us to lose revenue, delay market acceptance
or divert our development resources, any of which could cause our business to
suffer.

We may need additional capital and raising additional capital may dilute
existing shareholders

We believe that our existing capital resources, including the anticipated
proceeds of this offering, will enable us to maintain our current and planned
operations for at least the next 12 months. However, we may be required to
raise additional funds due to unforeseen circumstances. If our capital
requirements vary materially from those currently planned, we may 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.

We may not be able to protect our intellectual property and proprietary rights

We regard our copyrights, service marks, trademarks, trade secrets and
similar intellectual property as critical to our success, and rely on trademark
and copyright law, trade secret protection

14
<PAGE>

and confidentiality and/or license agreements with our employees, customers and
partners to protect our proprietary rights. Despite our precautions,
unauthorized third parties may copy certain portions of our services or reverse
engineer or obtain and use information that we regard as proprietary. End-user
license provisions protecting against unauthorized use, copying, transfer and
disclosure of the licensed program may be unenforceable under the laws of
certain jurisdictions and foreign countries. 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 have one patent
pending in the United States and we may seek additional patents in the future.
We do not know if our patent application or any future patent application will
be issued with the scope of the claims we seek, if at all, or whether any
patents we receive will be challenged or invalidated. In addition, the laws of
some foreign countries do not protect proprietary rights to the same extent as
do the laws of the United States. Our means of protecting our proprietary
rights in the United States or abroad may not be adequate and competitors may
independently develop similar technology.

Third parties may infringe or misappropriate our copyrights, trademarks and
similar proprietary rights. In addition, other parties have asserted and may
assert infringement claims against us. For example, we recently received a
letter alleging that our name infringed the trade name of another company.
Although we have not received notice of any alleged patent infringement, 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. We may be subject to
legal proceedings and claims from time to time in the ordinary course of our
business, including claims of alleged infringement of the trademarks and other
intellectual property rights of third parties. Intellectual property litigation
is expensive and time-consuming and could divert management's attention away
from running our business.

We may need to license third party technologies and we face risks in doing so

We also intend to continue to license certain technology from third parties,
including our web server 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. 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,
the diversion of resources from the development of our own proprietary
technology, and our inability to generate revenues from new technology
sufficient to offset associated acquisition and maintenance costs. Our
inability to obtain any of these licenses could delay product and service
development until equivalent technology can be identified, licensed and
integrated. Any such delays in services could cause our business and operating
results to suffer.

Our stock price has been volatile and we expect that this volatility will
continue

Our stock price has been highly volatile since our initial public offering on
March 29, 1999. We expect that this volatility will continue in the future due
to factors such as:

. actual or anticipated fluctuations in our results of operations;

. changes in or failure by us to meet securities analysts' expectations;

. announcements of technological innovations;

. introduction of new services by us or our competitors;

15
<PAGE>

. developments with respect to intellectual property rights;

. conditions and trends in the Internet and other technology industries;
and

. general market conditions.

In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have affected the market prices for the
common stocks of technology companies, particularly Internet companies. These
broad market fluctuations may result in a material decline in the market price
of our common stock. In the past, following periods of volatility in the market
price of a particular company's securities, securities class action litigation
has often been brought against that company. We may become involved in this
type of litigation in the future. Litigation is often expensive and diverts
management's attention and resources, which could have a material adverse
effect upon our business and operating results.

Governmental regulation and legal uncertainties could impair the growth of the
Internet and decrease demand for our services or increase our cost of doing
business

Although there are currently few laws and regulations directly applicable to
the Internet and commercial email services, a number of laws have been proposed
involving the Internet, including laws addressing user privacy, pricing,
content, copyrights, distribution, antitrust and characteristics and quality of
products and services. Further, the growth and development of the market for
online email may prompt calls for more stringent consumer protection laws that
may impose additional burdens on those companies conducting business online.
The adoption of any additional laws or regulations may impair the growth of the
Internet or commercial online services which could decrease the demand for our
services and increase our cost of doing business, or otherwise harm our
business and operating results. Moreover, the applicability to the Internet of
existing laws in various jurisdictions governing issues such as property
ownership, sales and other taxes, libel and personal privacy is uncertain and
may take years to resolve.

If we do not adequately address "Year 2000" issues, we may incur significant
costs and our business could suffer

The Year 2000 issue is the result of computer programs and embedded hardware
systems having been developed using two digits rather than four to define the
applicable year. These computer programs or hardware that have date-sensitive
software or embedded chips may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in system failures or
miscalculations causing disruptions of operations including, among other
things, a temporary inability to process transactions, send invoices or engage
in normal business activities. As a result, many companies' computer systems
may need to be upgraded or replaced in order to comply with the "Year 2000." We
are in the process of testing our internally developed software. Many of our
customers maintain their Internet operations on commercially available
operating systems, which may be impacted by Year 2000 complications. In
addition, we rely on third-party vendors for certain software and hardware
included within our services, which may not be Year 2000 compliant. Failure of
our internal computer systems or third-party equipment or software, or of
systems maintained by our suppliers, to operate properly with regard to the
year 2000 and thereafter could require us to incur significant unanticipated
expenses to remedy any problems and could cause system interruptions and loss
of data. Any of these events could harm our reputation, business and operating
results. We have not yet developed a comprehensive contingency plan to address
the issues that could result from Year 2000 complications. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Issues."

16
<PAGE>

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

As a provider of email 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 email. 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.

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 is also a risk that 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 may need to be used in order to settle claims. Any imposition of
liability, particularly liability that is not covered by insurance or is in
excess of insurance coverage could have a material adverse effect on our
reputation and our business and operating results, or could result in the
imposition of criminal penalties.

Future sales of our common stock may depress our stock price

After this offering, we will have approximately 38.0 million shares of common
stock outstanding. All the shares sold in this offering will be freely
tradable. Approximately 28.6 million shares of common stock outstanding after
this offering are subject to lock-up agreements that prohibit the sale of such
shares until September 25, 1999. Immediately after the lockup period ends,
these shares will become available for sale at various times thereafter upon
the expiration, in some cases, of one-year holding periods. Sales of a
substantial number of shares of common stock in the public market after this
offering or after the expiration of the lockup and holding periods could cause
the market price of our common stock to decline.

Purchasers of our common stock will suffer immediate and substantial dilution

The public offering price is expected to be substantially higher than the pro
forma net tangible book value per share of our common stock. Some elements of
our market value do not originate from measurable transactions. Therefore,
there is not a corresponding rise in "book" or historical cost accounting value
for our rise in market value, if any. Examples of these elements include the
perceived value associated with our strategic relationships, perceived growth
prospects of our core commercial market and our perceived competitive position
within that market. Purchasers of our common stock in this offering will
experience immediate dilution of $72.37 in the pro forma net tangible book
value per share of common stock at an assumed public offering price of $82.25
per share. Purchasers will also experience additional dilution upon the
exercise of outstanding stock options and warrants.

Our directors, executive officers and principal shareholders will be able to
exert significant influence over us

After this offering, our directors, executive officers and our shareholders
who currently own over 5% of our common stock will beneficially own
approximately 61.2% of our outstanding common stock. These shareholders, if
they vote together, will be able to exercise significant influence over all
matters requiring shareholder approval, including the election of directors and
approval of

17
<PAGE>

significant corporate transactions. This concentration of ownership may also
delay or prevent a change in control of Critical Path.

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

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

. authorize the issuance of preferred stock which can be created and issued
by the board of directors without prior shareholder approval, commonly
referred to as "blank check" preferred stock, with rights senior to those
of common stock;

. prohibit shareholder action by written consent; and

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

See "Description of Capital Stock" for additional discussion of these
provisions.

If we do not use the proceeds in a manner beneficial to us, our business could
suffer

We intend generally to use the net proceeds from this offering to acquire
businesses and technologies, expand our sales and marketing activities, open
additional data centers, expand our international operations and for general
corporate purposes, including working capital and strategic investments. We
have not yet determined the actual expected expenditures and thus cannot
estimate the amounts to be used for each specified purpose. The actual amounts
and timing of these expenditures will vary significantly depending on a number
of factors, including, but not limited to, the amount of cash generated by our
operations and the market response to the introduction of any new service
offerings. Depending on future developments and circumstances, we may use some
of the proceeds for uses other than those described above. Our management will
therefore have significant flexibility in applying the net proceeds of this
offering. If the proceeds are not used in a manner beneficial to Critical Path,
our business could suffer and our stock price could decline.

18
<PAGE>

USE OF PROCEEDS

We will receive approximately $236,380,000 from the sale of the 3,000,000
shares offered by Critical Path after deducting the estimated underwriting
discounts and commissions and the estimated offering expenses payable by us. We
will not receive any of the proceeds from the sale of common stock by the
selling shareholders.

We generally intend to use the proceeds of this offering for the following:

. acquisition of businesses and technologies;

. expansion of our sales and marketing activities;

. opening of additional data centers;

. expansion of our international operations; and

. working capital and other general corporate purposes.

We have not yet determined the actual expected expenditures and thus cannot
estimate the amounts to be used for each purpose discussed above. The amounts
and timing of these expenditures will vary significantly depending on a number
of factors, including, but not limited to, the amount of cash generated by our
operations and the market response to the introduction of any new service
offerings.

We expect to use a portion of the net proceeds of this offering to acquire or
invest in businesses, products, services or technologies complementary to our
current business, through mergers, acquisitions, joint ventures or otherwise.
We are currently engaged in discussions with a number of companies regarding
strategic acquisitions or investments. Although these discussions are ongoing,
we have not signed any definitive agreements and we cannot assure you that any
of these discussions will result in actual acquisitions. We intend to invest
the net proceeds of this offering in short-term, interest-bearing investment
grade securities pending the foregoing uses.

DIVIDEND POLICY

We have never declared or paid dividends on our capital stock and do not
anticipate paying any dividends in the foreseeable future. We currently intend
to retain any future earnings for the expansion and operation of our business.
Furthermore, our bank line of credit agreement prohibits the payment of
dividends.

PRICE RANGE OF COMMON STOCK

Our common stock began trading publicly on the Nasdaq National Market on
March 29, 1999 and is traded under the symbol "CPTH." The following table shows
the high and low per share closing prices of the common stock, as reported by
the Nasdaq National Market for the periods indicated.

<TABLE>
<CAPTION>
High Low
------ -----
<S> <C> <C>
1999
First Quarter (From March 29, 1999)......................... 77.00 65.88
Second Quarter (Through May 10, 1999)....................... 134.88 73.50
</TABLE>

On May 10, 1999, the closing price of the common stock on the Nasdaq National
Market was $82.25 per share, and there were approximately 106 holders of record
of the common stock.

19
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of Critical Path as of
March 31, 1999: (A) on an actual basis; (B) on a pro forma basis to reflect the
receipt of net proceeds from our initial public offering of $115.5 million and
the exercise of the over-allotment option for 675,000 shares; and (C) on a pro
forma basis as adjusted to reflect the sale by Critical Path of 3,000,000
shares of common stock offered hereby at an assumed public offering price of
$82.25 per share and the receipt of the estimated net proceeds after deducting
estimated underwriting discounts and commissions and estimated offering
expenses payable by Critical Path. See "Use of Proceeds."

<TABLE>
<CAPTION>
March 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Capital lease obligations, less current
portion....................................... $ 4,095 $ 4,095 $ 4,095
-------- -------- --------
Shareholders' equity:
Preferred Stock, $0.001 par value; 5,000,000
shares authorized, no shares issued and
outstanding, actual; no shares issued and
outstanding, pro forma; no shares issued and
outstanding, pro forma as adjusted.......... -- -- --
Common stock, $0.001 par value; 150,000,000
shares authorized; 34,308,817 shares issued
and outstanding, actual; 34,983,817 shares
issued and outstanding, pro forma;
37,983,817 shares issued and outstanding pro
forma as adjusted........................... 34 35 38
Additional paid-in capital................... 306,629 321,728 558,105
Stock subscriptions receivable............... (100,440) -- --
Notes receivable from shareholders........... (1,180) (1,180) (1,180)
Unearned compensation........................ (151,474) (151,474) (151,474)
Accumulated deficit.......................... (30,129) (30,129) (30,129)
-------- -------- --------
Total shareholders' equity................. 23,440 138,980 375,360
-------- -------- --------
Total capitalization..................... $ 27,535 $143,075 $379,455
======== ======== ========
</TABLE>
- --------
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of March 31, 1999 and does
not include the following:

. 9,728,283 shares subject to options outstanding as of March 31, 1999 at a
weighted average exercise price of $3.50 per share;

. 70,401 additional shares that could be issued under our 1998 Stock Plan
as of March 31, 1999;

. 2,782,288 shares that could be issued upon exercise of outstanding
warrants as of March 31, 1999;

. 600,000 shares that could be issued under our Employee Stock Purchase
Plan; and

. 145,952 shares that could be issued upon exercise of options granted
subsequent to March 31, 1999.

20
<PAGE>

DILUTION

Our pro forma net tangible book value as of March 31, 1999 was $138,980,000,
or $3.97 per share of common stock. Pro forma net tangible book value per share
is determined by dividing the amount of our total tangible assets less total
liabilities by the number of shares of common stock outstanding at that date
(including shares issued and net proceeds of $115.5 million from the initial
public offering and exercise of the underwriters overallotment option).
Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of common
stock in the offering made hereby and the net tangible book value per share of
common stock immediately after the completion of this offering. After giving
effect to the sale of the 3,000,000 shares of common stock offered by Critical
Path hereby (at an assumed public offering price of $82.25 per share and after
deducting the estimated underwriting discounts and commissions and our
estimated offering expenses), our pro forma as adjusted net tangible book value
at March 31, 1999 would have been $375,360,000 or $9.88 per share. This
represents an immediate increase in net tangible book value of $5.91 per share
to the existing shareholders and an immediate dilution of $72.37 per share to
new investors purchasing shares in this offering. The following table
illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed public offering price per share.......................... $82.25
------
Pro forma net tangible book value per share as of March 31,
1999............................................................ $3.97
Increase in net tangible book value per share attributable to
this offering................................................... 5.91
-----
Net tangible book value per share after the offering............. 9.88
------
Dilution per share to new investors.............................. $72.37
======
</TABLE>

The following table summarizes, on a pro forma basis as of March 31, 1999,
the total number of shares of common stock purchased from Critical Path, the
total consideration paid to Critical Path and the average price per share paid
by existing shareholders and by new investors purchasing shares in this
offering (based upon an assumed public offering price of $82.25 per share and
before deducting the estimated underwriting discounts and commissions and our
estimated offering expenses):

<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ -------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders..... 34,983,817 92% $166,026,000 40% $ 4.74
New investors............. 3,000,000 8% 246,750,000 60% $82.25
---------- --- ------------ ---
Total................... 37,983,817 100% $412,776,000 100%
========== === ============ ===
</TABLE>

The foregoing table includes shares issued and net proceeds of $115.5 million
from the initial public offering and exercise of the underwriters overallotment
option for 675,000 shares, and assumes no exercise of any outstanding stock
options or warrants after March 31, 1999. As of March 31, 1999, there were
outstanding options to purchase an aggregate of 9,728,283 shares of common
stock at a weighted average exercise price of $3.50 per share and warrants to
purchase an aggregate of 2,782,288 shares at a weighted average purchase price
of $6.00 per share. To the extent any of these options or warrants are
exercised, there will be further dilution to new investors. See "Management--
1998 Stock Plan" and Notes 6, 7 and 8 of the Notes to Consolidated Financial
Statements.

21
<PAGE>

SELECTED CONSOLIDATED FINANCIAL INFORMATION

The selected consolidated balance sheet data as of December 31, 1997 and 1998
and March 31, 1999 and the selected consolidated statement of operations data
for the period from February 19, 1997 (Inception) to December 31, 1997, for the
year ended December 31, 1998 and for the three months ended March 31, 1998 and
1999 have been derived from the Consolidated Financial Statements of Critical
Path, Inc., included elsewhere in this prospectus. The data set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and the Notes thereto included elsewhere in this prospectus (in
thousands, except per share data).

<TABLE>
<CAPTION>
Period from Three Months Ended
February 19, 1997 Year Ended March 31,
(Inception) to December 31, -------------------
December 31, 1997 1998 1998 1999
----------------- ------------ --------- ---------
(unaudited)
<S> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Net revenues............... $ -- $ 897 $ 70 $ 1,049
Cost of net revenues....... -- (2,346) (82) (2,360)
------- -------- -------- ---------
Gross profit (loss)...... -- (1,449) (12) (1,311)
------- -------- -------- ---------
Operating expenses:
Research and development.. 454 2,098 273 1,379
Sales and marketing....... 244 1,687 135 1,984
General and
administrative........... 358 3,814 307 1,550
Stock-based expenses...... -- 2,400 443 11,657
------- -------- -------- ---------
Total operating
expenses................ 1,056 9,999 1,158 16,570
------- -------- -------- ---------
Loss from operations....... (1,056) (11,448) (1,170) (17,881)
Interest and other income.. -- 375 -- 351
Interest expense........... (18) (388) (150) (64)
------- -------- -------- ---------
Net loss................... $(1,074) $(11,461) $ (1,320) $ (17,594)
======= ======== ======== =========
Net loss per share--basic
and diluted............... $(0.54) $ (2.94) $ (0.49) $ (2.51)
======= ======== ======== =========
Weighted average shares--
basic and diluted......... 1,994 3,899 2,687 7,011
======= ======== ======== =========
Pro forma net loss per
share (unaudited):
Net loss per share--basic
and diluted............. $ (0.81) $ (0.68)
======== =========
Weighted average shares--
basic and diluted....... 14,194 26,018
======== =========
</TABLE>

<TABLE>
<CAPTION>
December 31, March 31, 1999
---------------- -----------------------------
Pro Forma
1997 1998 Actual Pro Forma As Adjusted
------- ------- ------- --------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Cash and cash equivalents...... $ 1 $14,791 $22,506 $138,006 $374,386
Working capital (deficit)...... (1,524) 12,524 18,851 134,351 370,731
Total assets................... 550 20,663 32,681 148,181 384,561
Capital lease obligations,
long-term..................... 42 2,454 4,095 4,095 4,095
Shareholders' equity
(deficit)..................... (1,021) 15,358 23,440 138,940 375,320
</TABLE>

22
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this prospectus.
The following discussion contains forward-looking statements. Our actual
results may differ significantly from those projected in the forward-looking
statements. Factors that might cause future results to differ materially from
those projected in the forward-looking statements include, but are not limited
to, those discussed in "Risk Factors" and elsewhere in this prospectus.

Overview

Our company was founded in February 1997 to deliver email hosting solutions
to Internet service providers, web hosting companies, web portals and
corporations. From inception to October 1997, our operating activities related
primarily to the planning and development of our proprietary technological
solution, recruitment of personnel, raising of capital and purchase of
operating assets. We began our email hosting service in October 1997. We have
since continued to make investments to improve the quality of our service. In
December 1997, we enhanced our initial service offering, a hosting service
based on Post Office Protocol 3, with the addition of a web mail interface.
Post Office Protocol 3 is a standard protocol for receiving email commonly
referred to "POP3". In January 1999, we enhanced service with the addition of
an offering based on the Lightweight Directory Access Protocol, or LDAP, a
directory software protocol. We intend to further enhance our service offering
with the inclusion of IMAP4. IMAP4 is a new hosting service based on the
Internet Message Access Protocol, a standard protocol for accessing and storing
email from a user's server. We have approximately 250 customers.

We derive substantially all of our revenues through the sale of email hosting
services. Our service revenues are derived primarily from contractual
relationships which provide for revenues on a per mailbox basis. These
contracts are typically one to three years in length. Agreements with some of
our customers require minimum performance standards regarding the availability
and response time of our email 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. Service revenues are recognized and
billed on a monthly basis as the service is performed.

We expect to expand our operations and employee base, including our sales,
marketing, technical, operational and customer support resources. In
particular, we intend to expand our sales force to deliver our email
outsourcing services to customers in our four target markets: ISPs, web hosting
companies, web portals and corporations. We also intend to further develop new
and existing strategic relationships to expand our distribution channels and to
undertake joint product development and marketing efforts.

We intend to continue to develop worldwide sales offices and data centers. We
currently have sales and operations subsidiaries in the United States, Germany
and the United Kingdom, and we expect to open additional data centers in the
United States and Europe during the current fiscal year.

23
<PAGE>

During 1998, we recorded aggregate unearned compensation totaling
approximately $19.9 million in connection with the certain sales of stock and
the grant of certain options to employees, directors and consultants. This
amount is being amortized over the four-year vesting period of the related
options. These options were issued to create incentives for continued
performance. Of the total unearned compensation, approximately $366,000,
$217,000, $269,000 and $1.7 million were amortized in the quarters ended March
31, June 30, September 30, and December 31, 1998. In January and March 1999, we
granted options resulting in an additional $18.1 million of unearned
compensation. Amortization of unearned compensation for the first quarter of
1999 was approximately $3.7 million. We expect aggregate per quarter
amortization related to unearned compensation of between $4.9 million and $4.0
million during 1999, between $3.2 million and $2.1 million during 2000, between
$1.7 million and $1.0 million during 2001, and between $742,000 and $331,000
during 2002.

In January 1999, we entered into an agreement with ICQ, a subsidiary of
America Online, pursuant to which we will provide email hosting services that
will be integrated with ICQ's instant messaging service provided to ICQ's
customers. The ICQ instant messaging service is designed to allow users to
communicate in real time over the Internet. As part of the agreement, ICQ
agreed to provide sub-branded advertising for us in exchange for a warrant to
purchase 2,442,766 shares of common stock, issuable upon attainment of each of
five milestones. We believe that this agreement will have a significant current
and potential future impact on our results of operations. The following table
summarizes the shares underlying each milestone and the related exercise price:

<TABLE>
<CAPTION>
Shares
Underlying Exercise
Warrant Price
---------- --------
<S> <C> <C>
Milestone 1............................................. 814,254 $ 4.26
Milestone 2............................................. 407,128 5.50
Milestone 3............................................. 407,128 6.60
Milestone 4............................................. 407,128 8.80
Milestone 5............................................. 407,128 11.00
---------
Totals................................................ 2,442,766
=========
</TABLE>

The shares underlying the first milestone were immediately vested on the
effective date of the agreement. The shares underlying the remaining milestones
vest on the dates that ICQ completes registration of the specified number of
sub-branded ICQ mailboxes applicable to each milestone. Using the Black-Scholes
option pricing model and assuming a term of seven years and expected volatility
of 90%, the initial fair value of the warrant on the effective date of the
agreement approximated $16.5 million, which is being amortized to advertising
expense using the straight-line method over four years. The shares underlying
the second through fifth milestones will be remeasured at each subsequent
reporting date until each sub-branded ICQ mailbox registration threshold is
achieved. In the event such remeasurement results in increases or decreases
from the initial fair value, which could be substantial, such increases or
decreases will be recognized immediately, in the event the fair value of the
shares underlying the milestone has been previously recognized, or over the
remaining term. We expect to incur substantial non-cash charges associated with
the grant of the warrant to ICQ. In addition to amortization of the initial
fair value of this warrant, which totaled $16.5 million, we expect that future
changes in the trading price of our common stock at the end of each quarter and
at the date certain milestones are achieved, will cause additional substantial
changes in the ultimate amount of such amortization. For example, we

24
<PAGE>

recognized a $7.9 million non-cash charge to advertising expense at the end of
the first quarter of 1999 in connection with the amortization of the ICQ
warrant.

At March 31, 1999, none of the registration milestones specified within the
ICQ warrant agreement had been achieved. Therefore, the shares underlying the
second through fifth milestones of the ICQ warrant were remeasured using the
closing price for our common stock on March 31, 1999 of $77 per share. This
remeasurement resulted in an increase to the fair value of the warrant of
$109.4 million, bringing the total fair value of the warrant to $125.9 million
as of March 31, 1999. This revised fair value will be amortized ratably over
four years, resulting in a quarterly amortization charge to advertising expense
in the amount of $7.9 million beginning in the first quarter of 1999. As noted,
this charge is subject to substantial increase or decrease in future quarters
based upon future changes in the trading price of our common stock.

We have incurred significant losses since our inception, and as of March 31,
1999 had an accumulated deficit of approximately $30.1 million. We intend to
invest heavily to acquire new businesses and technologies, expand sales and
marketing, continue development of our network infrastructure and continue
technology developments. We expect to continue to incur substantial operating
losses for the foreseeable future.

In view of the rapidly evolving nature of our business and our limited
operating history, we believe that period-to-period comparisons of our revenues
and operating results, including our 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 March 31, 1999, we had
182 employees, in comparison with 27 employees at March 31, 1998. We do not
believe that our historical growth rates for revenue, expenses, or personnel
are indicative of future results.

25
<PAGE>

Results of Operations

The following table sets forth financial data, expressed as a percentage of
net revenues, for the year ended December 31, 1998 and for the three months
ended March 31, 1998 and 1999. Data for the inception period are not presented
as Critical Path had no revenues in that period. Further, amounts from the
inception period are not comparable to those for the year ended December 31,
1998 due to the different duration of the periods and the acceleration of
Critical Path's activities and related expenses throughout 1998. We believe
that operating expenses will continue to increase in the future as we continue
to expand our operations.

<TABLE>
<CAPTION>
Three Months
Ended March 31,
Year Ended -------------------
December 31, 1998 1998 1999
----------------- -------- --------
<S> <C> <C> <C>
Net revenues............................ 100.0 % 100.0 % 100.0 %
Cost of net revenues.................... (261.5) (117.1) (225.0)
-------- -------- --------
Gross profit (loss)................. (161.5) (17.1) (125.0)
Operating expenses:
Research and development.............. 233.8 390.0 131.5
Sales and marketing................... 188.1 192.9 189.1
General and administrative............ 425.2 438.6 147.8
Stock-based expenses.................. 267.6 632.9 1,111.2
-------- -------- --------
Total operating expenses............ 1,114.7 1,654.3 1,579.6
-------- -------- --------
Loss from operations.................... (1,276.2) (1,671.4) (1,704.6)
Other income (expense):
Interest and other income............. 41.8 -- 33.5
Interest expense...................... (43.3) (214.3) (6.1)
-------- -------- --------
Net loss................................ (1,277.7)% (1,885.7)% (1,677.2)%
======== ======== ========
</TABLE>

Three Months Ended March 31, 1999 Compared to Three Months Ended March 31,
1998

Net Revenues

Our revenues consist principally of fees we earn from providing email hosting
services. Payments for those services are based either on contractual rates per
active mailbox per month, non-refundable fixed payments, or a percentage of the
email advertising revenues earned by our customers. Revenues from contracts
specifying a contractual rate per active mailbox per month are recognized
monthly for each active mailbox covered by the respective contract. Revenues
from contracts that provide non-refundable fixed payments are not dependent
upon the active number of mailboxes, and are therefore recognized ratably over
the contract term. Revenues based upon a percentage of the email advertising
revenues generated by customers are recognized when those revenues are earned
and reported by the customer.

During the quarter ended March 31, 1999, our revenues were $1,049,000, an
increase of $979,000 over the corresponding quarter of 1998. This increase in
revenues resulted from a substantial increase in the number of mailboxes we
hosted during the quarter ended March 31, 1999, in comparison with the
corresponding quarter of 1998. At March 31, 1999, we hosted approximately 1.4
million active mailboxes. At March 31, 1998, by comparison, we hosted
approximately 25,000 mailboxes.

In connection with certain customer contracts executed in 1998, we granted
warrants or options to purchase common stock to such customers. The fair value
of such warrants or options, determined

26
<PAGE>

using the Black-Scholes option pricing model, has been recognized ratably as a
sales discount over the terms of the respective agreements. Amortization of
this discount amounted to $106,000 during the quarter ended March 31, 1999. As
the customer contracts were executed after March 31, 1998, there was no such
amortization in the first quarter of 1998.

In early 1998, we executed agreements with E*TRADE and TABNet, a web hosting
organization, pursuant to which we derived revenue for providing email
services. During the quarter ended March 31, 1999, E*TRADE accounted for
approximately 48% of our net revenues and TABNet accounted for 32% of our net
revenues, excluding the value of stock purchase rights received by customers.

Cost of Net Revenues

Cost of net revenues consists principally of costs incurred in the delivery
and support of our email services, including depreciation of capital equipment
used in our network infrastructure and personnel costs in our operations and
customer support functions. During the quarter ended March 31, 1999, these
costs were $2,360,000, or 225% of net revenues, in comparison with costs of
$82,000, or 117% of net revenues, for the corresponding quarter of 1998. We
have made significant acquisitions of equipment for our data centers over the
past nine months, and as a result our depreciation expense of networking
equipment in the first quarter of 1999 increased substantially in comparison
with the first quarter of 1998. Additionally, we have significantly increased
our staffing in operations and customer support over the past year, and
consequently compensation and other personnel costs were higher in the current
fiscal year. From January 1, 1999 to March 31, 1999, our operations and
customer support staff increased from 25 employees to 50 employees. At March
31, 1998, we had five employees on staff in operations and customer support
functions.

Operating Expenses

Research and Development. Our research and development expenses consist
principally of compensation for our technical staff, payments to outside
contractors, and, to a lesser extent, related overhead. We expense research and
development expenses as they are incurred. Research and development expenses
amounted to $1.4 million, or 132% of net revenues, during the first quarter of
1999, and increased substantially from the corresponding quarter of 1998 due to
our increases in personnel and use of outside contractors. From January 1, 1999
to March 31, 1999, our research and development staff increased from 27
employees to 52 employees. At March 31, 1998, we had 15 employees on staff in
research and development functions.

Sales and Marketing. Our sales and marketing expenses consist principally of
compensation for our sales and marketing personnel, advertising, trade show and
other promotional costs, and, to a lesser extent, related overhead. Sales and
marketing expense during the quarter ended March 31, 1999, amounted to $2.0
million, or 189% of net revenue. Increases in marketing and promotional
expenses, incentive compensation payments to sales personnel, and increases in
compensation associated with additional headcount accounted for the increase to
sales and marketing expense during the first quarter of 1999 in comparison with
the corresponding quarter of 1998. From January 1, 1999 to March 31, 1999, our
sales and marketing staff increased from 30 employees to 61 employees. At March
31, 1998, we had three employees on staff in sales and marketing functions.

General and Administrative. Our general and administrative expenses consist
principally of compensation for personnel, fees for outside professional
services, allocated occupancy costs and, to

27
<PAGE>

a lesser extent, related overhead. General and administrative expenses amounted
to $1.6 million, or 148% of net revenues, during the first quarter of 1999, and
increased substantially in comparison with the corresponding quarter in 1998.
This increase was due primarily to increases in compensation associated with
additional headcount, higher fees for outside professional services, and higher
occupancy costs. From January 1, 1999 to March 31, 1999, our general and
administrative staff increased from 11 employees to 19 employees. At March 31,
1998, we had four employees on staff in general and administrative functions.

Stock-based Expenses

During 1998, we recorded aggregate unearned compensation in the amount of
$19.9 million in connection with the grant of certain stock options during
1998. In the first quarter of 1999, we recorded an additional $18.1 million of
unearned compensation related to the grant of stock options in the months of
January 1999 and March 1999. Amortization of such compensation amounted to
approximately $3.7 million during the first quarter of 1999. Approximately
$400,000 of this amount was allocated to cost of revenues and approximately
$3.3 million was allocated to operating expenses during the quarter.

Additionally, we incurred stock-based expenses for warrants we granted to ICQ
and to one other strategic partner. Amortization of the fair value of these
warrants resulted in stock-based expenses of approximately $8.4 million during
the first quarter of 1999. As noted in the Overview section, quarterly
amortization associated with the ICQ warrant is subject to substantial increase
or decrease in future quarters based upon future changes in the trading price
of our common stock.

Interest and Other Income and Interest Expense

Interest and other income consist primarily of interest earnings on our cash
and cash equivalents. Interest and other income amounted to $351,000 during the
first quarter of 1999. We concluded private placements of equity securities in
April 1998, September 1998, and January 1999. As a result, interest income
increased significantly during the first quarter of 1999 in comparison with
previous periods due to higher cash balances available for investment. During
the first quarter of 1999, we incurred interest expense on capital lease
obligations in the amount of $64,000. In the corresponding quarter of 1998, we
incurred interest expense of $150,000, of which $119,000 related to the
amortization of stock-based charges and the remainder to interest payments on
notes payable and capital obligations.

Income Taxes

No provision for federal and state income taxes has been recorded as we have
incurred net operating losses from inception through March 31, 1999. As of
March 31, 1999, we had approximately $14 million of federal and state net
operating loss carryforwards available to offset future taxable income which
expire in varying amounts beginning in 2005. Under the Tax Reform Act of 1986,
the amounts of and benefits from net operating loss carryforwards may be
impaired or limited in certain circumstances. For example, the amount of net
operating losses that we may utilize in any one year would be limited in the
presence of a cumulative ownership change of more than 50% over a three year
period. Because there is significant doubt as to whether we will realize any
benefit from this deferred tax asset, we have established a full valuation
allowance as of March 31, 1999.

28
<PAGE>

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

Net Revenues

Net revenues include charges relating to the amortization of fair value of
warrants issued to certain customers. In January 1998, we began to recognize
revenues from the sale of our email hosting services. Net revenues for 1998
were $897,000. In early 1998, we executed agreements with E*TRADE and TABNet
pursuant to which we began to derive revenue for providing email services. For
1998, E*TRADE accounted for approximately 62% and TABNet accounted for
approximately 30% of our net revenues, excluding the value of stock purchase
rights received by customers. A substantial portion of those revenues occurred
during the quarter ended December 31, 1998. Net revenues during the quarter
ended December 31, 1998 were $605,000, or 68% of net revenues for 1998.

Costs of Net Revenues

During 1998, our costs of net revenues were approximately $2.3 million, or
261.5% of net revenues. We made significant acquisitions of equipment for our
data centers at the beginning of the quarter ended September 30, 1998, and, as
a result, our depreciation expense increased significantly in the final two
quarters of 1998. Additionally, we significantly increased our headcount in
operations and customer support throughout the year. From January 1, 1998 to
December 31, 1998, operations and customer support personnel increased from
zero to 25.

Operating Expenses

Research and Development. Research and development expenses amounted to $2.1
million, or 233.8% of net revenues, during 1998, and increased substantially
each quarter throughout the year as we increased personnel and our use of
outside contractors. From January 1, 1998 to December 31, 1998, our research
and development personnel increased from 11 to 27.

Sales and Marketing. Sales and marketing expenses amounted to $1.7 million or
188.1% of net revenue during 1998, and increased substantially in the final two
quarters of the year as we expanded our sales force and significantly increased
the promotion of our email hosting services. Increases in compensation
associated with additional headcount, incentive compensation payments, and
increases in advertising and promotional expenses accounted for the increases
to sales and marketing expense in the second half of 1998. From January 1, 1998
to December 31, 1998, our sales and marketing personnel increased from 2 to 30.

General and Administrative. General and administrative expenses amounted to
$3.8 million, or 425.2% of net revenues, during 1998, and increased
substantially in the quarter ended December 31, 1998. Increases in compensation
associated with additional headcount, higher fees for outside professional
services, and the amortization of unearned compensation related to stock and
stock option grants accounted for this increase. From January 1, 1998 to
December 31, 1998, general and administrative personnel increased from 4 to 11.

Stock-based Expenses

During 1998, we recorded aggregate unearned compensation in the amount of
$19.9 million in connection with the grant of certain stock options during
1998. Related amortization totaled $2.5 million during 1998. See Notes 8 and 9
of Notes to Consolidated Financial Statements.

29
<PAGE>

Interest and Other Income and Interest Expense

Interest and other income amounted to $375,000 during 1998. We concluded a
private placement of equity securities in September 1998. As a result, interest
income increased significantly in the final quarter of the year. To date, we
have incurred interest expense on notes payable and capital lease obligations.
For 1998, interest expense amounted to $388,000.

Income Taxes

No provision for federal and state income taxes was recorded as we incurred
net operating losses from inception through December 31, 1998. As of December
31, 1998, we had approximately $8.8 million of federal and state net operating
loss carryforwards available to offset future taxable income which expire in
varying amounts beginning in 2005. Under the Tax Reform Act of 1986, the
amounts of and benefits from net operating loss carryforwards may be impaired
or limited in certain circumstances. For example, the amount of net operating
losses that we may utilize in any one year would be limited in the presence of
a cumulative ownership change of more than 50% over a three year period.
Because there is significant doubt as to whether we will realize any benefit
from this deferred tax asset, we have established a full valuation allowance as
of December 31, 1998.

Quarterly Results of Operations

The following table sets forth certain unaudited quarterly statements of
operations data for the five quarters ended March 31, 1999. This information
has been derived from Critical Path's unaudited consolidated financial
statements, which, in management's opinion, have been prepared on the same
basis as the audited consolidated financial statements, and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information for the quarters presented. This
information should be read in conjunction with the audited consolidated
financial statements of Critical Path and the notes thereto included elsewhere
in this prospectus. The operating results for any quarter are not necessarily
indicative of the operating results for any future period.

<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------------
Mar. 31, 1998 June 30, 1998 Sept. 30, 1998 Dec. 31, 1998 Mar. 31, 1999
------------- ------------- -------------- ------------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net revenues............ $ 70 $ 66 $ 156 $ 605 $ 1,049
Cost of revenues........ (82) (230) (941) (1,093) (2,360)
------- ------- ------- ------- --------
Gross profit (loss)... (12) (164) (785) (488) (1,311)
------- ------- ------- ------- --------
Operating expenses:
Research and
development........... 273 404 560 861 1,379
Sales and marketing.... 135 143 558 851 1,984
General and
administrative........ 307 886 895 1,726 1,550
Stock-based expenses... 443 201 224 1,532 11,657
------- ------- ------- ------- --------
Total operating
expenses............. 1,158 1,634 2,237 4,970 16,570
------- ------- ------- ------- --------
Loss from operations.... (1,170) (1,798) (3,022) (5,458) (17,881)
Interest and other
income (expense), net.. (150) 47 (39) 129 287
------- ------- ------- ------- --------
Net loss................ $(1,320) $(1,751) $(3,061) $(5,329) $(17,594)
======= ======= ======= ======= ========
</TABLE>

Revenues increased substantially in the quarter ended December 31, 1998, as
revenues from E*TRADE rose significantly during this period relative to prior
periods. General and administrative

30
<PAGE>

expenses increased substantially during the quarter ended December 31, 1998,
due to increases in compensation associated with additional headcount, higher
fees for outside professional services, and the amortization of unearned
compensation.

Fluctuations in Quarterly Results

We have incurred operating losses since inception, and we cannot be certain
that we will achieve profitability on a quarterly or annual basis in the
future. Critical Path believes that future operating results will be subject to
quarterly fluctuations due to a variety of factors, including, but not limited
to:

. continued growth of the Internet and of email usage;

. demand for outsourced email services;

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

. our ability to upgrade, develop and maintain our systems and
infrastructure;

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

. technical difficulties or system outages;

. the announcement or introduction of new or enhanced services by our
competitors;

. our ability to attract and retain qualified personnel with Internet
industry expertise, particularly sales and marketing personnel;

. the pricing policies of our competitors;

. failure to increase our international sales; and

. governmental regulation surrounding the Internet and email in particular.

In addition to the factors set forth above, our operating results will be
impacted by the extent to which we incur non-cash charges associated with
stock-based arrangements with the employees and non-employees. In particular,
we expect to incur substantial non-cash charges associated with the grant of a
warrant to America Online. In addition to amortization of the initial fair
value of this warrant, which totaled $16.5 million, we expect that future
changes in the trading price of our common stock at the end of each quarter and
at the date certain milestones are achieved will cause additional substantial
changes in the ultimate amount of such amortization.

31
<PAGE>

Liquidity and Capital Resources

We have funded our operations primarily from the net proceeds from the sale
of preferred stock and our initial public offering. In January 1999 we
completed the second round of the Series B Convertible Preferred Stock
financing through the issuance of approximately 3.2 million shares, including
454,544 shares issued pursuant to outstanding stock purchase rights, for gross
proceeds of $13.6 million. Also in January 1999, we sold 1,090,909 shares of
common stock for gross proceeds of $2.4 million. In April 1999, we received
approximately $115.5 million in net proceeds upon the closing of our initial
public offering of common stock.

Our cash and cash equivalents increased by approximately $7.8 million during
the quarter ended March 31, 1999. This net change occurred as we raised
approximately $13.8 million in proceeds from the sale of equity securities, net
of issuance costs, and used $4.6 million in cash to fund operating activities.
Increased personnel costs and expanded sales and marketing programs were the
primary causes of our increased operating expenses during the first quarter of
1999. Net of depreciation, our investment in property and equipment increased
approximately $3.1 million during the quarter ended March 31, 1999.
Installation of network infrastructure equipment in our data centers, purchases
of furniture and equipment for new employees, and leasehold improvements
related to office expansions accounted for this increase.

We have a credit agreement with a bank which provides a line of credit for
working capital advances of up to $1.0 million. There were no borrowings under
this line of credit as of March 31, 1999. Outstanding borrowings accrue
interest at a rate equal to the bank's prime rate plus 2.0%. Capital lease
obligations, including both short-term and long-term portions, increased
approximately $2.6 million, net of principal repayments, during the quarter
ended March 31, 1999 as we secured financing for a substantial share of our
additions to property and equipment. Deferred revenue decreased $500,000 during
the quarter as we recognized into revenue a payment we had previously received
from one customer as an advance for future service. Our line of credit and
capital lease obligations contain no provisions that would limit our future
borrowing ability.

We believe that our current cash balances and proceeds from this offering
will be sufficient to meet our working capital and capital expenditure
requirements for at least the next 12 months. We anticipate that further
expansion of our operations will cause us to incur negative cash flows on a
short-term basis, and therefore require us to consume our cash and other liquid
resources to support our growth in operations. In addition, our operating and
investing activities on a long-term basis may require us to obtain additional
equity or debt financing. We expect that we will acquire or invest in
businesses, products, services and technologies that complement or augment our
service offerings and customer base. We are currently engaged in discussions
with a number of companies regarding strategic acquisitions or investments.
Although these discussions are ongoing, we have not signed any definitive
agreements and we cannot assure you that any of these discussions will result
in actual acquisitions. We expect that we will pay for some of our acquisitions
by issuing additional common stock and this could dilute our shareholders. In
addition, we may be required to amortize significant amounts of goodwill and
other intangible assets in connection with future acquisitions, which would
materially increase our operating expenses.

Net of depreciation, our investment in property and equipment increased
approximately $3.1 million during the first quarter of 1999. Installation of
network infrastructure equipment in our data center, purchases of furniture and
equipment for new employees, and leasehold improvements related to office
expansions accounted for this increase. We expect that our investment in
property and

32
<PAGE>

equipment will continue to grow as we seek to increase our capacity to provide
email hosting services.

Year 2000 Issues

The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system failures or miscalculations causing disruptions of
operations for any company using such computer programs or hardware, including,
among other things, a temporary inability to process transactions, send
invoices or engage in normal business activities. As a result, many companies'
computer systems may need to be upgraded or replaced in order to avoid
"Year 2000" issues.

We are a comparatively new enterprise, and, accordingly, the software and
hardware we use to manage our business has all been purchased or developed by
us within the last 24 months. While this fact pattern does not uniformly
protect us against Year 2000 exposure, we believe we gain some mitigation from
the fact that the information technology ("IT") we use to manage our business
is not based upon "legacy" hardware and software systems. "Legacy system" is a
term often used to describe hardware and software systems which were developed
in previous decades when there was less awareness of Year 2000 issues.
Generally, hardware and software design within the current decade and the past
several years in particular has given greater consideration to Year 2000
issues. All of the software code we have internally developed to manage our
network traffic, for example, is written with four digits to define the
applicable year.

We are in the process of testing our internal IT and non-IT systems. All of
the testing we have completed has been performed by our own personnel; to date,
we have not retained any outside service or consultants to test or review our
systems for Year 2000 compliance. Based on the testing we have performed, we
believe that this software is Year 2000 compliant. We are designing our systems
to be Year 2000 compliant and will continue to test these systems as
development of these systems progress.

In addition to our internally developed software, we utilize software and
hardware developed by third parties both for our network and internal
information systems. To date, we have not done any testing of such third-party
software or hardware to determine Year 2000 compliance. We have, however,
obtained certifications from our key suppliers of hardware and networking
equipment for our data centers that this hardware and networking equipment are
Year 2000 compliant. Additionally, we have received assurances from the
providers of key software applications for our internal operations that their
software is Year 2000 compliant. Based upon an initial evaluation of our
broader list of software and hardware providers, we are aware that all of these
providers are in the process of reviewing and implementing their own Year 2000
compliance programs, and we will work with these providers to address the Year
2000 issue and continue to seek assurances from them that their products are
Year 2000 compliant.

In addition, we rely on third party network infrastructure providers to gain
access to the Internet. If such providers experience business interruptions as
a result of their failure to achieve Year 2000 compliance, our ability to
provide Internet connectivity could be impaired, which could have a material
adverse effect on our business, results of operations and financial condition.

33
<PAGE>

Our customers' success in maintaining Year 2000 compliance is also
significant to our ability to generate revenues and execute our business plan.
We currently derive revenue either by charging a fixed fee per month for each
mailbox we host, or by sharing advertising revenues with our customers. In
either case, interruptions in our customers' services and on-line activities
caused by Year 2000 problems could have a material adverse effect on our
revenues to the extent that such interruptions limit or delay our customers'
ability to expand their base of email users.

We have not incurred any significant expenses to date, and we do not
anticipate that any future costs associated with our Year 2000 remediation
efforts will be material. However, if we, our customers, our providers of
hardware and software, or our third party network providers fail to remedy any
Year 2000 issues, our service could be interrupted and we could experience a
material loss of revenues that could have a material, adverse effect on our
business, results of operations, and financial condition. We would consider
such an interruption to be the most reasonably likely unfavorable result of any
failure by us, or failure by the third parties upon whom we rely, to achieve
Year 2000 compliance. Presently, we believe we are unable to reasonably
estimate the duration and extent of any such interruption, or quantify the
effect it may have on our future revenues. We have yet to develop a
comprehensive contingency plan to address the issues which could result from
such an event. We are prepared to develop such a plan if our ongoing assessment
leads us to conclude we have significant exposure based upon the likelihood of
such an event. See "Risk Factors--We face Year 2000 risks."

Recent Accounting Pronouncements

In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") No. 98-1, "Software for Internal Use," which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP No. 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998. Critical Path does not
expect that the adoption of SOP No. 98-1 will have a material impact on its
consolidated financial statements.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). Critical Path is required to
adopt SFAS 133 in fiscal 2000. SFAS 133 established methods of accounting for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. Critical Path has not yet
determined what the effect of SFAS 133 will be on its operations and financial
position.

34
<PAGE>

BUSINESS

Company Overview

We are a leading provider of email hosting services. Our email services are
designed to allow a wide range of organizations, including Internet service
providers, web hosting companies, web portals and corporations, to reduce costs
and improve customer service by outsourcing their email systems. Our services
are designed to facilitate scalability and reliability, allow access to
advanced technologies and provide greater access with high levels of security.
In addition, our service is designed to allow our customers to enhance their
brand recognition by maintaining their "look and feel" while improving the
functionality of their email service. We intend to build on our expertise in
email services to provide additional Internet messaging services in the future.
Currently, we have approximately 250 customers and intend to further develop
new and existing strategic relationships to expand our distribution channels
and to undertake joint product development and marketing efforts. Our strategic
partners to date include ICQ, a subsidiary of America Online, E*TRADE, Network
Solutions, Sprint and U S WEST.

Recent Developments

Since our initial public offering, we have announced several strategic
contracts that help us to expand both our customer base and broaden our global
reach. We have expanded our relationship with America Online so it now includes
ICQ, AOL Latin America and AOL Enterprise, which provides us with access to one
of the largest concentrated customer bases of email users on the Internet. Our
relationship with Promus provides us with access to 1,362 hotels with more than
194,000 rooms in North and South America. Furthermore, we have significantly
expanded our international customer base to include Asiamail, Avantel British
Telecom and o.tel.o.

Industry Background

Growth of the Internet and Email

The Internet has experienced rapid growth and has developed into a
significant tool for global communications, commerce and media, enabling
millions of people to share information and transact business electronically.
International Data Corporation ("IDC") estimates that there were over
55 million web users in the United States and over 142 million worldwide at the
end of 1998. IDC projects these numbers to increase to over 135 million web
users in the United States and over 399 million worldwide by the end of 2002.
Internet-based businesses have emerged to offer a variety of products and
services over the Internet. Additionally, many traditional businesses now use
the Internet for a growing number of applications, including advertising,
sales, customer service and training. Advances in on-line security and payment
mechanisms have also prompted more businesses and consumers to engage in
electronic commerce. IDC estimates that the number of customers buying goods
and services on the Internet will grow from 17.6 million worldwide in 1997 to
128.4 million worldwide in 2002. The growth of the Internet is the result of a
number of factors, including the extensive and growing installed base of
advanced personal computers in the home and workplace, increasingly faster and
cheaper access to the Internet, improvements in network infrastructure and an
increased awareness of the Internet among consumer and business users.
Alternative access devices, including television set-top boxes, personal
digital assistants, pagers, Internet capable telephones and wireless phones are
also contributing to the increasing use of the Internet. Further, the
development of applications for the Internet platform has helped fuel the
growth of the Internet.

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<PAGE>

Email, one of the most popular Internet applications, has broadened from a
simple personal messaging tool to a strategic business tool. According to
Electronic Mail & Messaging Systems ("EMMS"), there were 263 million electronic
mailboxes worldwide as of September 30, 1998. EMMS estimated that this number
increased to 382 million electronic mailboxes worldwide as of March 31, 1999.
According to the Gartner Group, approximately 300 billion electronic mail
messages were sent in 1998. Email messages have increased in volume and
functionality, and this trend is expected to continue. For example, email is
expected to become a major vehicle for e-commerce transactions. Forrester
Research predicts that the typical online consumer will participate in eight to
ten commerce-related exchanges via email per week by 2001. Furthermore, the
electronic mailbox as a locating and delivering device has enabled additional
applications such as directory services, scheduling, document sharing, work-
flow and unified messaging. This increased functionality, along with the
widespread acceptance of email, positions the electronic mailbox as a platform
for other forms of electronic messaging.

Development of Email

Email was initially developed for isolated groups of people working on single
mainframe computers or on small networks of homogeneous computers. Early email
implementations were based on proprietary technologies, incompatible with other
systems and limited to single local area networks ("LANs"). Mail transfer
standards were subsequently developed to carry mail traffic between LANs but
did not allow for communication outside of the user's corporation or service.
While these systems were limited when compared to current email systems, they
became an increasingly important communication tool within many organizations.

Users have migrated to open-standards mail systems, such as Lotus Notes and
Microsoft Exchange, that allow communication with any email user on the
Internet, from proprietary systems, such as Lotus cc:mail and Microsoft Mail.
Simple Mail Transport Protocol ("SMTP"), currently the most widely used mail
standard on the Internet, allows users of proprietary mail systems to
communicate over the Internet by converting messages' internal mail formats to
SMTP before transmission. In addition, new open standards are emerging to
enhance the functionality of email. For example, Post Office Protocol ("POP"),
which has been adopted by most ISPs, allows users to connect to a shared mail
server and download mail to their PC or alternative access device. In addition,
Internet Messaging Access Protocol ("IMAP"), one of the latest email standards,
allows users to access their mailboxes at the server rather than at the desktop
level. This flexibility is particularly valuable for users who access their
mail from a variety of different computers with different email clients such as
Microsoft Outlook, Eudora and HyperText Markup Language ("HTML"), more commonly
known as web-based email.

Current Trends in Email

As the importance of email grows, customers increasingly expect their email
service to meet the same standards of carrier-class reliability and
availability that consumers have traditionally received from their telephone
service providers. For example, email customers expect reliability from their
email service similar to the dial tone they hear when they pick up the
telephone, commonly referred to as web-tone reliability. Similarly, customers
want email access to be as ubiquitous as their telephone access by being able
to download their email from anywhere in the world, at anytime and through a
variety of devices. Just as many individuals have multiple phone numbers for
home and business use, a growing number of people have multiple email accounts.
As a result, domain names, which are the Internet identities that correlate to
unique electronic

36
<PAGE>

addresses such as [email protected], are proliferating. Companies use multiple
domains to build awareness of their brands in electronic communication, and
individuals increasingly use domains to express personal identity.

To address this growth, a wide range of businesses, including ISPs, web
hosting companies, web portals and corporations, are finding that providing
their customers or employees with email access is a necessity. ISPs, web
hosting companies and telecommunication carriers offer email to enhance their
services offerings and to maintain competitiveness with other companies in
their industry. Many web portals offer email service to increase web traffic on
their sites and strengthen their brand due to repeat traffic from users
checking for messages. In addition, corporations increasingly view email as a
means to decrease costs and increase productivity.

Email messages have increased not only in volume but also in complexity. The
use of graphics and multimedia elements is becoming more common and requires
greater functionality on the part of the email service. As organizations and
the numbers of users grow, the ability to accommodate thousands, or millions,
of additional mailboxes in a single domain requires substantial investment in
hardware, software and personnel. Further, in the largest email
implementations, such as ISPs or web portals, the design architecture must
handle complex networking and scale issues across many domains. Web
organizations that implement and host multiple domains for customers incur
substantial additional expenses because of the complexity associated with
hosting multiple domains. There is no unified email service standard, and
online service providers must continually enhance and maintain email
applications for existing standards, as well as seek to develop new features
and functionality for emerging standards. For example, LDAP is an emerging
standard that is the foundation for adding additional applications to login and
access features of email service. Moreover, ISPs and corporations running their
own email must make substantial investments in backup systems and networking
equipment if they are to meet the growing expectation of email service with
carrier class access, availability and reliability.

Today, most organizations are using internal hardware and software solutions
to address their email needs. Many companies attempting to manage expanding and
increasingly sophisticated email systems lack the resources and expertise to
cost-effectively implement, maintain, scale, enhance and service the hardware
and software components of an email system. Businesses often find it difficult
to implement state-of-the-art technology in their own infrastructure and
individuals with the expertise to maintain a sophisticated email system can be
scarce and costly to hire, train and retain. As a result, organizations seeking
to lower their costs and to quicken time to market with complex technologies
are increasingly looking to outsource non-core competencies to maintain
competitiveness.

Critical Path Solution

We deliver advanced email services to ISPs, web hosting companies, web
portals and corporations, giving them the ability to provide a feature-rich
email service to their customers and employees. Our services are designed to
provide the following key benefits:

Lower Total Cost of Ownership

Our customers do not need to lease, buy or continually upgrade existing
hardware and software, or recruit and retain systems engineers and
administrative personnel for their email services. Our service is designed to
reduce customers' administrative burden by eliminating the cycle of purchasing,
installing, testing, debugging and deploying email systems. The software is
maintained at

37
<PAGE>

our facilities, not at customer facilities, and we employ a team of systems
administrators to monitor the service 24 hours a day, seven days a week. By
having the capability to host millions of mailboxes, we provide customers a
cost savings over in-house email solutions through economies of scale.

Scalability; Web-Tone Reliability

Our system's architecture and infrastructure are designed to facilitate
scalability and reliability. While existing email software solutions can scale
to support millions of users at a single domain ([email protected]), we have
designed our architecture to support our service over hundreds of millions of
mailboxes across millions of domains ([email protected], [email protected],
[email protected], etc.), allowing each customer to create email addresses at
his or her own domain. Our hardware and software infrastructure consists of
multiple servers running software in a manner that balances the use of the
servers. This infrastructure allows multiple domain hosting while reducing the
amount of required equipment and capacity. We have created a global network
strategy to provide the type of continuous service that individuals have come
to expect from their telephone service providers. We provide our customers
improved performance through our multiple peering relationships, agreements
with companies with existing peering relationships and the purchase of
additional access to telecommunication paths from national Internet access
providers. For redundancy purposes, we maintain two data centers in the United
States and plan to open additional data centers in the United States and
Europe.

Leading-Edge Technology

We provide our customers with access to advanced technologies. We eliminate
the need for customers and partners to maintain a core competency in email by
having experts with experience in rapidly deploying new technologies, combating
system failures due to unsolicited commercial email traffic and maintaining
network and system security. Our services include POP3, web-based email and, in
the near future, IMAP4, which enables customers to choose the option that suits
their end-users' needs. Customers rely on us to evaluate, test and implement
the leading features to maintain a leading email solution. Our technological
capabilities enable us to quickly implement competitive new technologies for
our customers and end-users, reducing their time to market for leading
technologies.

Anytime, Anywhere Accessibility

We have designed our services to allow easy access by customers and end-
users. Designed and built on open Internet-based standards, our services are
compatible with leading desktop software such as Microsoft Outlook and Eudora.
In addition, we have developed a web-based email interface that is compatible
with leading web browsers, including Microsoft Internet Explorer and Netscape
Navigator. Our email services are designed to allow administrators and end-
users to access their email system anywhere at any time. Our technology is
designed to support innovations in standards-based access devices, such as
hand-held computers, cellular and personal communications services ("PCS")
telephones and pagers.

Enhanced Security

We have created a custom firewall solution to enhance network and data center
security. Using a combination of licensed software technology, internally
developed software and sophisticated third-party hardware, we reduce the
potential for network breaches. We have network and data center

38
<PAGE>

surveillance 24 hours a day, seven days a week to identify and curtail
potential security breaches. We are not aware of any security breaches to our
network.

Branding; Customer Control

Our messaging service solution enables our customers to maintain control over
their own brand and desired functionality. Our fully customized web-based
"brandable" email interfaces include customer logos and preserve the existing
"look and feel" of the customers' brands. Our web-based Mail Administration
Center is designed to give customers control via a secure Account Provisioning
Protocol, a software interface into our platform which allows customers to
integrate their existing functionality with our mail system. This enables
customers to add and delete accounts and functionality either at the domain
level, or at the individual end-user level.

Strategy

Our objective is to be the premier provider of comprehensive, advanced
Internet messaging services. We plan to attain this goal by pursuing the
following key strategies:

Extend Technology Leadership in Messaging Applications

We intend to capitalize on our expertise in email services to deliver
industry-leading functionality to other types of electronic messaging. Building
upon our Internet-based email architecture, we plan to deliver industry-leading
functionality, including global and local directories and other capabilities,
and to deliver new applications that will extend the core functionality of
email and integrate smoothly with existing back office applications. Our
services development team regularly meets with customers and participates in
research projects with leading industry groups and analysts to anticipate
future customer needs. We also participate in open standards organizations and
Internet technology leadership groups, such as IETF (Internet Engineering Task
Force), the North American Network Operators Group and the Coalition Against
Unsolicited Commercial Email, a spam control organization.

Acquire New Businesses and Technologies

We evaluate acquisition opportunities on an ongoing basis and, at the present
time, are engaged in discussions with respect to possible acquisitions of
businesses or technologies. We will continue to seek acquisitions that will
complement our current and planned business activities. We have a dual strategy
in pursuing acquisitions. First, we plan to focus on target companies in our
market with large numbers of email customers which will enable us to expand our
customer base. Second, we will evaluate companies that help us augment our
service offerings for our current and future email customers. In addition,
these value-added services may be used by customers not using our basic email
service to enhance the functionality of their email services. Examples of
services that we may provide include: unified messaging, guaranteed delivery,
digital certificates and calendaring.

Develop and Leverage Strategic Relationships

We intend to expand our marketing and distribution channels through strategic
relationships with key ISPs, web hosting companies, web portals and
corporations to increase quickly the number of electronic mailboxes we host.
Our strategic partners include ICQ, a subsidiary of America Online, E*TRADE,
Network Solutions, Sprint and U S WEST. We intend to further develop new and
existing strategic relationships to expand our distribution channels and to
undertake joint product development and marketing efforts, such as integrating
email into e-commerce applications.

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<PAGE>

Increase Sales and Marketing Efforts

We intend to significantly expand our sales and marketing activities while
focusing on four target markets: ISPs, web hosting companies, web portals and
corporations. In this expansion, we plan to target and hire seasoned sales
professionals with specific expertise and contacts within our focused markets.
We also intend to expand our indirect sales channel by teaming with leading
distributors, resellers and system integrators with strong backgrounds and
market presence. As of March 31, 1999, we had 61 sales and marketing personnel.

Develop Value-Added Services

We intend to extend our services beyond email by offering additional value-
added services. These services are intended to extend our relationships with
current customers, to attract new customers and to allow us to differentiate
ourselves in the email service provider market. We believe that our email
hosting solution can form the foundation of a wide range of Internet messaging
applications for which we intend to provide solutions. Examples of value-added
services or applications that can be leveraged are unified messaging, secure
email, e-commerce and enterprise services.

Expand International Presence

In addition to expanding our U.S. presence, we believe there is substantial
opportunity for outsourcing messaging services in non-U.S. markets. We intend
to capitalize by developing worldwide sales offices, data centers and strategic
relationships. We have established sales and operations subsidiaries in Germany
and the United Kingdom, and we plan to open data centers in Europe. In
addition, we intend to support our worldwide operations by offering localized
web-based email interfaces. For example, we have already developed web-based
email interfaces in 13 languages and dialects.

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<PAGE>

Services

We offer multiple email services to ISPs, web hosting companies, web portals
and corporations. Our "all-in" service model pricing includes all enhancements,
upgrades and new standard features. Pricing is based on a per mailbox, per
month charge that varies depending on functionality and volume. Web portal
market pricing is based on a minimal per mailbox, per month charge plus a share
of revenue generated by advertising on the web-based email interface. Our
standard service offering includes our basic services as part of the monthly
mailbox fee. Our add-ons are included in the basic mailbox offering or offered
as an optional premium service. Our premium services are optional add-ons to
the basic mailbox charge and are offered for an additional charge.

Our service offering includes web-based end-user support. Additional support
through customer help desks is provided 24 hours a day, seven days a week by
contractual agreement. Professional implementation and transitioning support
for new customers is also included in the basic offering.

[VALUE-FUNCTIONALITY CHART APPEARS HERE]

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<PAGE>

Current Services

We have introduced to market a variety of email services. Information
concerning our current email services is summarized in the following table:

<TABLE>
<S> <C> <C> <C> <C>
Class of Target
Service Description Benefits Service Markets
- ----------------------------------------------------------------------------------------------------
Web-Based . Hosting service based on a . Requires no software Basic All
Email web mail interface downloads or configurations
. End-users simply point any
browser
to http://mail.userdomain.com,
enter account name and
password for full email
access

- ----------------------------------------------------------------------------------------------------
POP3 Hosting . Hosting service based . Allows users to connect to a Basic ISPs, web
on Post Office Protocol shared mail server and (Premium hosting,
download email to their add-on corporate
desktop client (Microsoft for
Outlook, Eudora), which portals)
stores the message on the
user's hard drive each time
the inbox is accessed

- ----------------------------------------------------------------------------------------------------
Web-Based . Mail Administration Center . Allows email administrators Basic All
Administration (MAC) to add, delete and modify Add-On
has Secure Socket Layer- accounts online
based brandable web
interface

- ----------------------------------------------------------------------------------------------------
Spam . Utilizes comprehensive . Protects users from Basic All
Blocking/UBE filtering unsolicited bulk email, Add-On
Filtering system commonly referred to as
"spam" or "junk mail"
. Identifies and eliminates
spam

- ----------------------------------------------------------------------------------------------------
Directory . Common directory layer to . Search capabilities Premium All
Services share information between Add-On
(LDAP) various independent
software applications
. LDAP services allow . End-users can update their
publishing of directory own directory entries, and
information for user domain administrators to
communities update, add and delete
entries
. Key component of many
collabora-
tive applications such as
certified delivery and
calendaring

- ----------------------------------------------------------------------------------------------------
Additional . Additional storage in . Provides expandability of Premium All
Data Storage increments of 5 megabytes storage Add-On
space

- ----------------------------------------------------------------------------------------------------
Unified . Private-label unified . Allows users to retrieve Premium Portal
Messaging messaging service through faxes and voice messages by Add-On
JFAX, a company that logging into their email
provides a unified
messaging solution
. Allows users to retrieve
faxes and emails via
voicemail and universal
telephone number
</TABLE>

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<PAGE>

Planned Services

We intend to develop several new Internet messaging services to complement
our existing services.

<TABLE>
<S> <C> <C> <C> <C>
Class
of Target
Service Description Benefits Service Markets
- ------------------------------------------------------------------------------------------------------
IMAP4 . Hosting service that . Email messages and files hosted Basic All
Hosting bridges the gap between on an IMAP server can be
POP3 functionality and web- manipulated from multiple email
based email accessibility environments without the
need to transfer data

- ------------------------------------------------------------------------------------------------------
Double-Byte . Web mail interface in . Allows display of web-based Basic All
Localization double-byte languages: email interface in double-byte Add-On
and Traffic Chinese and Japanese languages and transfer and
storage of messages
containing double-byte message
data

- ------------------------------------------------------------------------------------------------------
Permanent . Archives up to 5 megabytes of . Stores and backs up daily Basic All
Archiving data per mailbox included archived documents on its Add-On
in basic service servers

- ------------------------------------------------------------------------------------------------------
ETRN . Email access that does not . Allows store and forward Basic ISP,
require a dedicated access service for some or all Add-On Corporate
line to the Internet messages at a specific domain
. Provides ability to send email
through the Internet while
maintaining the existing
groupware functionality of a
local mailserver

- ------------------------------------------------------------------------------------------------------
Mailing List . Supports custom-generated . Allows for user specified list Premium All
Management lists, digest formats, list management Add-On
filters, auto-subscribe and
unsubscribe, and
confirmation of
subscriptions

- ------------------------------------------------------------------------------------------------------
Calendar and . On-line calendars which . Integrates scheduling function Premium Corporate
Schedule provide groupware with the ability to access the Add-On
Functionality functionality user's schedule and those of
colleagues

- ------------------------------------------------------------------------------------------------------
SSL-Based . SSL-based encryption of . Provides enhanced security of Premium All
Email POP3, IMAP4 and web-based email Add-On
email messages messages

- ------------------------------------------------------------------------------------------------------
USENET/ . Public and private . Facilitates participation in Premium All
Newsgroup newsgroups which give the newsgroup in a web-friendly Add-On
enterprise a platform for manner
discussion outside the
mailing list functionality
. Allows access to messages
stored on a news server

- ------------------------------------------------------------------------------------------------------
Digital . Receipt verification . Verifies that message was Premium All
Certificates service received by the authenticated Add-On
recipient
. Sends a confirmation notice to
sender that the intended
recipient has picked up the
message when both sender and
recipient are hosted on our
system

- ------------------------------------------------------------------------------------------------------
Certified . More sophisticated receipt . In addition to verifying that Premium Corporate
Delivery verification service the message was delivered, Add-On
users return encrypted
digital certificates that
identify them as the recipient
</TABLE>

The statements in this prospectus regarding planned service offerings and
anticipated features of such planned service offerings are forward-looking
statements. Actual service offerings and benefits could differ materially from
those projected as a result of a variety of factors, some or all of which may
be out of our control. For a discussion of some of these factors, see "Risk
Factors."

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<PAGE>

Customers

We currently have the opportunity to offer email services to millions of
mailboxes across our four target markets. The following is a list of companies
with whom we have email services agreements and which have the greatest number
of active mailboxes within their respective categories:

<TABLE>
<S> <C>
Internet Service Providers Web Hosting Companies
- -------------------------- ---------------------
AGIS 123 India
DSL Networks CardSecure
Isp.net Data 2 Info
Las Vegas Digital Internet Navisite
NetConX Network Solutions
Surfree.com TABNet
US Online Network Tonic Domains Corporation
WNC Net True Media Solutions
Sprint Ultima Networks
Worldport Online
</TABLE>

<TABLE>
<CAPTION>
Web Portals Corporations
- ----------- ------------
<S> <C>
Ancestry.com Bank Law Services
E*TRADE Birkenstock
Gayweb California Family Health Council
ifan ChipShot Golf
The Zone Network CompareNet
The Password (a division of Password Internet ICT Financial
Publishing)
Raging Bull Partech International Ventures
Starmedia Photonetics
Third Age Media
U S WEST
</TABLE>

In addition, we plan to initiate email services with Avantel, AsiaMail,
British Telecom, o.tel.o, AOL Latin America, AOL Enterprise and Promus during
the second quarter of 1999.

Target Markets

We intend to expand our marketing and distribution channels through strategic
relationships to rapidly increase the number of electronic mailboxes hosted. We
have developed strategic relationships within four target markets: ISPs, web
hosting companies, web portals and corporations.

Internet Service Providers (ISPs)

Internet service providers are companies that provide access to the Internet.
Email has become an integral part of ISP service offerings. ISPs provide
service via dial-up and ISDN as well as dedicated private-line hookups. For a
monthly fee, customers receive a software package, username, password and
access phone number. Many ISPs offer free home-page hosting to members at the
ISP's domain name (for example, www.ispname.com/~username). Some ISPs are also
providing commercial web hosting (hosting sites at a domain name registered by
the user). ISPs serve large companies by providing a direct connection from the
companies' networks to the Internet.

Web Hosting Companies

Web hosting companies offer corporate customers and individual consumers
hosting of their website on a commercial web server (at a unique domain
registered to the customer). In addition,

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<PAGE>

web hosting companies are increasingly offering web design, domain name
registration service and email services to their customers. We believe that
most business customers are looking for a full-service web hosting company that
can provide domain name registration, basic website services and enhanced
website services including e-commerce and messaging.

Web Portals

Web portals include online communities and search engines which offer a one-
stop source of information to a broad range of users, and vertical portals,
such as E*TRADE, which cater to the needs of a specific audience. The goal of
portal sites is to develop a sense of community in order to draw large online
audiences, encourage repeat visits, and keep users engaged. Portals are
accomplishing this goal by providing users with value-rich content and services
such as search engines, free individual homepages and free email. The majority
of a portal's revenue comes from advertising targeting its large, demographic-
specific audience and repeat website visits.

Corporations

Email has become a mission-critical application for businesses. Many U.S.-
based corporations of varying sizes use email as a primary form of
communication. In addition, the ability to access Internet-based email from
outside the office has added to email's appeal and utility for corporations. A
large percentage of the corporate market's email is supplied internally via LAN
mail systems. Companies are struggling with aging LAN-based systems designed in
the late 1980s and early 1990s when email was used on a much more casual basis
and by a smaller user population. Until recently, Internet standards-based
email has accounted for only a small portion of corporate messaging systems,
but according to Internet Week, that portion will increase to one-third of the
corporate market by the end of the decade.

Strategic Relationships

A key element of our strategy is to expand our marketing and distribution
channels through strategic relationships with entities that are both commercial
partners and/or equity investors or entities with whom we have contractualized
reseller relationships. We believe that these strategic relationships will
enable us to expand our distribution channels and to undertake joint product
development and marketing efforts. The following are examples of our existing
strategic relationships which we believe will position us to increase quickly
the number of electronic mailboxes we host.

America Online/ICQ

In January 1999, we entered into an agreement with ICQ, a subsidiary of
America Online, pursuant to which we will provide email hosting services that
will be integrated with ICQ's instant messaging service provided to ICQ's
customers. The ICQ instant messaging service allows users to communicate in
real time over the Internet. Our agreement with ICQ also provides for our
integration of features of the ICQ instant messaging service with our standard
email services and our offering of these integrated services to our other
customers. In April 1999, we expanded our relationship with America Online to
include AOL Latin America and AOL Enterprise.

E*TRADE Group

In September 1998, we entered into an agreement with E*TRADE, an on-line
brokerage services company, pursuant to which each party will include the other
in certain advertising campaigns,

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including E*TRADE's international and strategic partner relationships. We will
also provide email services to users of E*TRADE's Internet access services.
E*TRADE uses our email services to extend its brand and value-added services to
its fast-growing customer base. As online trading grows, the need for secure
transmissions of trade confirmations grows. In addition, we are in the process
of developing an electronic order confirmation system designed to be SEC
compliant, which could allow online brokerages to conduct most of their
customer communications electronically.

Network Solutions

In May 1998, we entered into an agreement with Network Solutions, currently
the exclusive registrar of Internet domain names, pursuant to which we provide
email outsourcing services to users of Network Solutions' website. In exchange
for our services, Network Solutions will provide domain name registration
services for our customers. Through this agreement, a Network Solutions
customer is able to extend its brand using its unique domain name for its email
address instead of the domain name of its Internet access provider.

Sprint

In September 1998, we entered into an agreement with Sprint's IP Business
Services pursuant to which we provide email services to Sprint's corporate IP
customers. Sprint has over 7,000 sales representatives who can now offer hosted
email services to their business customers at their own domain name. We provide
a dedicated customer support number and a sales support center to support
Sprint's sales representatives. It is expected that Sprint will integrate our
brand and bill email services under the Sprint name.

U S WEST

In December 1998, we entered into an agreement with U S WEST pursuant to
which we provide email services to U S WEST's telephone customers. We believe
that U S WEST views web mail as part of its strategy to offer its telephone
customers value-added Internet services. Web mail is a user-friendly, simple
vehicle to transition telephone customers from dial-tone to web-tone. The
agreement also provides for the enhanced email functionality of US WEST's
!nterprise Internet customers through an email viewer.

Our agreements with our strategic partners 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 of the agreements are terminable by us without cause upon 30 - 120 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. These strategic agreements may be terminated
upon short notice.

Sales and Marketing

Sales Strategy

Our sales efforts target all market segment audiences through direct and
indirect channels. We maintain our own direct sales force to introduce and
educate prospective customers and partners about our service. The direct sales
group targets larger ISPs, telecommunications companies, medium to large
corporate customers, large web hosting companies and high-trafficked web
portals. As of

46
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March 31, 1999, we had 20 account executives in the direct sales group, and we
plan to significantly expand this group in the next 12 months. Offices in the
United States currently include San Francisco, Irvine, San Jose, Seattle, New
York, Denver and Washington D.C. We currently have international offices in
Munich, Germany and London, England. Within our direct sales group, a subgroup
is responsible for retaining and increasing use by existing customers. This
group is critical to ensuring customer satisfaction and selling existing
customers new add-on services as they become available in our service offering.

A telesales group is located in Tempe, Arizona and generates and qualifies
leads for referral to the direct sales group. The target markets of the
telesales group are smaller ISPs, web hosting companies and corporations. The
vast majority of the activity generated through this channel results from phone
calls that we initiate to prospective customers. The telesales group also
handles outbound calls to a specific list of contacts provided by our marketing
organization. In addition, the telesales group follows up on leads resulting
from web and telephone communication initiated by prospective customers and
qualifies those leads by placing additional calls or referring them to the
direct sales group.

The indirect sales channel will use the sales forces of our partners to offer
our services to their end-users. We share revenue with our partners to achieve
this purpose. To gain market presence and market share overseas, we plan to
team with leading distributors, resellers and system integrators that have
strong industry backgrounds and market presence in their respective markets and
geographic regions.

Marketing Strategy

Our marketing strategy includes a media relations and public speaking focus
to develop a reputation as an industry leader for email services and messaging.
We will use narrowly focused, co-branded print and online advertising campaigns
for lead generation. Direct marketing will be used to target specific ISP and
web hosting firms. Co-branded and cooperative direct mail will be the
cornerstone of the direct marketing efforts. Event, forum and trade show
participation will also be used to promote our business-to-business brand
presence.

Enhanced Services Development

Our application management and marketing organizations focus on marketing and
service development. Our application management team monitors new email and
messaging service introductions by our competitors. This in turn assists our
marketing group in determining our application pipeline and feature development
schedules and provides direction for our engineering, operations, sales and
support teams. We also have segment managers for each of our four target
markets who are responsible for defining strategies to address specific needs
within each market. These segment managers work with our technical service
managers, who are in turn responsible for service strategies and development
plans.

Our service management team focuses on provisioning and billing, mail and
directory services and mail center technology. In addition, the services
management team manages a cross-departmental service development effort. The
development process also includes quality-control steps such as reviews, walk-
throughs and post-implementation audits. The services development process
incorporates input from a variety of sources, including our current and
potential customers, and refines this information through a business
prioritization process. The service management team prepares a marketing
requirements document, which is reviewed by our change control board. The

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<PAGE>

change control board, which is attended by a cross-department management team,
prioritizes and schedules our development efforts and assigns resources to the
development project team.

Our services development process involves coordination among our application
management, marketing and service management teams. To support our service
development and marketing functions, we conduct an ongoing analysis of
competitive intelligence, product forecasting, financial analysis and pricing
strategies.

Technology

In offering email services, we employ advanced software and hardware,
combining internal expertise with industry standard technology to create a
proprietary infrastructure.

Mail Center Technology

We have created a proprietary email system, Mail Center Technology ("MCT"),
designed to ensure access to hundreds of millions of mailboxes across millions
of domains. MCT is able to handle high-volume loads for complex and diverse
mail environments such as those required for ISPs, web hosting companies, web
portals and corporations providing email accounts to their end-users for
activities such as trading securities, shopping or participating in online
communities. We have written proprietary load-balancing and email software, and
Oracle Corporation databases are used in account provisioning and management.

MCT is made up of multiple groups of servers and routers acting as a single,
virtual point of contact to customers for email services. Our MCT hardware
consists of Sun Microsystems, Inc. Ultra Enterprise servers, Cisco Systems,
Inc. routers, Network Appliance, Inc. RAID array storage and rackmounted Intel
processor-based servers running Solaris and FreeBSD, a free operating language.
All aspects of MCT are deployed in pairs with the goal of ensuring that if any
process or system goes down, another will be available to handle customer
traffic seamlessly. This behavior is called "transparent failover," and is
designed to increase the availability of email services to the customer. MCT
also includes a dynamic load-balancing system that acts as proxy servers for
firewall safety. The load balancers are configured in parallel to ensure that
if one goes down, the load is transferred to the remaining systems.

MCT currently hosts SMTP, POP3 and web-based email services and will also
host IMAP4 and other services as they are released. Both the hardware capacity
and the services hosted by the mail center can be expanded based on customer
demand.

Simple Mail Transfer Protocol (SMTP)

SMTP is currently the standard mail protocol for the Internet. It allows
hosts on the Internet to route mail from the sender to the destination. All
Internet messages must be sent using SMTP; older proprietary mail systems must
convert their internal mail formats to SMTP in order to communicate effectively
over the Internet.

Post Office Protocol (POP)

With POP, mail is delivered to a shared mail server; users periodically
connect to the server and download all pending mail to their machines.
Thereafter, all mail processing is local to the client machine. POP provides
only the store-and-forward service, moving mail on demand from a mail

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<PAGE>

server to a single destination machine, usually a PC, Macintosh or UNIX
workstation, and then typically deleting the messages from the POP server.

Web-based Email

Web-based email, also known as HTML (Hyper Text Markup Language) email,
allows users to access their mail from any computer with Web browser and
Internet access. This eliminates the need to maintain a separate program for
accessing email.

Internet Message Access Protocol (IMAP)

IMAP is more sophisticated than the POP3 protocol and provides greater
flexibility at the server level. This enhanced service allows users to sort
mail by sender and subject, search for specific text, and manipulate folders
and mailboxes while the files remain on the server, rather than downloading
them to their local desktop. This flexibility is particularly valuable for
users who travel frequently and access their mail from a variety of different
computers and email clients.

Account Provisioning

We have created a proprietary Account Provisioning Protocol ("APP") for
account creation and maintenance. The APP enables accounts transitioning from
other services or legacy systems to be bulk-loaded, tested, replicated and
deployed on our service automatically. This addresses a critical time to market
issue by enabling organizations to quickly transition to the new standards-
based email service with minimal down-time and degradation to their existing
internal systems. In addition, the APP can be used by customers and partners to
facilitate automatic account sign-ups from websites, typically in less than
three minutes.

Data Centers and Network Access

We maintain data centers in San Francisco and Palo Alto, California and
Laurel, Maryland. The data centers have private peering with all major
backbones to allow high-bandwidth access to the Internet. With multiple high-
speed connections to different backbone providers, we have reduced the
likelihood that our customers will suffer downtime as a result of network
outages. Our backbone architecture and interconnection strategy consists of
clear channel DS-3 and OC-3 connections and direct 100 MB/sec Ethernet
connections.

We currently have bilateral peering arrangements in place with the following
organizations:

<TABLE>
<S> <C> <C>
AboveNet Communications Inc. Exodus Communications Nuri Net
Compaq/Digital Equipment
Corporation Frontier GlobalCenter Pilot Network Services
Concentric Networks GTE Internetworking/Genuity Skybytes
Dacom, Inc. @Home Verio
DataResearch Associates Hurricane Electric Web Professionals
Electric Lightwave, Inc. MAXIM XMISSION
</TABLE>

In addition to our peering connections, we currently purchase additional
Internet access from MCI WorldCom and Sprint, through their relationships with
AboveNet Communications Inc.

Our data centers feature redundant systems for power, fire protection,
seismic reinforcement, and security surveillance 24 hours a day, seven days a
week by both personnel and video monitors. If we experience service
interruptions on either the East Coast or the West Coast due to a natural

49
<PAGE>

disaster, all Critical Path-hosted messages will be automatically rerouted to
the data center that is not affected. We intend to open data centers in Europe
and Asia. These data centers will add further redundancy and create a local
connectivity in those markets.

Network Security

We have created a custom firewall solution to reduce the incidence of network
security breaches, utilizing Cisco Systems, Inc. routers for firewall hardware.
To enhance security for the network, our staff members monitor the network and
hardware 24 hours a day, seven days a week. Any suspicious activity is reported
and investigated immediately.

Our operations and engineering staffs include many active participants in
open Internet security groups. Newsgroups and industry consortium postings are
actively monitored for information regarding reported security flaws. Suspected
flaws in software and hardware products that could compromise security are
investigated thoroughly and fixes are implemented, often within a matter of
hours.

The goals of our security efforts are to prevent intruders from gaining
access to our customers' email messages, passwords or financial information, to
protect our server software and design information from being accessed by
intruders, and to prevent malicious individuals from causing service failure or
slowdown. We accomplish these goals by ensuring that our server clusters are
entirely isolated from the Internet at large except for the specific services
we provide, continuously monitoring the network to detect intrusion attempts,
staying up to date on current security issues, and tracking abuse incidents,
such as "spamming," blocking as necessary, and reporting incidents to the
appropriate originating ISPs.

Spam Blocking

Our basic email and web-based email services include comprehensive spam
prevention at no additional charge. This spam prevention is currently being
used to screen messages for all of our service partners and customers.

Our engineers have written proprietary "learning" software that automatically
screens incoming messages for telltale items in message headers and subject
lines. We have also developed a comprehensive database of commonly forged
addresses and frequently abused domain names. Most additions to the "black
list" have been reported by our end-users, who are encouraged to notify us of
suspected abuse. The black list is actively reviewed to ensure that no
legitimate domains or individual users are blocked from accessing the system or
sending messages.

In addition to filtering technology at the server level, our personnel
monitor incoming messages 24 hours a day, seven days a week. We are part of a
group of key network operators and ISPs working to develop technologies and
other measures aimed at protecting users from junk email. We have
representatives serving on the Coalition Against Unsolicited Commercial Email,
the leading national organization lobbying for anti-spam legislation. Our
Acceptable Use Policy explicitly states that partners and customers may not use
our service to send unsolicited bulk email.

Customer Support

We provide customer support 24 hours a day, seven days a week by contractual
agreement. Our customer support service consists of two tiers. Tier 1 includes
technical support in response to end- user inquiries. Although our customers
typically provide Tier 1 support directly to their end-

50
<PAGE>

users, they can outsource this function to us and we can provide Tier 1 support
to their end-users via email or web-based support. We also provide support
information on our website.

Tier 2 support includes technical support, provided to our ISP, web hosting,
web portal and corporate customers, via toll-free access and email
correspondence managed by our team of trained technical support
representatives. Our technical support representatives include pooled and
dedicated representatives. Pooled representatives are trained to resolve the
majority of inquiries and, where necessary, to escalate and manage inquiries
through to resolution. Dedicated representatives must meet stringent technical
criteria, are assigned to strategic accounts and assist in identifying and
qualifying new features and functionality in addition to advanced problem
solving.

In an effort to further improve customer satisfaction, we are deploying new
tools designed to allow customers to track the status of their open tickets and
access standard reported metrics through a secure web interface. These tools
will also facilitate our ability to track recurring customer issues that will
identify opportunities for service improvements. Our staff of trained technical
representatives, coupled with leading edge monitoring and tracking tools allows
us to successfully serve the needs of our clients.

Competition

The market for Internet-based email service is characterized by companies
that elect to develop and maintain in-house solutions and companies that seek
outsourcing arrangements for their email service. For customers seeking
outsourcing arrangements, we compete with email service providers, such as
USA.NET, and mail.com, as well as product-based companies, such as Software.com
and Lotus Development Corporation. In addition, companies such as Software.com,
Microsoft, Lotus and Sun Microsystems are currently offering email products
directly to ISPs, web hosting companies, web portals and corporations. These
companies could potentially leverage their existing capabilities and
relationships to enter the email service industry by redesigning their system
architecture, pricing and marketing strategies to sell through to the entire
market. In the future, ISPs, web hosting companies and outsourced application
companies may broaden their service offerings to include outsourced email
solutions.

The level of competition is likely to increase as current competitors
increase the sophistication of their offerings and as new participants enter
the market. In the future, as we expand our service offerings, we expect to
encounter increased competition in the development and delivery of these
services. 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 well-
financed companies. Certain of our competitors may be able to enter into such
strategic or commercial relationships on more favorable terms. Further, certain
of our competitors may offer services at or below cost. In addition, new
technologies and the expansion of existing technologies may increase
competitive pressures on us. Increased competition may result in reduced
operating margins and loss of market share. We believe that our service
solution competes favorably with that of other providers with respect to the
following:

. providing cost savings over in-house solutions by relieving customers of
expenses associated with acquiring and maintaining hardware and software
and the associated administrative burden;

. providing greater functionality and access to leading technologies and
protocols, which in turn enables customers to choose the protocol that
best suits their end-users' needs;

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<PAGE>

. enabling customers to maintain brand control, thereby enhancing their
brand identity; and

. facilitating scalability through an infrastructure designed to support
hundreds of millions of mailboxes across millions of domains.

However, despite our competitive positioning, we may not be able to compete
successfully against current and future competitors, and competitive pressures
we face could have a material adverse effect on our business, operating results
and financial condition.

Intellectual Property

We regard our copyrights, service marks, trademarks, trade secrets and
similar intellectual property as critical to our success, and rely on trademark
and copyright law, trade secret protection and confidentiality and/or license
agreements with our employees, customers, partners and others to protect our
proprietary rights. We have no registered trademarks or service marks to date.
It may be possible for unauthorized third parties to copy certain portions of
our products or reverse engineer or obtain and use information that we regard
as proprietary. Certain end-user license provisions protecting against
unauthorized use, copying transfer and disclosure of the licensed program may
be unenforceable under the laws of certain jurisdictions and foreign countries.
We have one patent pending in the United States. We do not know whether this
patent will be granted or, that if granted, that the patent will not be
challenged or invalidated. In addition, the laws of some foreign countries do
not protect proprietary rights to the same extent as do the laws of the United
States. There can be no assurance that our means of protecting our proprietary
rights in the United States or abroad will be adequate or that competing
companies will not independently develop similar technology.

Other parties have asserted and may assert, from time to time, infringement
claims against us. We may also be subject to legal proceedings and claims from
time to time in the ordinary course of our business, including claims of
alleged infringement of the trademarks and other intellectual property rights
of third parties by us and our licensees. For example, we recently received a
letter alleging that our name infringed the trade name of another company. Such
claims, even if not meritorious, could result in the expenditure of significant
financial and managerial resources.

We also intend to continue to strategically license certain technology from
third parties, including our web server and SSL encryption technology. In the
future, if we add certificate technology to our systems, we may license
additional technology from third-party vendors. We cannot be certain that these
third-party content licenses will be available to us on commercially reasonable
terms or that we will be able to successfully integrate the technology into our
products and services. These third-party in-licenses may expose us to increased
risks, including risks associated with the assimilation of new technology, the
diversion of resources from the development of our own proprietary technology
and our inability to generate revenues from new technology sufficient to offset
associated acquisition and maintenance costs. The inability to obtain any of
these licenses could result in delays in product and service development until
equivalent technology can be identified, licensed and integrated. Any such
delays in services could cause our business, financial condition and operating
results to suffer. See "Risk Factors--We have limited protection of our
intellectual property and proprietary rights."

Government Regulation

Although there are currently few laws and regulations directly applicable to
the Internet and commercial email services, it is possible that a number of
laws and regulations may be adopted with

52
<PAGE>

respect to the Internet or commercial email services covering issues such as
user privacy, pricing, content, copyrights, distribution, antitrust and
characteristics and quality of products and services. Further, the growth and
development of the market for online email may prompt calls for more stringent
consumer protection laws that may impose additional burdens on those companies
conducting business online. The adoption of any additional laws or regulations
may impair the growth of the Internet or commercial online services, which
could, in turn, decrease the demand for our products and services and increase
our cost of doing business, or otherwise have a material adverse effect on our
business, operating results and financial condition. Moreover, the
applicability to the Internet of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes, libel and
personal privacy is uncertain and may take years to resolve. Any such new
legislation or regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to our business or the
application of existing laws and regulations to the Internet could have a
material adverse effect on our business, operating results and financial
condition. See "Risk Factors--We face risks associated with government
regulation and legal uncertainties."

Employees

As of March 31, 1999, we had 182 full-time employees. None of our employees
is covered by collective bargaining agreements. We believe that our relations
with our employees are good.

Facilities

Our principal executive offices are located in San Francisco, California, in
a 31,500 square foot facility under a lease expiring on June 30, 2002, with a
five-year renewal option and a sublease expiring on March 31, 2002. We believe
that our facilities will be adequate for the next 12 months. However, we may
not be able to lease additional space on commercially reasonable terms or at
all.

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<PAGE>

MANAGEMENT

Directors and Executive Officers

The executive officers, directors and key employees of Critical Path and
their ages as of December 31, 1998 are as follows:

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Douglas T. Hickey....... 43 President, Chief Executive Officer and Director
David C. Hayden......... 43 Chairman of the Board of Directors
David A. Thatcher....... 43 Executive Vice President and Chief Financial Officer
Wayne D. Correia........ 32 Chief Technology Officer
Joseph Duncan........... 50 Vice President and Chief Information Officer
Judie A. Hayes.......... 51 Vice President of Corporate Communications
Carolyn J. Patterson.... 34 Vice President of Operations
William H. Rinehart..... 34 Vice President of Sales
Marcy Swenson........... 34 Vice President of Software Engineering
Mari E. Tangredi........ 33 Vice President of Marketing and Strategic Planning
Cynthia D. Whitehead.... 51 Vice President of Customer Service
Christos M. Cotsakos.... 50 Director
Lisa Gansky(1).......... 40 Director
Kevin R. Harvey(1)...... 34 Director
James A. Smith(2)....... 46 Director
George Zachary(2)....... 33 Director
</TABLE>
- --------
(1) Member of Compensation Committee of the Board of Directors.

(2) Member of Audit Committee of the Board of Directors.

Douglas T. Hickey has served as the President and Chief Executive Officer and
a director of Critical Path since October 1998. From February 1998 to October
1998, Mr. Hickey served as Executive Vice President of Frontier Communications
Corporation, a telecommunications company, and as President of Frontier
GlobalCenter. From July 1996 to February 1998, Mr. Hickey served as President
and CEO of GlobalCenter, Inc., a web hosting company. In February 1998,
GlobalCenter was acquired by Frontier. From December 1994 to July 1996, Mr.
Hickey was President of Internet services at MFS Communications, a provider of
high-speed fiber-optic services. From September 1990 to November 1994, Mr.
Hickey was general manager of North American sales and field operations at
Ardis, a Motorola company. Mr. Hickey received a B.S. in economics from Siena
College.

David C. Hayden founded Critical Path and served as the Chairman, President
and Chief Executive Officer and Secretary from its inception in February 1997
to October 1998. Mr. Hayden has served as Chairman of the Board of Directors of
Critical Path since October 1998. From February 1993 to August 1996, Mr. Hayden
served as Chairman, Chief Executive Officer, and co-founder of The McKinley
Group, Inc., creators of Magellan, an Internet search engine. Mr. Hayden
received a B.A. in political science from Stanford University.

David A. Thatcher has served as Executive Vice President, Chief Financial
Officer and Secretary of Critical Path since December 1998, and served as a
director of Critical Path from May 1997 to March 1998 and from May 1998 to
November 1998. From June 1998 to December 1998, Mr. Thatcher served as
President and Chief Executive Officer of Geoworks Corporation, a provider

54
<PAGE>

of software solutions for the wireless market. Mr. Thatcher joined Geoworks
Corporation in March 1997 as Vice President of Finance and Administration and
Chief Financial Officer and was appointed President and Director in January
1998. From May 1996 to January 1997, Mr. Thatcher served as Vice President and
Chief Financial Officer of Diba, Inc., an Internet software company, which was
later acquired by Sun Microsystems, Inc. From January 1996 to May 1996, Mr.
Thatcher served as Vice President and Chief Financial Officer of The McKinley
Group. From March 1993 to November 1995, Mr. Thatcher served as Vice President
and Chief Financial Officer of Peregrine Systems, Inc., a provider of customer
support software. Mr. Thatcher received a B.S. in accounting from San Diego
State University and is a CPA in California.

Wayne D. Correia has served as the Chief Technology Officer since April 1997
and as a director of Critical Path from May 1997 to January 1999. From November
1994 to February 1997, Mr. Correia was President and founder of domainNET, an
Internet strategy, engineering and services company, providing application
hosting and on-demand high-speed wireless Internet connections for mediacasts
and other events. In January 1992, Mr. Correia founded Collaboration
Technologies, a developer of leading-edge computer telephony hardware and
software and was Chief Executive Officer until May 1995. From July 1988 to
October 1993, he worked in the Macintosh Software Architecture Division and
Apple Developer Group at Apple Computer, Inc., a computer manufacturer.

Joseph Duncan has served as Vice President and Chief Information Officer of
Critical Path since December 1998. From December 1997 to December 1998, Mr.
Duncan was founder and Chief Executive Officer of Charybdis Software, a
software company. From June 1993 to November 1997, Mr. Duncan held various
positions at Oracle Corporation, most recently as Senior Vice President for
Groupware Systems and Object-Oriented Tools. Mr. Duncan received a B.A. in
philosophy from the University of Minnesota.

Judie A. Hayes joined Critical Path as Vice President of Corporate
Communications in December 1998. From January 1997 to December 1998, Ms. Hayes
served as Vice President Corporate Marketing and Communications for Frontier
GlobalCenter. From March 1995 to January 1997, Ms. Hayes served as Senior
Director of Corporate Communications for NETCOM On-Line Communication Services,
Inc., an Internet service provider. Ms. Hayes has served as Director of
Marketing Communications for MCI Data Services Division, a telecommunications
company, and Director of Corporate Communications for British Telecom North
America, a telecommunications company. Ms. Hayes received her bachelor's degree
from University of Wisconsin-Whitewater.

Carolyn J. Patterson has served as Vice President of Operations of Critical
Path since January 1999 and as Director of Operations of Critical Path from
August 1998 to January 1999. From January 1998 to July 1998, Ms. Patterson
served as Manager, Strategic Alliances for Sybase Inc. From February 1997 to
January 1998, Ms. Patterson served as General Manager, Data Services Operations
for AT&T Corp. From June 1986 to February 1997, Ms. Patterson worked as a
programmer and later in various AT&T Corp. divisions including sales, product
management, customer care, finance and sales. Ms. Patterson holds a B.S.C. in
decision science from Rider University and an M.B.A. from Monmouth University.

William H. Rinehart joined Critical Path as Vice President, Sales in November
1998. From May 1997 to November 1998, Mr. Rinehart served as Senior Vice
President, General Manager at Frontier GlobalCenter. From July 1996 to June
1997, Mr. Rinehart held a range of positions including Vice President, Product
Development and Vice President, Sales for Genuity, a Bechtel company. He has

55
<PAGE>

also served as Vice President, General Manager at MFS Communications, Internet
Division, from January 1995 to July 1996. From April 1993 to January 1995, Mr.
Rhinehart was a Senior Account Executive at Ardis, a wireless data
communications company. Mr. Rinehart received a B.S. in business administration
from Ball State University.

Marcy Swenson has served as the Vice President of Software Engineering of
Critical Path since June 1997. From May 1995 to June 1997, Ms. Swenson served
as Vice President of Software Development at Providence Systems. In June 1987,
Ms. Swenson co-founded After Hours Software, Inc., which provides custom
software solutions to Fortune 500 customers, and served as Vice President of
Software and Consulting Services until May 1994. Ms. Swenson has completed
advanced studies in Artificial Intelligence at Stanford University, and
received a B.S. in math/computer science from UCLA.

Mari E. Tangredi has served as Vice President, Marketing and Strategic
Planning for Critical Path since February 1998. From June 1995 to November
1997, Ms. Tangredi served as the General Manager/Vice President of Electronic
Commerce of Pacific Bell. From July 1986 to May 1995, Ms. Tangredi worked at
AT&T Corp. as a programmer and later in various positions in sales, emerging
product development and customer care, providing network products and services
to Fortune 500 customers. Ms. Tangredi received a B.S. in M.I.S. from Clarkson
University and an M.B.A in high technology from Northeastern University.

Cynthia D. Whitehead has served as Vice President of Customer Service since
March 1999. From May 1998 to March 1999, Ms. Whitehead was an independent
information technology consultant. From 1997 to May 1998, Ms. Whitehead was
Vice President of Information Technology and Chief Information Officer of SBC
Communications, parent of Pacific Bell and Southwestern Bell. From 1970 to
1997, Ms. Whitehead was employed in various capacities with Pacific Telesis,
most recently as Chief Information Officer and as Vice President--Technology
Services Group of its Pacific Bell operating subsidiary. Ms. Whitehead received
a B.A. in Psychology from Stanford University.

Christos M. Cotsakos has served as a director of Critical Path since May
1998. Mr. Cotsakos has served as President, Chief Executive Officer and a
director of E*TRADE Group, an on-line brokerage services company, since March
1996. From March 1995 to January 1996, Mr. Cotsakos served as President, Co-
Chief Executive Officer, Chief Operating Officer and a director of A.C.
Nielsen, Inc. From September 1993 to March 1995, he served as President and
Chief Executive Officer of Nielsen International. From March 1992 to September
1993, he served as President and Chief Operating Officer of Nielsen Europe,
Middle East and Africa. Mr. Cotsakos serves as a director of National
Processing Company, Forte Software, Inc. and The Fourth Network Communications
Network, Inc. Mr. Cotsakos received a B.A. from William Patterson College and
an M.B.A. from Pepperdine University and is currently pursuing a Ph.D. in
economics at the Management School, University of London.

Lisa Gansky has served as a director of Critical Path since May 1998. Ms.
Gansky has been a Principal at Trading Fours, a venture development company,
since January 1997. From June 1995 to January 1997, Ms. Gansky served as Vice
President of AOL, Inc., an online and Internet services company. From June 1994
to January 1995, Ms. Gansky founded and served as Chief Executive Officer of
Global Network Navigator, Inc., an Internet solutions company.

Kevin R. Harvey has served as a director of Critical Path since April 1998.
Mr. Harvey has been a General Partner of Benchmark Capital, a venture capital
firm, since January 1995. From July 1993

56
<PAGE>

to January 1995, he served as General Manager for Lotus Development
Corporation. In August 1990, Mr. Harvey founded Approach Software Corporation
("Approach"), a software company, where he served as the President and Chief
Executive Officer until July 1993 when Approach was sold to Lotus Development
Corporation. Prior to founding Approach, Mr. Harvey founded Styleware, a
software company, which was subsequently sold to Claris Corporation. Mr. Harvey
is also a director of Silicon Gaming, Inc., an entertainment and gaming
technology company, and a director of several privately held companies. Mr.
Harvey received a B.S.E.E. degree from Rice University, 1987.

James A. Smith has served as a director of Critical Path since January 1999.
Mr. Smith has served as the President and Chief Executive Officer of US West
Dex, a provider of Internet directory and database marketing services, since
October 1997. From March 1996 to October 1997, Mr. Smith served as Vice
President of Local Markets for US West. From July 1992 to March 1996, Mr. Smith
served as Vice President and General Manager of Mass Markets for US West. Mr.
Smith received a B.A. from Willamette University and a J.D. from the University
of Washington.

George Zachary has served as a director of Critical Path since April 1998.
Mr. Zachary has been a partner at Mohr, Davidow Ventures II, a venture capital
firm, since January 1996. From March 1993 to December 1997, Mr. Zachary ran the
consumer products business at Silicon Graphics, Inc., a computer workstation
company. Since September 1986 until March 1993, Mr. Zachary has held various
engineering and marketing management positions at Silicon Graphics, Inc., VPL
Research, Inc., Apple Computer, Inc., Texas Instruments Incorporated and C-ATS
Software Inc. Mr. Zachary received a B.S. degree from Massachusetts Institute
of Technology and Massachusetts Institute of Technology Sloan School of
Management.

We have authorized seven (7) directors. All directors are elected to hold
office until our next annual meeting of shareholders and until their successors
have been elected. Officers are elected at the first board of directors meeting
following the shareholders' meeting at which the directors are elected and
serve at the discretion of the board of directors. There are no family
relationships among any of our directors or executive officers.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for our directors, officers and
other employees and administering various incentive compensation and benefit
plans. The Compensation Committee consists of two outside directors. Lisa
Gansky and Kevin Harvey are currently the two outside directors on our
Compensation Committee.

Director Compensation

We reimburse each member of our board of directors for out-of-pocket expenses
incurred in connection with attending board meetings. No member of our board of
directors currently receives any additional cash compensation. In connection
with their joining the board of directors in May 1998, directors Christos
Cotsakos and Lisa Gansky each received an option to purchase 136,363 shares of
common stock vesting monthly over two years at an exercise price of $0.22 per
share.

57
<PAGE>

Executive Compensation

The following table summarizes all compensation earned by or paid to Critical
Path's Chief Executive Officer and to each of Critical Path's four most highly
compensated executive officers other than the Chief Executive Officer whose
total annual salary and bonus exceeded $100,000 (collectively, the "Named
Executive Officers"), for services rendered in all capacities to Critical Path
during the fiscal year ended December 31, 1998.

Summary Compensation Table for Last Fiscal Year

<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation(1) Awards
----------------- ------------
Security
Underlying
Name and Principal Position Salary Bonus Options (#)
- --------------------------- -------- -------- ------------
<S> <C> <C> <C>
Douglas Hickey(2)
President and Chief Executive Officer.......... $ 51,136 $ -- 2,549,374(4)
David Hayden(3)
Chairman of the Board of Directors............. 170,833 135,000 1,363,636(5)
Wayne Correia
Chief Technology Officer....................... 140,417 25,000 --
Marcy Swenson
Vice President of Software Engineering......... 127,500 40,000 --
Mari E. Tangredi
Vice President of Marketing and
Strategic Planning............................ 108,056 65,000 431,816(6)
</TABLE>
- --------
(1) Other than the salary and bonus described herein, Critical Path did not pay
any executive officer named in the Summary Compensation Table any fringe
benefits, perquisites or other compensation in excess of 10% of such
executive officer's salary and bonus during fiscal 1998.

(2) Mr. Hickey became President and Chief Executive Officer in October 1998.

(3) Prior to October 1998, Mr. Hayden served as Critical Path's Chief Executive
Officer and President as well as its Chairman.

(4) In October 1998, Mr. Hickey received two options to purchase shares of
common stock (an option to purchase 478,468 and 2,070,906 shares at an
exercise price of $0.84, each of which vest in equal installments over 48
months.

(5) Option to purchase 1,363,636 shares of common stock at an exercise price of
$.02 per share vests as to 25% of the shares on the first anniversary of
Mr. Hayden's employment with Critical Path and 1/48th each full month
thereafter.

(6) Includes options to purchase 68,181, 45,454, 227,272 and 90,909 shares at
exercise prices of $0.02, $0.22, $0.84 and $2.20 per share, respectively.
All options vest as to 25% of the shares on the first anniversary of Ms.
Tangredi's employment with Critical Path and 1/48th each full month
thereafter.

58
<PAGE>

Option Grants in Last Fiscal Year

<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Percentage of Annual Rates of Stock
Total Options Price Appreciation for
Granted to Exercise or Option Term(3)
Options Employees in Base Price Expiration ----------------------
Name Granted Fiscal Year(1) ($/Share)(2) Date 5% 10%
- ---- --------- -------------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Douglas Hickey.......... 478,468(4) 4.50% $0.84 10/18/08 18,303,062 29,382,633
2,070,906(5) 19.5 0.84 10/18/08 79,219,343 127,173,963
David Hayden............ 1,363,636(6) 12.9 0.02 3/2/03 53,281,992 84,858,822
Wayne Correia........... -- -- -- -- -- --
Marcy Swenson........... -- -- -- -- -- --
Mari Tangredi........... 68,181(7) 0.64 0.02 3/2/08 2,664,068 4,242,891
45,454(7) 0.43 0.22 6/15/08 1,766,955 2,819,503
227,272(7) 2.14 0.84 9/29/08 8,693,943 13,956,732
90,909(7) 0.86 2.20 12/29/08 3,353,949 5,459,069
</TABLE>
- --------
(1) Based on options to purchase an aggregate of 10,595,453 shares of common
stock granted during fiscal 1998. Under the terms of Critical Path's 1998
Stock Plan, the committee designated by the board of directors to
administer the 1998 Stock Plan retains the discretion, subject to certain
limitations within the 1998 Stock Plan, to modify, extend or renew
outstanding options and to reprice outstanding options. Options may be
repriced by canceling outstanding options and reissuing new options with an
exercise price equal to the fair market value on the date of reissue, which
may be lower than the original exercise price of such canceled options. See
"Stock Plans."

(2) The exercise price on the date of grant was equal to 100% of the fair
market value on the date of grant as determined by the board of directors.

(3) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and do not represent Critical Path's
estimate or projection of the future common stock price. There can be no
assurance that any of the values reflected in the table will be achieved.
Assumes a per share fair market value equal to the initial public offering
price of $24.00.

(4) This incentive stock option has a 10-year term, subject to earlier
termination in certain events related to termination of employment, and
vests as to 1/48th of the shares per month over a four-year period. This
option provides for partial acceleration of vesting upon change of control
of Critical Path, and an early exercise provision.

(5) This non-statutory stock option has a 10-year term, subject to earlier
termination in certain events related to termination of employment, and
vests as to 1/48th of the shares per month over a four-year period. This
option provides for partial acceleration of vesting upon change of control
of Critical Path, and an early exercise provision. In November 1998 this
option was exercised as to 1,274,687 shares.

(6) This incentive stock option has a five-year term, subject to earlier
termination in certain events related to termination of employment, and
vests as to 25% of the shares on the first anniversary of the vest start
date, and vests ratably on a monthly basis thereafter, becoming fully
vested on the fourth anniversary of the vest start date.

(7) These incentive stock options have a ten-year term, subject to earlier
termination in certain events related to termination of employment, and
vest as to 25% of the shares on the first anniversary of the vest start
date, and vest ratably on a monthly basis thereafter, becoming fully vested
on the fourth anniversary of the vest start date.

59
<PAGE>

Aggregated Option Exercises in Last Fiscal
Year And Fiscal Year-End Option Values

<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money
Shares Options at Options at
Acquired Fiscal Year-End Fiscal Year-End(3)
on Value ------------------------- -------------------------
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- --------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Douglas Hickey(1)....... 1,274,687(2) $-- 1,274,687/0 $29,521,750/--
David Hayden............ -- -- 653,409/710,227 15,668,747/17,031,243
Wayne Correia........... -- -- -- --
Marcy Swenson........... -- -- -- --
Mari Tangredi........... -- -- --/431,816 --/9,961,311
</TABLE>
- --------
(1) Mr. Hickey's option agreements allow for early exercise subject to
repurchase by Critical Path over the vesting period. A portion of the
shares acquired by Mr. Hickey upon exercise of his option remain subject to
vesting.

(2) Includes 9,090 shares which are held in trust for benefit of minor
children.

(3) Assumes a per share fair market value equal to the initial public offering
price of $24.00.

1998 Stock Plan

Our 1998 Stock Plan was adopted by the board of directors on January 21,
1998, amended on December 15, 1998 and was amended and restated effective upon
completion of our initial public offering. Our 1998 Stock Plan provides for
awards or sales of shares and options (including incentive stock options
("ISOs") and nonstatutory stock options ("NSOs")). Employees, consultants and
advisors of Critical Path are eligible for all awards except ISOs. Only
employees are eligible for the grant of ISOs. A total of 12,288,741 shares of
common stock has been reserved for issuance under our 1998 Stock Plan and this
amount is increased by 5% each January 1, commencing January 1, 2000.

Our 1998 Stock Plan is administered by our compensation committee and our
non-insider option committee. Our compensation committee consists of at least
two directors who are "non-employee directors," as defined in Rule 16b-3. The
board of directors may amend our 1998 Stock Plan as desired without further
action by Critical Path's shareholders except as required by applicable law.
Our 1998 Stock Plan will continue in effect until terminated by the board or
for a term of 10 years from its original adoption date, whichever is earlier.

The consideration for each award under our 1998 Stock Plan is established by
the compensation committee, but in no event will the option price for ISOs be
less than 100% of the fair market value of the stock on the date of grant.
Awards will have such terms and be exercisable in such manner and at such times
as the compensation committee may determine. However, each ISO must expire
within a period of not more than 10 years from the date of grant.

Our 1998 Stock Plan provides that, in the event of a merger or reorganization
of Critical Path, outstanding options and restricted shares shall be subject to
the agreement of merger or reorganization.

As of March 31, 1999, 13,244,465 awards had been granted under our 1998 Stock
Plan. Such options have exercise prices ranging from $0.02 to $24.00 per share
and a weighted average per share exercise price of $2.71. Options to purchase
2,490,057 shares have been exercised, and 1,026,125 have been cancelled.

60
<PAGE>

Employee Stock Purchase Plan

The board of directors adopted our Employee Stock Purchase Plan effective
upon completion of our initial public offering. A total of 600,000 shares of
common stock have been reserved for issuance under our Employee Stock Purchase
Plan and this amount will be increased by 5% each January 1 commencing January
1, 2000, up to a maximum of 1,000,000 shares per year. Our Employee Stock
Purchase Plan, which is intended to qualify under Section 423 of the Internal
Revenue Code of 1986, as amended, is administered by the board of directors or
by a committee appointed by the board. Employees (including officers and
employee directors of Critical Path but excluding 5% or greater shareholders)
are eligible to participate if they are customarily employed for at least 20
hours per week and for more than five months in any calendar year. Our Employee
Stock Purchase Plan permits eligible employees to purchase common stock through
payroll deductions, which may not exceed 15% of an employee's compensation.

Our Employee Stock Purchase Plan is implemented in a series of overlapping
24 month participation periods. The initial participation period commenced on
the effectiveness of our initial public offering and ends on April 30, 2001.
Subsequent 24 month participation periods will commence on November 1, 1999 and
each May 1 and November 1 thereafter. Purchases will occur on each April 30 and
October 31 (the "purchase dates") during each participation period, excluding
April 30, 1999. If on any purchase date during a participation period the fair
market value of a share of common stock is less than the fair market value on
the commencement of the participation period, the participation period shall be
terminated immediately following such purchase date. The employees who had
enrolled in the terminated participation period shall automatically be enrolled
in the participation period commencing on the day after the purchase date.

The purchase price of the common stock under our Employee Stock Purchase Plan
will be equal to 85% of the fair market value per share of common stock on
either the start date of the offering period or on the purchase date, whichever
is less. Employees may end their participation in an offering period at any
time during that period, and participation ends automatically on termination of
employment with Critical Path. In the event of a proposed dissolution or
liquidation of Critical Path, the offering periods terminate immediately prior
to the consummation of the proposed action, unless otherwise provided by the
board. If there is a proposed sale of all or substantially all of Critical
Path's assets or the merger of Critical Path with or into another corporation,
then the offering period in progress will be shortened and a new exercise date
will be set that is before the sale or merger. The offering period in progress
shall end on the new exercise date. Each participant shall be notified at least
ten business days prior to the new exercise date, and unless such participant
ends his or her participation, the option will be exercised automatically on
the new exercise date. Our Employee Stock Purchase Plan will terminate in 2009,
unless sooner terminated by the board of directors.

401(k) Plan

Critical Path has established a tax-qualified employee savings and retirement
plan (the "401(k) Plan") for which all of Critical Path's employees are
eligible except for employees subject to a collective bargaining agreement and
nonresident aliens with no U.S. source income. Pursuant to the 401(k) Plan,
employees may elect to reduce their current compensation by up to the lower of
16% or the statutorily prescribed limit and have the amount of such reduction
contributed to the 401(k) Plan. The 401(k) Plan permits additional
discretionary matching contributions by Critical Path. To date, Critical Path
has made no such matching contributions. The 401(k) Plan is intended to qualify
under

61
<PAGE>

Section 401 of the Internal Revenue Code of 1986, as amended, so that
contributions by employees or by Critical Path to the 401(k) Plan, and income
earned on plan contributions, are not taxable to employees until withdrawn from
the 401(k) Plan, and so that contributions by Critical Path, if any, will be
deductible by Critical Path when made.

Employment Agreement and Change in Control Arrangements

Critical Path does not currently have any employment contracts in effect with
any of the Named Executive Officers other than Douglas T. Hickey, its
President, Chief Executive Officer and director.

Critical Path and Mr. Hickey are parties to a letter agreement dated October
1, 1998 governing his employment with Critical Path. The agreement sets forth
Mr. Hickey's compensation level and eligibility for salary increases, bonuses,
benefits and option grants under the 1998 Stock Plan. The agreement provides
for accelerated vesting of a portion of Mr. Hickey's options in the event of a
change of control. Mr. Hickey also received a loan in the amount of $500,000,
bearing interest at the applicable federal rate. The loan will be due on the
earlier of five years or 30 days following termination of his employment and is
non-recourse unless Mr. Hickey terminates his employment voluntarily. Mr.
Hickey's employment under the letter agreement is at-will and may be terminated
by Critical Path or Mr. Hickey at any time, with or without cause and with or
without notice.

Limitation of Liability and Indemnification Matters

Critical Path's articles of incorporation limit the liability of directors to
the maximum extent permitted by California law. This limitation of liability is
subject to exceptions including intentional misconduct, obtaining an improper
personal benefit and abdication or reckless disregard of director duties.
Critical Path's articles of incorporation and bylaws provide that Critical Path
may indemnify its directors, officers, employees and other agents to the
fullest extent permitted by law. Critical Path's bylaws also permit it to
secure insurance on behalf of any officer, director, employee or other agent
for any liability arising out of his or her actions in such capacity,
regardless of whether the bylaws would permit indemnification.

Critical Path has entered into agreements to indemnify its directors and
executive officers, in addition to indemnification provided for in Critical
Path's bylaws. These agreements, among other things, provide for
indemnification of Critical Path's directors and executive officers for certain
expenses (including attorneys' fees), judgments, fines and settlement amounts
incurred by any such person in any action or proceeding, including any action
by or in the right of Critical Path, arising out of such person's services as a
director or executive officer of Critical Path, any subsidiary of Critical Path
or any other company or enterprise to which the person provides services at the
request of Critical Path. Critical Path believes that these provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers.

62
<PAGE>

CERTAIN TRANSACTIONS

Transactions with Management and Others

In 1997, Critical Path sold 2,272,727 shares of common stock to David Hayden,
the founder and Chairman of the Board of Critical Path at a purchase price of
$0.01 per share. Critical Path has also entered into a stock option agreement
with Mr. Hayden pursuant to which it granted options to purchase 1,363,636
shares of common stock to Mr. Hayden at a purchase price of $0.02. These
options vest over a four-year period, with a portion vesting in the event of a
merger, reorganization or similar change in the voting control of Critical
Path.

In October 1998, Critical Path entered into a stock option agreement with Mr.
Hickey pursuant to which it granted incentive stock options to purchase 478,468
shares of common stock to Mr. Hickey at a purchase price of $0.84. Also in
October 1998, Critical Path entered into a stock option agreement with Mr.
Hickey pursuant to which it granted non-statutory stock options to purchase
2,070,906 shares of common stock to Mr. Hickey at a purchase price of $0.84.
These options vest over a four-year period, with a portion vesting in the event
of a merger, reorganization or similar change in the voting control of Critical
Path.

During 1998, Critical Path entered into four stock option agreements with
Mari Tangredi pursuant to which it granted incentive stock options to purchase
an aggregate of 431,816 shares of common stock to Ms. Tangredi at purchase
prices of between $0.02 and $2.20. These options vest over a four-year period.

In May 1998, Critical Path entered into a stock option agreement with Mr.
Cotsakos pursuant to which it granted a non-statutory stock option to purchase
136,363 shares of common stock to Mr. Cotsakos at a purchase price of $0.22.
This option vests over a two-year period.

In May 1998, Critical Path entered into a stock option agreement with Lisa
Gansky pursuant to which it granted a non-statutory stock option to purchase
136,363 shares of common stock to Ms. Gansky at a purchase price of $0.22. This
option vests over a two-year period.

Between April 1998 and January 1999, Critical Path sold and issued 19,603,712
shares of its preferred stock for an aggregate consideration of $38,433,214.
Critical Path sold 12,707,851 shares of Series A Preferred Stock in April 1998
at a sale price of $0.72 per share. In addition, 31,870 shares of Series A
Preferred Stock were purchased at a sale price of $0.72 per share pursuant to
the exercise of warrants. Critical Path sold an aggregate of 6,863,991 shares
of Series B Preferred Stock in September 1998 and January 1999 at a sale price
of $4.26 per share. Each share of Series A Preferred Stock and Series B
Preferred Stock converted into one share of common stock upon the closing of
Critical Path's initial public offering.

63
<PAGE>

The following table summarizes purchases, valued in excess of $60,000, of
shares of preferred stock and of common stock by directors, executive officers
and 5% shareholders of Critical Path:

<TABLE>
<CAPTION>
Common
stock
---------
<S> <C>
Directors and Executive Officers
Douglas Hickey........................................................ 1,256,504
The Cotsakos Revocable Trust, UAD 9/3/87.............................. 176,248
David Hayden.......................................................... 2,423,831
Lisa Gansky........................................................... 242,236
5% Shareholders
E*TRADE Group, Inc.................................................... 3,865,876
U S WEST Data Investments, Inc........................................ 2,404,827
Mohr, Davidow Ventures V, L.P......................................... 4,565,282
Benchmark Capital Partners II, L.P.................................... 4,565,282
CMG@Ventures II, L.L.C................................................ 1,737,751
</TABLE>

In December 1998, Critical Path entered into an agreement with US West
pursuant to which Critical Path agreed to provide email services and certain
related development services to US West. In exchange for such services, US
West, through the use of its sales channels, will provide Critical Path
assistance in selling advertising for the email sites of certain customers of
Critical Path. The agreement also provides for the joint development of certain
services and features from time to time.

Certain Business Relationships

In April 1998, Critical Path entered into an agreement with E*TRADE pursuant
to which each party will include the other party in certain advertising
campaigns, including E*TRADE's international and strategic partner
relationships. Critical Path will also provide email services to users of
E*TRADE's Internet access services. In addition, under the terms of the
agreement, Critical Path agreed to develop certain features for its email
services which Critical Path may make available to other customers in addition
to E*TRADE. E*TRADE accounted for approximately 62% of our revenues in 1998.
Christos Cotsakos, the Chief Executive Officer of E*TRADE is a director of
Critical Path. Mr. Cotsakos is the trustee of The Cotsakos Revocable Trust, UAD
9/3/87.

The shares held by Mohr, Davidow Ventures V, L.P. include 4,245,713 shares
held by it and 319,570 shares held by Mohr, Davidow Ventures V, L.P. as nominee
for MDV Entrepreneurs' Network Fund II (A), L.P. and MDV Entrepreneurs' Network
Fund II (B), L.P. George Zachary, a member of Mohr, Davidow Ventures V, L.P.,
is a director of Critical Path.

The shares held by Benchmark Capital Partners II, L.P. are held by it as
nominee for Benchmark Capital Partners II, L.P., Benchmark Founders' Fund II,
L.P., Benchmark Founders Fund II-A, L.P. and Benchmark Members' Fund II, L.P.
Kevin Harvey, a managing member of Benchmark Capital Partners II, L.P., is a
director of Critical Path.

Indebtedness of Management

In November 1998, Critical Path loaned Douglas Hickey, the Chief Executive
Officer of Critical Path, $500,000 pursuant to a five-year promissory note
bearing interest at the rate of 4.51% (the applicable federal rate) per annum.
In November 1998, Mr. Hickey exercised an option to purchase 1,274,687 shares
of common stock by execution of a five-year promissory note in the principal
amount of $1,065,638.94 bearing interest of 4.51% annually.

64
<PAGE>

In January 1999, Critical Path loaned William Rinehart $65,000 pursuant to a
promissory note bearing interest at the rate of 4.64% per annum. Mr. Rinehart
is an executive officer of Critical Path.

Critical Path believes that the foregoing transactions were in its best
interests. It is Critical Path's current policy that all transactions by
Critical Path with officers, directors, 5 percent shareholders and their
affiliates will be entered into only if such transactions are approved by a
majority of the disinterested independent directors, are on terms no less
favorable to Critical Path than could be obtained from unaffiliated parties and
are reasonably expected to benefit Critical Path.

For information concerning indemnification of directors and officers, see
"Management--Limitation of Liability and Indemnification Matters."

65
<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding beneficial
ownership of common stock as of March 31, 1999 by:

. each person or entity known to Critical Path to own beneficially more
than 5% of Critical Path's common stock;

. each of Critical Path's directors;

. each of Critical Path's Named Executive Officers;

. all executive officers and directors as a group; and

. the selling shareholders.

<TABLE>
<CAPTION>
Shares Shares
Beneficially Owned Beneficially Owned
Prior to Offering Number of After Offering(2)
Name and Address of ------------------ Shares ------------------
Beneficial Owner(1) Number Percent Offered(2) Number Percent
- ------------------- ---------- ------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
Benchmark Capital Partners
II, L.P.(3)
2480 Sand Hill Road
Menlo Park, CA 94025........ 4,565,283 13.3% 114,639 4,450,644 13.0%
Mohr, Davidow Ventures V,
L.P.(4)
2775 Sand Hill Road, Suite
240
Menlo Park, CA 94025........ 4,565,283 13.3 114,639 4,450,644 13.0
CMG@Ventures II, L.L.C.
2420 Sand Hill Road
Menlo Park, CA 94025........ 1,737,752 5.1 43,637 1,694,115 4.9
E*TRADE Group, Inc.
Four Embarcadero
2400 Geng Road
Palo Alto, CA 94306......... 3,865,877 11.3 97,077 3,768,800 11.0
U S WEST Data Investments,
Inc.
1999 Broadway, Suite 500
Denver, CO 80202............ 2,404,827 7.0 32,944 2,371,833 6.9
Douglas T. Hickey(5)......... 1,344,463 3.9 120,000 1,224,463 3.6
David Hayden(6).............. 3,247,692 9.3 120,000 3,127,692 9.1
David A. Thatcher(7)......... 196,374 * 60,000 136,374 *
Wayne Correia................ 2,500,000 7.3 60,000 2,440,000 7.1
Marcy Swenson................ 1,113,636 3.3 60,000 1,053,636 3.1
Mari Tangredi(8)............. 106,532 * 30,000 76,532 *
Joseph Duncan(9)............. 47,348 * 25,000 22,348 *
William H. Rinehart(10)...... 56,818 * 25,000 31,818 *
Christos M. Cotsakos(11)..... 176,248 * 0 176,248 *
Lisa Gansky(12).............. 242,236 * 0 242,236 *
Kevin R. Harvey(13).......... 4,565,283 13.3 114,639 4,450,644 13.0
James A. Smith............... 0 * 0 0 *
George Zachary(14)........... 4,565,283 13.3 114,639 4,450,644 13.0
Softbank Technology
Ventures.................... 692,905 3.5 17,400 675,505 2.0
Network Solutions, Inc....... 514,711 2.9 12,925 501,786 1.5
Entities affiliated with
Hambrecht & Quist LLC....... 452,001 2.3 11,350 440,651 1.3
Entities affiliated with
Attractor LP................ 234,628 1.2 5,892 228,736 *
Others....................... 1,761,299 8.9 44,229 1,717,070 5.0
All directors and executive
officers
as a group (15
persons)(15)................ 24,432,617 68.8% 859,299 23,573,268 61.2
</TABLE>
- --------
*Less than 1%.

66
<PAGE>

(1) Unless otherwise indicated, the address for the following shareholders is
c/o Critical Path, Inc., 320 1st Street, San Francisco, California 94105.

(2) Assumes no exercise of the underwriters' over-allotment option. If the
underwriters exercise their over-allotment option in full, each of the
selling shareholders will sell their pro rata share of these additional
shares. Applicable percentage ownership is based on 34,308,817 shares of
common stock outstanding as of March 31, 1999 and 37,308,817 shares
outstanding immediately following completion of this offering. Beneficial
ownership is determined in accordance with the rules and regulations of
the Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of common stock subject to options held by that person that
are currently exercisable or exercisable within 60 days of the date of
this prospectus are deemed outstanding. These shares, however, are not
deemed outstanding for the purposes of computing the percentage ownership
of any other person. Except as indicated in the footnotes to this table
and pursuant to applicable community property laws, each shareholder named
in the table has sole voting and investment power with respect to the
shares set forth opposite such shareholder's name.

(3) Consists of shares held by Benchmark Capital Partners II, L.P. as nominee
for Benchmark Capital Partners II, L.P., Benchmark Founders Fund II, L.P.,
Benchmark Founders Fund II-A, L.P. and Benchmark Members' Fund II, L.P.

(4) Includes 4,245,713 shares held by Mohr, Davidow Ventures V, L.P. and
319,570 shares held by Mohr, Davidow Ventures V, L.P. as nominee from MDV
Entrepreneurs' Network Fund II (A), L.P. and MDV Entrepreneurs' Network
Fund II (B), L.P.

(5) Includes 972,680 shares of common stock subject to Critical Path's right
of repurchase as of May 30, 1999, and 18,181 shares held in the name of
Mr. Hickey's minor children's name. Also includes 69,776 shares subject to
options exercisable within 60 days after March 31, 1999.

(6) Includes 795,454 shares subject to options exercisable within 60 days
after March 31, 1999.

(7) Includes 60,011 shares subject to options exercisable within 60 days after
March 31, 1999.

(8) Includes 14,205 shares subject to options exercisable within 60 days after
March 31, 1999.

(9) Consists of 47,348 shares subject to options exercisable within 60 days
after March 31, 1999.

(10) Includes 18,940 shares subject to options exercisable within 60 days after
March 31, 1999.

(11) Consists of shares held by The Cotsakos Revocable Trust, UAD 9/3/87 of
which Mr. Cotsakos is the trustee and includes 73,872 shares of common
stock subject to Critical Path's right of repurchase as of April 29, 1999.

(12) Includes 73,872 shares of common stock subject to Critical Path's right of
repurchase as of April 29, 1999.

(13) Consists of shares held by Benchmark Capital Partners II, L.P., of which
Mr. Harvey is a managing partner. Mr. Harvey disclaims beneficial
ownership of all such shares except to the extent of his pecuniary
interest therein.

(14) Consists of shares held by Mohr, Davidow Ventures V, L.P., of which Mr.
Zachary is a member. Mr. Zachary disclaims beneficial ownership of all
such shares except to the extent of his pecuniary interest therein.

(15) Includes 1,225,428 shares subject to options exercisable within 60 days
after March 31, 1999, of which 1,255,625 shares of common stock is subject
to Critical Path's right of repurchase as of April 29, 1999.

67
<PAGE>

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 150,000,000 shares of common stock,
par value $0.001 and 5,000,000 shares of preferred stock, par value $0.001. The
following summary of certain provisions of our common stock, preferred stock,
amended and restated articles of incorporation and bylaws is qualified in its
entirety by reference to our amended and restated articles of incorporation and
bylaws, which have been filed as exhibits to the registration statement of
which this prospectus is a part.

Common Stock

As of March 31, 1999, there were 34,308,817 shares of common stock
outstanding, held by approximately 106 shareholders of record.

Holders of our common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the shareholders, including the
election of directors, and do not have cumulative voting rights. Subject to
preferences that may be applicable to any then outstanding preferred stock,
holders of common stock are entitled to receive ratably such dividends, if any,
as may be declared by the board of directors out of funds legally available
therefor. See "Dividend Policy." Upon a liquidation, dissolution or winding up
of Critical Path, the holders of common stock will be entitled to share ratably
in the net assets legally available for distribution to shareholders after the
payment of all debts and other liabilities of Critical Path, subject to the
prior rights of any preferred stock then outstanding. Holders of common stock
have no preemptive or conversion rights or other subscription rights and there
are no redemption or sinking funds provisions applicable to the common stock.
All outstanding shares of common stock are, and the common stock to be
outstanding upon completion of this offering will be, fully paid and
nonassessable.

Preferred Stock

Our board of directors has the authority, without further action by the
shareholders, to issue from time to time the preferred stock in one or more
series and to fix the number of shares, designations, preferences, powers and
relative, participating, optional or other special rights and the
qualifications or restrictions thereof. The preferences, powers, rights and
restrictions of different series of preferred stock may differ with respect to
dividend rates, amounts payable on liquidation, voting rights, conversion
rights, redemption provisions, sinking fund provisions and purchase funds and
other matters. The issuance of preferred stock could decrease the amount of
earnings and assets available for distribution to holders of common stock or
affect adversely the rights and powers, including voting rights, of the holders
of common stock, and may have the effect of delaying, deferring or preventing a
change in control of Critical Path. We currently do not plan to issue any
shares of preferred stock.

Registration Rights

The holders of 25,641,180 shares of common stock have the right to cause us
to register their shares of common stock, as follows:

. Demand Registration Rights: After September 25, 1999, the holders can
send a written request to Critical Path to register their shares with
respect to all or a part of their registrable securities having an
aggregate proceeds, net of underwriting discounts and expenses, exceeding
$12,500,000 and an initial offering price of at least $2.88 per share (as
adjusted for

68
<PAGE>

splits or the like). The initial offering price of $2.88 per share is
equal to four times the price per share of the Series A Preferred Stock,
which was $0.72. The $12,500,000 aggregate proceeds threshold was
negotiated as part of the Series A Preferred Stock financing.

. Piggyback Registration Rights: The holders can request to have their
shares registered anytime Critical Path is filing a registration
statement to register any of our securities for our own account. Such
registration opportunities are unlimited but the number of shares that
can be registered may be eliminated entirely or cut back in certain
situations by the underwriters.

. S-3 Registration Rights: The holders of at least 20% of the registrable
securities can request Critical Path to register their shares if Critical
Path is eligible to use Form S-3 and if the aggregate price of the shares
to the public is at least $1,000,000. The Form S-3 registration
opportunities are not limited.

All of the holders of registrable securities may sell their shares pursuant
to Rule 144 after September 25, 1999, with the exception of 3,227,252 shares
held by holders who purchased these shares in the second closing of the Series
B financing. All of these shares will be eligible for resale under Rule 144
after January 2000.

The registration rights terminate the earlier of 5 years following the
closing of our initial public offering or when Rule 144 becomes available for
the sale of all of the registrable shares during any 90 day period.

Antitakeover Effects of Provisions of Articles of Incorporation and Bylaws

Our articles of incorporation and bylaws authorize us to indemnify our
current and former directors, officers, employees or agents to the fullest
extent permitted by law. Our articles of incorporation eliminate a director's
liability for monetary damages to the fullest extent permitted by the
California Corporations Code. We believe that these provisions will assist us
in attracting or retaining qualified individuals to serve as directors and
officers.

Articles of Incorporation

Under our articles of incorporation, the board of directors has the power to
authorize the issuance of up to 5,000,000 shares of preferred stock and to
determine the price, rights, preferences, privileges and restrictions,
including voting rights, of those shares without further vote or action by the
shareholders. The issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, may delay, defer or prevent a change in control of Critical Path,
may discourage bids for the common stock at a premium over the market price of
the common stock and may adversely affect the market price of and the voting
and other rights of the holders of the common stock. These provisions are
intended to:

. enhance the likelihood of continuity and stability in the composition of
the board of directors and in the policies formulated by the board of
directors,

. discourage certain types of transactions that may involve an actual or
threatened change of control of Critical Path,

. reduce the vulnerability of Critical Path to an unsolicited acquisition
proposal, and

. discourage certain tactics that may be used in proxy fights.

These provisions, however, could have the effect of discouraging others from
making tender offers for our shares and, as a consequence, they also may
inhibit fluctuations in the market price of

69
<PAGE>

our shares that could result from actual or rumored takeover attempts. These
provisions also may have the effect of preventing changes in our management.

Our articles of incorporation provide that our bylaws may be repealed or
amended only by a two-thirds vote of the board of directors or a two-thirds
shareholder vote and that all shareholder action be taken at a shareholders'
meeting. These provisions of the articles of incorporation may only be amended
or repealed by the holders of at least two-thirds of the voting power of all
the then-outstanding shares of stock entitled to vote generally for the
election of directors voting together as a single class.

Bylaws

Our bylaws provide for a board that consists of a range of authorized
directors from four to seven, which exact number can be set and amended from
time to time by our board. The directors will be elected at the annual meeting
of shareholders or any special meeting of shareholders and each director so
elected will hold office until the next annual meeting or until his successor
is duly elected and qualified or until his earlier resignation or removal. The
shareholders may not cumulate their votes in the election of directors when we
become a listed company under Section 301.5(d) of the California Corporations
Code. Unless otherwise restricted by statute, our articles of incorporation or
our bylaws, any director or the entire board may be removed, with or without
cause, by the holders of at least two-thirds of the shares entitled to vote at
an election of directors. Vacancies may be filled by a majority of the
directors then in office or by a sole remaining director.

Special meetings of shareholders may be called by the board of directors, the
chairman of the board, the chief executive officer and president, or by the
holders of shares entitled to cast no less than 10% of the votes at the
meeting. The notice of any special meeting must specify the general nature of
the business to be transacted and no other business may be transacted at such
meeting.

The bylaws may be amended or repealed by the affirmative vote of two-thirds
of the outstanding shares entitled to vote or by the board of directors. The
provisions described above, together with the ability of the board of directors
to issue preferred stock as described above, may deter a hostile takeover or
delay a change in control or management of Critical Path. See "Risk Factors--
Our articles of incorporation and bylaws contain provisions which could delay
or prevent a change of control."

Transactions Involving Interested Parties Under California Law

Section 1203 of the California Corporations Code requires delivery of a
report of an independent appraiser to shareholders in certain reorganizations,
tender offers and cash-for-asset sales proposed by an interested party. The
report must include an opinion as to the fairness of the consideration. An
interested party is a person who indirectly or directly controls the subject
corporation, is directly or indirectly controlled by an officer or director of
the subject corporation or is an entity in which a material financial interest
is held by any director or executive officer of the corporation.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is American Securities
Transfer & Trust.

70
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, we will have 37,061,868 shares of common
stock outstanding based on 34,061,868 shares outstanding at March 31, 1999. The
4,000,000 shares of common stock being sold hereby will be freely tradable,
other than by our "affiliates" as such term is defined in the Securities Act,
without restriction or registration under the Securities Act. Approximately
28.9 million shares of our common stock were issued and sold by us in private
transactions and are restricted shares. These shares are eligible for public
sale if registered under the Securities Act or sold in accordance with Rules
144 or 701 under the Securities Act.

All restricted shares are subject to lock-up agreements with the underwriters
under which the holders of the restricted shares have agreed they will not sell
any common stock owned by them without the prior written consent of the
representatives of the underwriters until September 25, 1999.

The following table indicates approximately when the shares of our common
stock that are not being sold in the offering but which will be outstanding
after the offering is completed will be eligible for sale into the public
market.

Eligibility for Resale into Public Market of Restricted Shares

<TABLE>
<CAPTION>
Time Number of Shares
---- ----------------
<S> <C>
Effective Date 0
After September 25, 1999 26,387,909
</TABLE>

The remaining shares of our common stock, including 3,227,252 shares of
common stock issued upon conversion of the Series B Preferred Stock that we
issued in January 1999, will be eligible for sale into the public market at
various times after the expiration of one-year holding periods. Most of the
restricted shares that will be available for public resale after September 25,
1999 will be subject to volume and other resale restrictions pursuant to Rule
144 because the holders are affiliates of Critical Path.

Subject to limitations on the aggregate offering price of a transaction and
other conditions, Rule 701 may be relied upon with respect to the resale of
securities originally purchased from us by our employees, directors, officers,
consultants or advisers prior to the closing of this offering, pursuant to
written compensatory benefit plans or written contracts relating to the
compensation of such persons. In addition, the SEC has indicated that Rule 701
will apply to stock options granted by us before this offering, along with the
shares acquired upon exercise of these options. Securities issued in reliance
on Rule 701 are deemed to be restricted shares and, beginning 90 days after the
date of this prospectus, unless subject to the contractual restrictions
described above, may be sold by persons other than affiliates subject only to
the manner of sale provisions of Rule 144 and by affiliates under Rule 144
without compliance with its two-year minimum holding period requirements.

In general, under Rule 144 as currently in effect, beginning June 27, 1999, a
person deemed to be our affiliate, or a person holding restricted shares who
beneficially owns shares that were not acquired from us or our affiliate within
the previous two years, would be entitled to sell within any three-month period
a number of shares that does not exceed the greater of:

. 1% of the then outstanding shares of common stock, approximately 370,619
shares immediately after this offering, or

. the average weekly trading volume of the common stock during the four
calendar weeks preceding the date on which notice of the sale is filed
with the Securities and Exchange Commission.

71
<PAGE>

Sales under Rule 144 are subject to certain requirements relating to manner
of sale, notice and availability of current public information about us.
However, if a person (or persons whose shares are aggregated) is not deemed to
have been our affiliate at any time during the 90 days immediately preceding
the sale, he or she may sell his or her restricted shares under Rule 144(k)
without regard to the limitations described above if at least three years have
elapsed since the later of the date the shares were acquired from us or from
our affiliate. The foregoing is a summary of Rule 144 and is not intended to be
a complete description of it.

We intend to file a registration statement under the Securities Act covering
approximately 12,288,741 shares of common stock reserved for issuance under the
1998 Stock Plan. This registration statement is expected to be filed soon after
the date of this prospectus and will automatically become effective upon
filing. Shares registered under this registration statement will be available
for sale in the open market, unless the shares are subject to vesting
restrictions with us or the contractual restrictions described above.

We also intend to register an aggregate of 600,000 shares of common stock
reserved for issuance under our 1999 Employee Stock Purchase Plan.

72
<PAGE>

UNDERWRITING

The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Hambrecht & Quist LLC, Dain Rauscher
Wessels, a division of Dain Rauscher Incorporated, and FAC/Equities, a division
of First Albany Corporation, have severally agreed with Critical Path, subject
to the terms and conditions set forth in the underwriting agreement, to
purchase from Critical Path and the selling shareholders the number of shares
of common stock set forth opposite their names below. The underwriters are
committed to purchase and pay for all such shares if any are purchased.

<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc...............................
Hambrecht & Quist LLC...........................................
Dain Rauscher Wessels...........................................
First Albany Corporation........................................
---------
Total......................................................... 4,000,000
=========
</TABLE>

The underwriters' representatives have advised us that the underwriters
propose to offer the shares of common stock to the public at the public
offering price set forth on the cover page of this prospectus and to certain
dealers at such price less a concession of not in excess of $ per share, of
which $ may be reallowed to other dealers. After the public offering, the
public offering price, concession, and reallowance to dealers may be reduced by
the underwriters' representatives. No such reduction shall change the amount of
proceeds to be received by us as set forth on the cover page of this
prospectus.

The selling shareholders have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 600,000 additional shares of common stock at the same price per
share as will be paid for the 4,000,000 shares that the underwriters have
agreed to purchase. To the extent that the underwriters exercise such option,
each of the underwriters will have a firm commitment to purchase approximately
the same percentage of such additional shares that the number of shares of
common stock to be purchased by it shown in the above table represents as a
percentage of the 4,000,000 shares offered hereby. If purchased, such
additional shares will be sold by the underwriters on the same terms as those
on which the 4,000,000 shares are being sold.

The underwriting agreement contains covenants of indemnity among the
underwriters, the selling shareholders and us against certain civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
underwriting agreement.

Our directors, officers and certain of our other stockholders have each
agreed that, without the prior written consent of BancBoston Robertson Stephens
Inc. on behalf of the underwriters, until September 25, 1999, they will not,
directly or indirectly:

. Offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock
(whether such shares or any such securities are then owned by such
person or are thereafter acquired directly from us); or

73
<PAGE>

. Enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of
common stock;

whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise.

The restrictions described in the previous paragraph do not apply to

. the sale to the underwriters of the shares of common stock under the
underwriting agreement;

. the issuance by us of shares of common stock upon the exercise of an
option or a warrant or the conversion of a security outstanding on the
date of this prospectus which is described in the prospectus;

. transactions by any person other than us relating to shares of common
stock or other securities acquired in open market transactions after the
completion of the offering of the shares of common stock; or

. issuances of shares of common stock or options to purchase shares of
common stock pursuant to our employee benefit plans as in existence on
the date of the prospectus and consistent with past practices.

The underwriters have informed us that they do not intend to confirm sales to
any accounts over which they exercise discretionary authority.

Stabilization Disclosure

The underwriters' representatives have advised us that, pursuant to
Regulation M under the Securities Act, certain persons participating in the
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids which may have the
effect of stabilizing or maintaining the market price of the common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the common stock on behalf of
the underwriters for the purpose of fixing or maintaining the price of the
common stock. A "syndicate covering transaction" is the bid for the purchase of
the common stock on behalf of the underwriters to reduce a short position
incurred by the underwriters in connection with the offering. A "penalty bid"
is an arrangement permitting the underwriters' representatives to reclaim the
selling concession otherwise accruing to an underwriter or syndicate member in
connection with the offering if the common stock originally sold by such
underwriter or syndicate member is purchased by the underwriters'
representatives in a syndicate covering transaction and has therefore not been
effectively placed by such underwriter or syndicate member. The underwriters'
representatives have advised us that such transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.

Regulation M/Passive Market Disclosure

In connection with this offering, certain underwriters and selling group
members (if any) who are qualified market makers on the Nasdaq National Market
may engage in passive market making transactions in our common stock on the
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Securities Exchange Act, as amended, during the business day prior to the
pricing of the offering before the commencement of offers or sales of the
common stock. Passive

74
<PAGE>

market makers must comply with applicable volume and price limitations and must
be identified as such. In general, a passive market maker must display its bid
at a price not in excess of the highest independent bid of such security; if
all independent bids are lowered below the passive market maker's bid, however,
such bid must then be lowered when certain purchase limits are exceeded.

Prior Transactions

In September 1998 and January 1999, Hambrecht & Quist LLC acted as the
placement agent for a private placement of Critical Path's Series B Preferred
Stock. As compensation for its services as placement agent, Hambrecht & Quist
LLC received a cash fee of approximately $1.0 million and warrants to purchase
an aggregate of 121,654 shares of common stock at an exercise price of $4.26
per share, the same price per share paid by all investors who participated in
the private placement. Some entities affiliated with Hambrecht & Quist LLC also
invested in the private placement, purchasing an aggregate of 351,942 shares of
common stock on the same terms and conditions as the other investors in the
private placement, including price per share. Of the foregoing securities,
184,300 shares of common stock and a warrant to purchase an additional 51,364
shares of common stock have been deemed by the NASD to be underwriters'
compensation.

Prior to the closing of our initial public offering, Hambrecht & Quist LLC
exercised each of the warrants described above. In addition, Hambrecht & Quist
LLC and persons associated with it entered into written agreements with
Critical Path, whereby Hambrecht & Quist LLC and these associated persons
agreed that, for a period of three years from the effective date of the
registration statement, they will not sell or otherwise transfer any of the
shares of common stock purchased by them in the private placement that are
deemed to be underwriting compensation or any shares of Critical Path's common
stock received upon conversion of any of these shares of common stock.
Hambrecht & Quist LLC also sold back to Critical Path at $4.26 per share an
aggregate of 53,293 shares held by Hambrecht & Quist LLC or its affiliates. The
$4.26 per share price was equal to the price at which the shares were
originally sold to Hambrecht & Quist LLC and its affiliates.

In February 1999, BancBoston Robertson Stephens made a $2,000,000 loan to
David C. Hayden, our Chairman, pursuant to a promissory note bearing interest
at prime plus .25% per annum for the purchase of a personal residence.

75
<PAGE>

LEGAL MATTERS

Certain legal matters with respect to the validity of the common stock
offered hereby are being passed upon for Critical Path by Wilson Sonsini
Goodrich & Rosati, Palo Alto, California. Certain legal matters in connection
with this offering will be passed upon for the underwriters by Cooley Godward
LLP, San Francisco, California.

EXPERTS

The consolidated financial statements of Critical Path, Inc. as of December
31, 1997 and 1998 and for the period from February 19, 1997 (Inception) through
December 31, 1997 and for the year ended December 31, 1998 included in this
Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 with respect
to the common stock offered hereby. This prospectus, which constitutes a part
of the registration statement, does not contain all of the information set
forth in the registration statement or the exhibits and schedules which are
part of the registration statement. For further information with respect to
Critical Path and the common stock, reference is made to the registration
statement and the exhibits and schedules thereto. Critical Path is subject to
the information and periodic reporting requirements of the Securities Exchange
Act and, in accordance therewith, files periodic reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference room in Washington, DC. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room. Our SEC
filings are also available to the public from the SEC's website at
http://www.sec.gov.

76
<PAGE>

CRITICAL PATH, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheet................................................. F-3
Consolidated Statement of Operations....................................... F-4
Consolidated Statement of Shareholders' Equity (Deficit)................... F-5
Consolidated Statement of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>

F-1
<PAGE>

Report of Independent Accountants

To the Board of Directors and Shareholders
of Critical Path, Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
Critical Path, Inc. and its subsidiary at December 31, 1997 and 1998, and the
results of their operations and their cash flows for the period from February
19, 1997 (Inception) to December 31, 1997 and the year ended December 31, 1998,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.

PricewaterhouseCoopers LLP

San Jose, California
January 28, 1999, except
for Note 9, which is as of March 26, 1999

F-2
<PAGE>

CRITICAL PATH, INC.

CONSOLIDATED BALANCE SHEET
(in thousands, except per share amounts)

<TABLE>
<CAPTION>
December 31, March 31,
----------------- -----------
1997 1998 1999
------- -------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 1 $ 14,791 $ 22,506
Restricted cash............................... -- 325 325
Accounts receivable, net...................... -- 121 512
Other current assets.......................... 4 138 654
------- -------- ---------
Total current assets........................ 5 15,375 23.997
Notes receivable from officers.................. -- 500 670
Property and equipment, net..................... 501 4,687 7,794
Other assets.................................... 44 101 220
------- -------- ---------
$ 550 $ 20,663 $ 32,681
======= ======== =========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable.............................. $ 593 $ 423 $ 2,350
Accrued expenses.............................. 34 426 259
Deferred revenue.............................. -- 500 --
Convertible promissory notes payable.......... 420 -- --
Convertible promissory notes payable--related
party........................................ 427 -- --
Capital lease obligations, current............ 55 1,502 2,537
------- -------- ---------
Total current liabilities................... 1,529 2,851 5,146
Capital lease obligations, long-term............ 42 2,454 4,095
------- -------- ---------
1,571 5,305 9,241
------- -------- ---------
Commitments (Note 6)
Shareholders' equity (deficit):
Series A Convertible Preferred Stock, $0.001
par value; 13,288 shares authorized, 12,725
shares issued and outstanding................ -- 13 --
Series B Convertible Preferred Stock, $0.001
par value; 10,000 shares authorized, 3,637
shares issued and outstanding................ -- 4 --
Common Stock, $0.001 par value; 38,636, 38,636
and 150,000 (unaudited) shares authorized;
2,394, 8,294 and 34,309 (unaudited) shares
issued and outstanding ...................... 2 8 34
Additional paid-in capital.................... 51 46,390 306,629
Stock subscriptions receivable................ -- -- (100,440)
Notes receivable from shareholders............ -- (1,151) (1,180)
Unearned compensation......................... -- (17,371) (151,474)
Accumulated deficit........................... (1,074) (12,535) (30,129)
------- -------- ---------
Total shareholders' equity (deficit)........ (1,021) 15,358 23,440
------- -------- ---------
$ 550 $ 20,663 $ 32,681
======= ======== =========
</TABLE>

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

F-3
<PAGE>

CRITICAL PATH, INC.

CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)

<TABLE>
<CAPTION>
Period from
February 19,
1997 Three Months
(Inception) to Year Ended Ended March 31,
December 31, December 31, -----------------
1997 1998 1998 1999
-------------- ------------ ------- --------
(unaudited)
<S> <C> <C> <C> <C>
Net revenues (1)................ $ -- $ 897 $ 70 $ 1,049
Cost of net revenues (2)........ -- (2,346) (82) (2,360)
------- -------- ------- --------
Gross profit (loss)........... -- (1,449) (12) (1,311)
------- -------- ------- --------
Operating expenses:
Research and development...... 454 2,098 273 1,379
Sales and marketing........... 244 1,687 135 1,984
General and administrative.... 358 3,814 307 1,550
Stock-based expenses.......... -- 2,400 443 11,657
------- -------- ------- --------
Total operating expenses.... 1,056 9,999 1,158 16,570
------- -------- ------- --------
Loss from operations............ (1,056) (11,448) (1,170) (17,881)
Interest and other income....... -- 375 -- 351
Interest expense (3)............ (18) (388) (150) (64)
------- -------- ------- --------
Net loss........................ $(1,074) $(11,461) $(1,320) $(17,594)
======= ======== ======= ========
Net loss per share--basic and
diluted ....................... $ (0.54) $ (2.94) $ (0.49) $ (2.51)
======= ======== ======= ========
Weighted average shares--basic
and diluted.................... 1,994 3,899 2,687 7,011
======= ======== ======= ========
Pro forma net loss per share
(unaudited):
Net loss per share -- basic
and diluted.................. $ (0.81) $ (0.68)
======== ========
Weighted average shares --
basic and diluted............ 14,194 26,018
======== ========
</TABLE>
- --------
(1) Includes $231, $0, and $106 of stock-based charges in the year ended
December 31, 1998, and the three months ended March 31, 1998 and 1999,
respectively

(2) Includes $193, $5, and $447 of stock-based charges in the year ended
December 31, 1998, and the three months ended March 31, 1998 and 1999,
respectively

(3) Includes $161, $119, and $16 of stock-based charges in the year ended
December 31, 1998 and the three months ended March 31, 1998 and 1999,
respectively

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

F-4
<PAGE>

CRITICAL PATH, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(in thousands)

<TABLE>
<CAPTION>
Convertible
Preferred Notes Total
Stock Common Stock Additional Stock Receivable Shareholders'
--------------- -------------- Paid-in Subscriptions from Unearned Accumulated Equity
Shares Amount Shares Amount Capital Receivable Shareholders Compensation Deficit (Deficit)
------- ------ ------ ------ ---------- ------------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Inception,
February 19,
1997
Issuance of
Common Stock.... -- $-- 2,394 $ 2 $ 51 $ -- $ -- $ -- $ -- $ 53
Net loss........ -- -- -- -- -- -- -- -- (1,074) (1,074)
------- --- ------ --- -------- --------- ------- --------- -------- ---------
Balance at
December 31,
1997............ -- -- 2,394 2 51 -- -- -- (1,074) (1,021)
Issuance of
Common Stock.... -- -- 3,975 4 82 -- (85) -- -- 1
Exercise of
stock options... -- -- 1,925 2 1,104 -- (1,066) -- -- 40
Issuance of
Series A
Preferred Stock,
net............. 12,725 13 -- -- 9,111 -- -- -- -- 9,124
Issuance of
Series B
Preferred Stock,
net............. 3,637 4 -- -- 15,437 -- -- -- -- 15,441
Issuance of
warrants and
stock purchase
rights.......... -- -- -- -- 723 -- -- -- -- 723
Unearned
compensation.... -- -- -- -- 19,882 -- -- (19,882) -- --
Amortization of
unearned
compensation.... -- -- -- -- -- -- -- 2,511 -- 2,511
Net loss........ -- -- -- -- -- -- -- -- (11,461) (11,461)
------- --- ------ --- -------- --------- ------- --------- -------- ---------
Balance at
December 31,
1998............ 16,362 17 8,294 8 46,390 -- (1,151) (17,371) (12,535) 15,358
Issuance of
Common Stock
(unaudited)..... -- -- 1,091 1 2,399 -- -- -- -- 2,400
Exercise of
stock options
(unaudited)..... -- -- 565 -- 164 -- (29) -- -- 135
Issuance of
Preferred Stock,
net
(unaudited)..... 3,550 3 -- -- 12,493 -- -- -- -- 12,496
Conversion of
preferred to
common stock
(unaudited)..... (19,912) (20) 19,912 20 -- -- -- -- -- --
Unearned
compensation
(unaudited)..... -- -- -- -- 146,207 -- -- (146,207) -- --
Amortization of
unearned
compensation
(unaudited)..... -- -- -- -- -- -- -- 12,104 -- 12,104
Issuance of
common stock in
initial public
offering, net
(unaudited)..... -- -- 4,500 5 99,203 -- -- -- -- 99,208
Stock
subscriptions
receivable
(unaudited)..... -- -- -- -- (100,440) -- -- -- (100,440)
Purchase of
treasury stock
(unaudited)..... -- -- (53) -- (227) -- -- -- (227)
Net loss
(unaudited)..... -- -- -- -- -- -- -- (17,594) (17,594)
------- --- ------ --- -------- --------- ------- --------- -------- ---------
Balance at March
31, 1999
(unaudited)..... -- $-- 34,309 $34 $306,629 (100,440) $(1,180) $(151,474) $(30,129) $ 23,440
======= === ====== === ======== ========= ======= ========= ======== =========
</TABLE>

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

F-5
<PAGE>

CRITICAL PATH, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
Period from
February 19,
1997 Three Months
(Inception) to Year Ended Ended March 31,
December 31, December 31, -----------------
1997 1998 1998 1999
-------------- ------------ ------- --------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss...................... $(1,074) $(11,461) $(1,320) $(17,594)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Provision for doubtful
accounts................... -- 50 -- 24
Depreciation and
amortization............... 26 1,019 41 626
Common stock issued for
services................... 3 -- -- --
Amortization of warrants and
stock purchase rights...... -- 473 201 106
Amortization of unearned
compensation............... -- 2,511 366 12,104
Changes in assets and
liabilities:
Accounts receivable....... -- (171) (47) (415)
Other assets.............. (48) (86) 2 (741)
Accounts payable.......... 593 (170) (2) 1,927
Accrued expenses.......... 34 392 3 (167)
Deferred revenue.......... -- 500 -- (500)
------- -------- ------- --------
Net cash used in
operating activities... (466) (6,943) (756) (4,630)
------- -------- ------- --------
Cash flows from investing
activities:
Notes receivable from
officers..................... -- (500) -- (170)
Property and equipment
purchases.................... (409) (491) (189) (659)
Restricted cash............... -- (325) -- --
------- -------- ------- --------
Net cash used in
investing activities... (409) (1,316) (189) (829)
------- -------- ------- --------
Cash flows from financing
activities:
Proceeds from issuance of
Preferred Stock, net......... -- 23,445 500 12,496
Proceeds from equipment lease
line......................... -- 198 -- --
Proceeds from issuance of
Common Stock................. 50 41 -- 1,303
Proceeds from convertible
promissory notes payable..... 847 500 500 --
Repayment of convertible
promissory notes payable..... -- (227) -- --
Principal payments on lease
obligations.................. (21) (908) (20) (398)
Purchase of treasury stock.... (227)
------- -------- ------- --------
Net cash provided by
financing activities... 876 23,049 980 13,174
------- -------- ------- --------
Net increase in cash and cash
equivalents.................... 1 14,790 35 7,715
Cash and cash equivalents at
beginning of period............ -- 1 1 14,791
------- -------- ------- --------
Cash and cash equivalents at end
of period...................... $ 1 $ 14,791 $ 36 $22,506
======= ======== ======= ========
Supplemental cash flow
disclosure:
Cash paid for interest........ $ 1 $ 244 $ 31 $ 48
Non-cash investing and financing
activities
Property and equipment
leases....................... $ 118 $ 4,714 $ 20 $ 3,074
Common Stock issued for notes
receivable................... $ -- $ 1,151 $ 85 $ 29
Conversion of notes payable
into Preferred Stock......... $ -- $ 1,120 -- --
</TABLE>

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

F-6
<PAGE>

CRITICAL PATH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The Company

Critical Path, Inc. (the "Company") was incorporated in California on
February 19, 1997 to deliver advanced email hosting services.

Use of estimates

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

Basis of presentation

The financial statements include the accounts of the Company and its wholly
owned subsidiary. All significant intercompany balances and transactions have
been eliminated in consolidation.

Cash equivalents and restricted cash

The Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents. Cash equivalents consist
primarily of deposits in money market funds. Restricted cash comprises amounts
held on deposit which is required as collateral for Company provided credit
cards.

Concentration of credit risk

Financial instruments that potentially subject the Company to a concentration
of credit risk consist of cash and cash equivalents, restricted cash and
accounts receivable. Cash and cash equivalents and restricted cash are
deposited with financial institutions that management believes are
creditworthy. The Company's accounts receivable are derived from transactions
with companies throughout the United States. The Company maintains an allowance
for doubtful accounts receivable based upon the expected collectibility of
accounts receivable.

During the year ended December 31, 1998, approximately 62% and 30% of
revenues before charges related to amortization of the fair value of warrants
issued to customers were derived from the delivery of email services to two
customers. During the three months ended March 31, 1999, these two customers
accounted for approximately 48% (unaudited) and 32% (unaudited) of revenues
before charges related to amortization of warrants.

Fair value of financial instruments

The Company's financial instruments, including cash and cash equivalents,
restricted cash, accounts receivable, accounts payable and capital lease
obligations, are carried at cost, which approximates fair value due to the
short maturity of these instruments.

F-7
<PAGE>

CRITICAL PATH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Property and equipment

Property and equipment are stated at cost. Depreciation and amortization is
computed using the straight-line method over the shorter of the estimated
useful lives of the assets, generally three to five years, or the lease term,
if applicable. The Company periodically assesses the recoverability of the
carrying amount of property and equipment and provides for any possible
impairment loss based upon the difference between the carrying amount and the
fair value of such assets. Since February 19, 1997 (Inception) through December
31, 1998, no impairment losses have been identified.

Revenue recognition

The Company derives revenue through the sale of email hosting services.
Payments for such services are based either on contractual rates per active
mailbox per month, non-refundable fixed payments or as a percentage of customer
generated email advertising revenues. Revenues from contracts specifying a
contractual rate per active mailbox per month are recognized monthly for each
active mailbox covered by the respective contract. Revenues from contracts that
provide non-refundable fixed payments are not dependent upon the active number
of mailboxes and are therefore recognized ratably over the contract term.
Revenues based upon a percentage of customer generated email advertising
revenues are recognized when such revenues are earned and reported by the
customer. Amounts billed or received in advance of service delivery are
recorded as deferred revenue.

In connection with certain customer contracts, the Company granted warrants
or options to purchase Series B Convertible Preferred Stock to such customers.
The fair value of such warrants or options, determined using the Black-Scholes
option pricing model, is being recognized ratably as a sales discount over the
terms of the respective agreements. See Note 7--Shareholders' Equity.

Research and development

Research and development costs include expenses incurred by the Company to
develop and enhance its email service offerings and to develop new electronic
messaging services. Research and development costs are expensed as incurred.

Advertising expense

Advertising costs are expensed as incurred and totaled $0 and $135,000 during
the period from February 19, 1997 (Inception) through December 31, 1997 and the
year ended December 31, 1998, respectively.

Advertising costs totaled $0 (unaudited) and $18,000 (excluding $7.9 million
of stock-based charges, unaudited) for the three months ended March 31, 1998
and 1999, respectively.

Stock-based compensation

The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for

F-8
<PAGE>

CRITICAL PATH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Stock Issued to Employees" and complies with the disclosure provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation." Under APB No. 25, compensation expense is based on
the difference, if any, on the date of the grant, between the fair value of the
Company's stock and the exercise price of the option. The Company accounts for
equity instruments issued to nonemployees in accordance with the provisions of
SFAS No. 123 and Emerging Issues Task Force ("EITF") 96-18.

Income taxes

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

Net loss per share

Net loss per share is calculated in accordance with SFAS No. 128, "Earnings
per Share" and Securities and Exchange Commission ("SEC") Staff Accounting
Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS No. 128 and SAB 98,
basic net loss per share is computed by dividing the net loss available to
common stockholders for the period by the weighted average number of common
shares outstanding during the period. Diluted net loss per share is computed by
dividing the net loss for the period by the weighted average number of common
and potential common shares outstanding during the period if their effect is
dilutive. Potential common shares comprise restricted Common Stock and
incremental common and preferred shares issuable upon the exercise of stock
options and warrants and upon conversion of Series A and Series B Convertible
Preferred Stock. At December 31, 1998 and March 31, 1999, 28,607,997 and
16,024,637 (unaudited) potential common shares respectively, are excluded from
the determination of diluted net loss per share as the effect of such shares on
a weighted average basis is anti-dilutive.

Pro forma net loss per share (unaudited)

Pro forma net loss per share for the year ended December 31, 1998 and the
three months ended March 31, 1999 is computed using the weighted average number
of common shares outstanding, including the pro forma effects of the automatic
conversion of the Company's Series A and Series B Convertible Preferred Stock
into shares of the Company's Common Stock as if such conversion occurred at the
beginning of the period, or at date of original issuance, if later. The
resulting pro forma adjustment includes an increase in the weighted average
shares used to compute basic and diluted net loss per share of approximately
10,295,000 shares for the year ended December 31, 1998 and 19,007,000 shares
for the three months ended March 31, 1999. The pro forma effects of these
transactions are unaudited and have been reflected in the accompanying pro
forma consolidated statement of operations.

F-9
<PAGE>

CRITICAL PATH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Comprehensive income

Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. To date, the Company has not had any
transactions that are required to be reported in comprehensive income other
than its net loss.

Segment information

In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for the way companies report information about
operating segments in annual financial statements. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. In accordance with the provisions of SFAS No. 131, the
Company has determined that it does not have separately reportable operating
segments.

Interim Financial Information (Unaudited)

The accompanying interim consolidated financial statements as of March 31,
1999 and for the three months ended March 31, 1998 and 1999 are unaudited. The
unaudited interim financial statements have been prepared on the same basis as
the annual financial statements and, in the opinion of management, reflect all
adjustments, which include only normal recurring adjustments, necessary to
present fairly the results of the Company's operations and its cash flows for
the three months ended March 31, 1998 and 1999. The financial data and other
information disclosed in these notes to consolidated financial statements
related to these periods are unaudited. The results for the three months ended
March 31, 1999, are not necessarily indicative of the results to be expected
for the year ending December 31, 1999.

Reclassifications

In the quarter ended March 31, 1999, the Company elected to disclose stock-
based expenses as a separate component of Operating Expenses. Accordingly, for
the year ended December 31, 1998, approximately $148,000, $582,000, and
$1,670,000 have been reclassified from Research and Development, Sales and
Marketing, and General and Administrative expenses, respectively, to Stock-
based expenses.

Recent accounting pronouncements

In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") No. 98-1, "Software for Internal Use," which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP No. 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998. The Company does not expect
that the adoption of SOP No. 98-1 will have a material impact on its
consolidated financial statements.

F-10
<PAGE>

CRITICAL PATH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Company is required to adopt SFAS 133
in fiscal 2000. SFAS 133 established methods of accounting for derivative
financial instruments and hedging activities related to those instruments as
well as other hedging activities. To date, the Company has not entered into any
derivative financial instruments or hedging activities.

NOTE 2--BALANCE SHEET COMPONENTS:

<TABLE>
<CAPTION>
December 31,
------------- March 31,
1997 1998 1999
---- ------- -----------
(unaudited)
(in thousands)
<S> <C> <C> <C>
Accounts receivable, net:
Accounts receivable........................... $ -- $ 171 $ 586
Less: Allowance for doubtful accounts....... -- (50) (74)
---- ------- ------
$ -- $ 121 $ 512
==== ======= ======
Property and equipment, net:
Computer equipment and software............... $440 $ 5,247 $8,826
Furniture and fixtures........................ 34 74 115
Leasehold improvements........................ 53 411 524
---- ------- ------
527 5,732 9,465
Less: Accumulated depreciation and
amortization............................... (26) (1,045) (1,671)
---- ------- ------
$501 $ 4,687 $7,794
==== ======= ======
</TABLE>

Property and equipment includes $118,000, $4,832,000 and $7,906,000
(unaudited) of assets under capital leases at December 31, 1997, 1998 and for
the three months ended March 31, 1999, respectively. Accumulated depreciation
of assets under capital leases totaled $3,000, $765,000 and $1,399,000
(unaudited) at December 31, 1997, 1998 and for the three months ended March 31,
1999, respectively.
<TABLE>
<CAPTION>
December 31,
------------- March 31,
1997 1998 1999
------ ------ -----------
(unaudited)
(in thousands)
<S> <C> <C> <C>
Accrued liabilities:
Compensation related............................. $ 18 $ 89 $193
Other............................................ 16 337 66
----- ------ ----
$ 34 $ 426 $259
===== ====== ====
</TABLE>

NOTE 3--RELATED PARTY TRANSACTIONS:

Notes receivables from shareholders

At December 31, 1998, the Company had notes receivable from shareholders and
officers of the Company related to purchases of Common Stock in the amount of
$85,000 and $1,066,000 which accrue interest at 5.69% and 4.51% per annum,
respectively. The notes are full recourse and secured

F-11
<PAGE>

CRITICAL PATH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

by Common Stock. The notes are due and payable in February 2003 or, for the
$1,066,000 note, 90 days following termination of the officer.

At December 31, 1998, the Company held a note receivable from an officer
totaling $500,000. The note accrues interest at the rate of 4.51% per annum, is
secured by all shares of the Company's Common Stock held by this individual,
and is due and payable in November 2003 or 30 days following termination.
During the three months ending March 31, 1999, the Company received additional
notes from officers totaling $170,000 (unaudited). These additional notes
accrue interest at the rate of 4.64% per annum, are secured by all shares of
the Company's Common Stock held by the officers and are due and payable in
March 2004 or 30 days following termination.

Revenues

In April 1998, the Company entered into an email services agreement with a
significant customer, who is also a holder of the Company's Series B Preferred
Stock. Net revenues from this shareholder approximated $605,000 and $552,000
for the year ended December 31, 1998 and the three months ended March 31, 1999,
respectively.

NOTE 4--INCOME TAXES:

No provision for income taxes was recorded due to the net losses for the
periods from February 19, 1997 (Inception) to December 31, 1998.

At December 31, 1998, and March 31, 1999, the Company had deferred tax assets
of approximately $4,001,000, and 5,821,000 (unaudited), respectively.
Management believes that, based on a number of factors, it is more likely than
not that the deferred tax assets will not be realized, such that a full
valuation allowance has been recorded. Deferred tax assets relate primarily to
net operating loss carryforwards.

At December 31, 1998, the Company had approximately $8,803,000 of federal and
state net operating loss carryforwards available to offset future taxable
income. At March 31, 1999 the Company had approximately $14 million (unaudited)
of federal and state net operating loss carryforwards available to offset
future taxable income. Federal and state net operating loss carryforwards
expire in varying amounts beginning in 2012 and 2005, respectively. Under the
Tax Reform Act of 1986, the amounts of and benefits from net operating loss
carryforwards may be impaired or limited in certain circumstances. Events which
cause limitations in the amount of net operating losses that the Company may
utilize in any one year include, but are not limited to, a cumulative ownership
change of more than 50%, as defined, over a three year period.

NOTE 5--BORROWINGS:

Line of credit

At December 31, 1998, and March 31, 1999 (unaudited), the Company maintained
a revolving line of credit with a bank that provides for borrowings of up to
$1,000,000. The line of credit expires

F-12
<PAGE>

CRITICAL PATH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

in November 1999 and accrues interest on outstanding borrowings at a rate equal
to the bank's prime rate plus 2.0% (9.75% at December 31, 1998). The line of
credit requires the Company to meet certain financial tests and to comply with
certain other covenants. Borrowings are secured by substantially all of the
assets of the Company. At December 31, 1998, and March 31, 1999 (unaudited),
there were no borrowings outstanding and the Company was in compliance with all
restrictive covenants.

Convertible promissory notes

At December 31, 1997, the Company had obligations totaling $420,000 under 7%
convertible promissory notes payable to individual investors. In April 1998,
the principal amount of the notes was converted into 582,040 shares of Series A
Convertible Preferred Stock at $0.72 per share.

In January and February 1998, the Company issued an additional $430,000 of 7%
convertible promissory notes to individual investors. In April 1998, the
principal amount of the notes was converted into 595,897 shares of Series A
Convertible Preferred Stock at $0.72 per share.

Convertible promissory notes--related parties

At December 31, 1997, the Company had obligations totaling $427,000 under 7%-
10% convertible promissory notes payable to the Company's founder and an
individual associated with the founder. In April 1998, $200,000 of the
principal amount of the notes was converted into 277,162 shares of Series A
Convertible Preferred Stock at $0.72 per share and the remaining balance of
$227,000 was repaid in cash.

In January and February 1998, the Company issued an additional $70,000 of 7%
convertible promissory notes to a member of the Board of Directors and an
individual associated with the Company's founder. In April 1998, the principal
amount of the notes was converted into 97,006 shares of Series A Convertible
Preferred Stock at $0.72 per share.

NOTE 6--COMMITMENTS:

Leases

The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through 2002. Rent expense for
the period from February 19, 1997 (inception) to December 31, 1997 and the year
ended December 31, 1998, and the three months ended March 31, 1998 and 1999,
totaled $33,000, $220,000, $22,000 (unaudited), and $84,000 (unaudited),
respectively.

F-13
<PAGE>

CRITICAL PATH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Future minimum lease payments under noncancelable operating and capital
leases, including operating lease commitments entered into subsequent to
December 31, 1998, are as follows:

<TABLE>
<CAPTION>
Capital Operating
Leases Leases
Year Ending December 31, ------- ---------
(in thousands)
<S> <C> <C>
1999..................................................... $1,792 $358
2000..................................................... 1,779 222
2001..................................................... 979 213
2002..................................................... 3 103
------ ----
Total minimum lease payments............................. 4,553 $896
====
Less: Amount representing interest....................... (453)
Unamortized discount................................... (144)
------
Present value of capital lease obligations............... 3,956
Less: Current portion.................................... (1,502)
------
Long-term portion of capital lease obligations........... $2,454
======
</TABLE>

Equipment lease lines

In April 1998, the Company entered into a financing agreement that provides
for the acquisition of equipment up to $1,000,000. Amounts available under this
agreement are limited to specific acquisitions through March 2001 and are
collateralized by the related equipment. Such amounts are payable over a three-
year period in monthly installments of principal and interest, with interest
accruing at a rate of 6.3% per annum.

In April 1998, the Company entered into another financing agreement which
provides for the acquisition of equipment up to $2,000,000. Amounts available
under this agreement are limited to specific acquisitions between May 1, 1998
and April 30, 1999. Such amounts are payable over a three-year period in
monthly installments of principal and interest, with interest accruing at the
rate of 7.0% per annum. As part of this agreement, the Company issued warrants
to purchase 97,006 shares of Series A Preferred Stock at a purchase price of
$0.72 per share. The Company estimated the fair value of these warrants at date
of issuance was approximately $53,000 which is being amortized as interest
expense over the term of the lease obligation.

In May 1998, the Company entered into a financing agreement which provides
for the acquisition of equipment up to $3,500,000 and software and tenant
improvements up to $1,500,000. Amounts available under this agreement are
limited to specific acquisitions between March 1, 1998 and May 1, 1999. Such
amounts are payable over a three-year period in monthly installments of
principal and interest, with interest accruing at the rate of 7.0% per annum.
As part of this agreement, the Company issued warrants to purchase 242,516
shares of Series A Preferred Stock at a purchase price of $0.72 per share. The
Company estimated the fair value associated with these warrants at date of
issuance was approximately $133,000 which is being amortized as interest
expense over the term of the lease obligation.

Email service commitments

Net revenues are derived from contractual relationships which typically have
one to two year terms. Certain agreements require minimum performance standards
regarding the availability and

F-14
<PAGE>

CRITICAL PATH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

response time of email services. If these standards are not met, such contracts
are subject to termination and the Company could be subject to monetary
penalties.

NOTE 7--SHAREHOLDERS' EQUITY:

As of December 31, 1998, the Company's Articles of Incorporation authorized
the Company to issue 38,636,363 shares of Common Stock at $0.001 par value, and
13,288,519 and 10,000,000 shares of Series A and Series B Convertible Preferred
Stock ("Preferred Stock"), respectively, at $0.001 par value.

Preferred Stock

On April 1, 1998, the Company completed its Series A Convertible Preferred
Stock ("Series A") financing through the issuance of 12,707,851 shares at a
price per share of $0.72 for net cash proceeds of $7,991,000, and the
conversion of convertible promissory notes payable totaling $1,120,000. The
Company issued an additional 18,013 shares of Series A Preferred Stock to the
convertible promissory note holders upon the exercise of their warrants for
proceeds of $13,000.

In September 1998, the Company issued 3,636,739 shares of its Series B
Convertible Preferred Stock ("Series B") at $4.26 per share for net proceeds of
approximately $15,441,000.

The holders of Preferred Stock have various rights and preferences as
follows:

Voting

Each share of Preferred Stock has voting rights equal to an equivalent number
of shares of Common Stock into which it is convertible and votes together as
one class with Common Stock.

As long as at least 2,954,545 shares of Preferred Stock remain outstanding,
the Company must obtain approval from a majority of the holders of Preferred
Stock to declare or pay any dividend on Common Stock; redeem, purchase or
otherwise acquire any Common Stock other than shares subject to right of
repurchase by the Company; cause the acquisition, reorganization, merger or
consolidation of the Company that results in a transfer of 50% or more of the
voting control of the Company; authorize or issue another equity security
having a preference over, or being on parity with, the Series A and Series B;
or increase the number of directors of the Company.

As long as at least 681,818 shares of Preferred Stock remain outstanding, the
Company must obtain approval from a majority of the holders of Preferred Stock
to alter the Articles of Incorporation as it relates to the Preferred Stock or
change the authorized number of shares of Preferred Stock.

Dividends

Holders of Series A and Series B are entitled to receive noncumulative
dividends at the per annum rate of $0.0577 and $0.34 per share, respectively,
when and if declared by the Board of Directors. The holders of Preferred Stock
will also be entitled to participate in dividends on Common Stock, when and if
declared by the Board of Directors, based on the number of shares of Common
Stock held on an as-if converted basis. No dividends on Preferred Stock or
Common Stock have been declared by the Board of Directors.

F-15
<PAGE>

CRITICAL PATH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Liquidation

In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners
of the Company's Common Stock and Preferred Stock own less than 51% of the
resulting voting power of the surviving entity, the holders of Series A and
Series B are entitled to receive an amount of $0.72 and $4.26 per share,
respectively, plus any declared but unpaid dividends prior to and in preference
to any distribution to the holders of Common Stock. The remaining assets, if
any, shall be distributed ratably among the holders of Common Stock. Should the
Company's legally available assets be insufficient to satisfy the liquidation
preferences, the funds will be distributed ratably among the holders of
Preferred Stock.

Conversion

Each share of Preferred Stock is convertible, at the option of the holder,
according to a conversion ratio, subject to adjustment for dilution. Each share
of Preferred Stock automatically converts into the number of shares of Common
Stock into which such shares are convertible at the then effective conversion
ratio upon: (1) the closing of a public offering of Common Stock at a per share
price of at least $15.50 per share with gross proceeds of at least $30,000,000,
or (2) the consent of the holders of the majority of Convertible Preferred
Stock. The initial conversion ratio of Preferred Stock for Common Stock is 1 to
1.

Warrants and Stock Purchase Rights

In May 1998, the Company issued a right to purchase 454,544 shares of Common
Stock or Preferred Stock in a subsequent financing to a customer as part of an
email services agreement. Under the agreement, the price shall be 80% of the
price at which the stock is sold in the subsequent financing for the initial
227,272 shares and 100% of such price for the remaining 227,272 shares. In
September 1998, the Company completed its initial Series B financing at a per
share price of $4.26. The Company has estimated the fair value of the purchase
right to be $194,000, which will be recognized as a sales discount over the
term of the services agreement. Approximately $136,000 was recognized in 1998.
No warrants were exercised as of December 31, 1998.

In May 1998, the Company issued to a different customer, a warrant to
purchase up to $250,000 of Preferred Stock in the Company's next financing
round. The warrant is exercisable until December 31, 2001 and the exercise
price per share will equal the price per share at which the Preferred Stock is
sold by the Company. In September 1998, the warrants were exercised in
connection with the Series B financing at a per share price of $4.26. The
Company has estimated the fair value of the warrants approximated $143,000,
which will be recognized as a sales discount over the term of the services
agreement. Approximately $95,000 was recognized in 1998.

In connection with various financing agreements described in Note 6, the
Company issued warrants to purchase 339,522 share of Series A at $0.72 per
share. The warrants are exercisable for seven years from May 1, 1998, or five
years from the effective date of the Company's initial public offering,
whichever is shorter. As of December 31, 1998, no warrants were exercised.

In connection with the issuance of certain convertible promissory notes
described in Note 5, the Company issued warrants to purchase 113,636 shares of
Common Stock at $0.02 per share and

F-16
<PAGE>

CRITICAL PATH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

241,123 shares of Series A at $0.72 per share. These warrants are exercisable
for one and three years, respectively. The warrants to purchase Common Stock
were exercised in September 1998. At December 31, 1998, warrants to purchase
18,013 shares of Series A had been exercised. The Company estimated the fair
value of the warrants issued at approximately $119,000 which is being amortized
as interest expense.

In connection with the initial Series B financing, the Company issued
warrants to purchase 70,290 shares of Series B at $4.26 per share to the
placement agent. As of December 31, 1998, no warrants were exercised.

Common Stock purchase agreements

In February 1998, the Company entered into stock purchase agreements with
three founders and sold 3,863,635 shares of the Company's Common Stock at $0.02
per share. Under the terms of the stock purchase agreements, the Company has
the right to purchase the shares of Common Stock at the original issue price in
the event any one of the founders ceases to be an employee of the Company. The
repurchase rights lapse 25% on the first anniversary of the vesting start date
and ratably each month thereafter for 36 months. In the event of a change in
control of the Company or the closing date of an Initial Public Offering, as
defined, repurchase rights with respect to 50% of the then unvested shares of
Common Stock will lapse. At December 31, 1998, 2,130,680 of these shares of
Common Stock were subject to repurchase rights. In connection with the issuance
of these shares, the Company recorded unearned compensation of $1,306,000 which
is being recognized over the periods in which the Company's repurchase rights
lapse.

In October 1998, an officer exercised stock options to purchase 1,274,687
shares of the Company's Common Stock at a price of $0.84 per share. Under the
terms of the option, the Company has the right to purchase the unvested shares
of Common Stock at the original issue price in the event the officer ceases to
be an employee of the Company. The repurchase rights lapse ratably each month
for 48 months. At December 31, 1998, 1,221,575 of these shares of Common Stock
were subject to repurchase rights. In connection with the option grant
preceding this transaction, the Company recognized unearned compensation
totaling $3.8 million which is included in the aggregate unearned compensation
charges disclosed in Notes 8 and 9 to these consolidated financial statements.

NOTE 8--STOCK OPTIONS:

In January 1998, the Company's Board of Directors adopted the 1998 Stock
Option Plan. The Plan provides for the granting of up to 12,288,741 stock
options to employees and consultants of the Company. Options granted under the
Plan may be either incentive stock options ("ISO") or nonqualified stock
options ("NSO"). ISOs may be granted only to Company employees (including
officers and directors who are also employees). NSOs may be granted to Company
employees and consultants.

Options under the Plan may be granted for periods of up to ten years and at
prices no less than 85% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors, provided, however, that (i)
the exercise price of an ISO may not be less than 100% of the estimated fair
value of the shares on the date of grant, and (ii) the exercise price of an ISO
granted to

F-17
<PAGE>

CRITICAL PATH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

a 10% shareholder may not be less than 110% of the estimated fair value of the
shares on the date of grant. Options generally vest 25% per year and are
exercisable for a maximum period of ten years from the date of grant.

The following table summarizes activity under the Plan for the year ended
December 31, 1998 and the three months ended March 31, 1999:

<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, 1998 March 31, 1999
---------------------------- ------------------
(unaudited)
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------------- ----------------------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning
of period................ -- -- 7,752,556 $0.86
Granted................... 10,595,453 $0.74 2,649,012 10.57
Exercised................. (1,924,723) 0.58 (565,334) 0.27
Canceled.................. (918,174) 0.16 (107,951) 1.78
---------------- ---------
Outstanding at end of
period................... 7,752,556 0.86 9,728,283 3.50
================ =========
Options exercisable at
period end............... 939,522 0.02 1,797,462 0.44
================ =========
Weighted average minimum
value of options
granted during period.... 1.56 9.05
</TABLE>

The following table summarizes information about stock options outstanding at
December 31, 1998:

<TABLE>
<CAPTION>
Options Exercisable
Options Outstanding at December 31, 1998 at December 31, 1998
------------------------------------------- --------------------
Weighted
Average Weighted Weighted
Number of Remaining Average Number of Average
Shares Contractual Exercise Shares Exercise
Range of Exercise Price Outstanding Life Price Exercisable Price
----------------------- -------------- -------------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.02-
$0.55 2,850,201 9.2 years $ 0.08 939,522 $0.02
$0.84-
$2.20 4,902,355 9.8 years 1.30 -- --
-------------- -------
7,752,556 9.5 years 0.89 939,522 0.02
============== =======
</TABLE>

The following table summarizes information about stock options outstanding at
March 31, 1999 (unaudited):

<TABLE>
<CAPTION>
Options Outstanding at Options Exercisable
March 31, 1999 at March 31, 1999
-------------------------------- --------------------
Weighted
Average Weighted Weighted
Number of Remaining Average Number Average
Range of Shares Contractual Exercise of Shares Exercise
Exercise Price Outstanding Life Price Exercisable Price
-------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.02-$0.55 2,328,615 8.8 years $0.07 881,875 $0.02
$0.84-$2.20 4,793,834 8.8 years 1.26 910,474 0.84
$3.38-$7.13 1,731,136 9.8 years 3.95 5,113 3.39
$24.00 874,698 10.0 years 24.00 -- --
--------- ---------
9,728,283 9.1 years 3.50 1,797,462 0.44
========= =========
</TABLE>

F-18
<PAGE>

CRITICAL PATH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Fair value disclosures

The Company calculated the minimum value of each options grant on the date of
grants using the Black-Scholes option pricing model as prescribed by SFAS No.
123 using the following assumptions:

<TABLE>
<CAPTION>
Three
Months
Ended March
Year Ended December 31, 31,
------------------------- -------------
1997 1998 1998 1999
----------- ----------- ----- -----
(unaudited)
<S> <C> <C> <C> <C>
Risk-free interest rates......... 6.0% 5.9% 5.5% 4.7%
Expected lives (in years)........ 4.0 4.0 4.0 4.0
Dividend yield................... 0.0% 0.0% 0.0% 0.0%
Expected volatility.............. 0.0% 0.0% 0.0% 0.0%
</TABLE>

The compensation cost associated with the Company's stock-based compensation
plans, determined using the minimum value method prescribed by SFAS No. 123,
did not result in a material difference from the reported net loss for the year
ended December 31, 1998, and the three months ended March 31, 1999 (unaudited).

Unearned stock-based compensation

In connection with certain stock option grants and common stock issuances
during the year ended December 31, 1998, and the three months ended March 31,
1999, the Company recognized unearned compensation totaling $19,882,000 and
$18,108,000, respectively, which is being amortized over the vesting periods of
the related options. Amortization expense recognized during the year ended
December 31, 1998 and the three months ended March 31, 1999, totaled
approximately $2,511,000, and $3,660,000 (unaudited), respectively.

NOTE 9--SUBSEQUENT EVENTS:

Reverse Stock Split

On March 1, 1999, the Company's Board of Directors approved a 1:2.2 reverse
stock split of the Company's outstanding shares which became effective on March
19, 1999. All share and per share information included in these consolidated
financial statements have been retroactively adjusted to reflect this reverse
stock split.

Series B Convertible Preferred Stock Financing

In January 1999, the Company completed the second round of the Series B
financing through the issuance of 2,772,708 shares at $4.26 per share for gross
proceeds of approximately $11,817,000. In connection with this financing, the
Company issued warrants to purchase 51,364 shares of Series B at $4.26 per
share to the placement agent.

Exercise of Stock Purchase Rights

In January 1999, a customer exercised stock purchase rights granted in May
1998 to purchase 454,544 shares of Series B for cash proceeds of approximately
$1,744,000.

F-19
<PAGE>

CRITICAL PATH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Employee Stock Purchase Plan

In January 1999, the Board of Directors adopted the 1999 Employee Stock
Purchase Plan (the "Purchase Plan") effective on the date of the Offering. The
Purchase Plan reserves 600,000 shares for issuance thereunder. Employees
generally will be eligible to participate in the Purchase Plan if they are
customarily employed by the Company for more than 20 hours per week and more
than five months in a calendar year and are not 5% or greater shareholders.
Under the Purchase Plan, eligible employees may select a rate of payroll
deduction up to 15% of their compensation subject to certain maximum purchase
limitations. The Purchase Plan will be implemented in a series of overlapping
twenty-four month offering periods and beginning on the effective date of the
Offering and subsequent offering periods will begin on the first trading day on
or after May 1 and November 1 of each year. Purchases will occur on each April
30 and October 31 (the "purchase dates") during each participation period.
Under the Purchase Plan, eligible employees will be granted an option to
purchase shares of Common Stock at a purchase price equal to 85% of the fair
market value per share of Common Stock on either the start date of the offering
period or the date on which the option is exercised, whichever is less. If the
fair market value of the Common Stock on any purchase date (other than the
final purchase date) is lower than the fair market value on the start date of
that offering period, then all participants in that offering period will be
automatically withdrawn from such offering period and re-enrolled in the
offering period immediately following.

Stock Option Grants

In January and March 1999, the Company granted incentive stock options to
employees to purchase 1,789,110 shares of Common Stock at exercise prices
ranging between $3.39 and $7.13 per share. In connection with such option
grants, the Company recognized unearned compensation totaling $18,108,000 which
is being amortized over the four year vesting period of the related options.

Sale of Common Stock

In January 1999, the Company sold 1,090,909 shares of Common Stock at a price
of $2.20 per share to a customer that also agreed to provide marketing related
services. In connection with the transactions, the Company recognized a charge
totaling $2,247,000 that will be attributed to sales and marketing expense over
the one year term of the agreement.

Common Stock Warrant Issued for Services

In January 1999, the Company entered into an agreement with ICQ, Inc., a
subsidiary of America Online, Inc., pursuant to which it will provide email
hosting services that will be integrated with ICQ's instant messaging service
provided to ICQ's customers. The ICQ instant messaging service is designed to
allow users to communicate in real time over the Internet. As part of the
agreement, ICQ agreed to provide sub-branded advertising for the Company in
exchange for a warrant to purchase 2,442,766 shares of Series B, issuable upon
attainment of each of five

F-20
<PAGE>

CRITICAL PATH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

milestones. The following table summarizes the shares underlying each milestone
and the related exercise price:

Revaluation of Common Stock Warrant Issued for Services (unaudited)

Initial Public Offering (unaudited)

On March 29, 1999, the Company completed its initial public offering of
5,175,000 shares of Common Stock (including the exercise of the underwriters
overallotment option) and realized net proceeds of $115.5 million.

Repurchase of Preferred Stock (unaudited)

Prior to the closing of the Company's initial public offering, the Series B
placement agent sold back to the Company at $4.26 per share an aggregate of
53,293 shares held by the placement agent or its affiliates.

F-21
<PAGE>

[LOGO]
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth the various expenses expected to be incurred
by the Registrant in connection with the sale and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions. All amounts are estimated except the Securities and Exchange
Commission registration fee and the National Association of Securities Dealers,
Inc. filing fee.

<TABLE>
<CAPTION>
Payable by
Registrant
----------
<S> <C>
SEC registration fee.............................................. $118,775
National Association of Securities Dealers, Inc. filing fee....... 30,500
Nasdaq National Market Listing Fee................................ 17,500
Accounting fees and expenses...................................... 50,000
Legal fees and expenses........................................... 50,000
Printing and engraving expenses................................... 125,000
Blue Sky fees and expenses........................................ 5,000
Registrar and Transfer Agent's fees............................... 20,000
Miscellaneous fees and expenses................................... 83,225
--------
Total............................................................. $500,000
========
</TABLE>

Item 14. Indemnification of Directors and Officers

Section 317 of the California Corporations Code provides for the
indemnification of officers, directors and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). Article V, Section B of our
articles of incorporation (Exhibit 3.1 hereto) provides for indemnification of
our directors, officers, employees and other agents to the extent and under the
circumstances permitted by the California Corporations Code. We have also
entered into agreements with our directors and officers that will require us,
among other things, to indemnify them against certain liabilities that may
arise by reason of their status or service as directors or officers to the
fullest extent permitted by law.

The Underwriting Agreement (Exhibit 1.1) provides for indemnification by
ourself, our underwriters and our directors and officers of the underwriters,
for certain liabilities, including liabilities arising under the Act, and
affords certain rights of contribution with respect thereto.

Item 15. Recent Sales of Unregistered Securities

1. From February 1997 to February 26, 1999, the Registrant issued and sold
8,486,398 shares of common stock to employees, directors and consultants at
prices ranging from $0.02 to $2.20 per share.

2. On April 1, 1998, the Registrant issued and sold 12,707,869 shares of Series
A Preferred Stock to a total of 29 investors for an aggregate purchase price
of $9,170,002.

II-1
<PAGE>

3. On September 11, 1998 and January 13, 1999, the Registrant issued and sold
6,863,991 shares of Series B Preferred Stock to a total of 19 investors for
an aggregate purchase price of $29,061,014.

4. On January 13, 1999, the Registrant issued and sold 1,090,909 shares of
common stock to one investor for an aggregate purchase price of $2,400,000.

5. From February 1997 to February, 1998, the Registrant issued and sold
6,258,251 shares of common stock to 5 investors at a purchase price of $0.02
per share.

6. On January 1999 the Registrant issued a warrant to purchase up to 2,442,766
shares of Series B Preferred Stock to one investor in connection with the
Registrant's entering into a commercial agreement with a subsidiary of such
investor.

The foregoing transactions were made in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, or Rule 701 promulgated
under Section 3(b) of the Securities Act, as transactions by an issuer not
involving a public offering or transactions pursuant to compensatory benefit
plans and contracts relating to compensation as provided under Rule 701.

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits

See exhibits listed on the Exhibit Index following the signature page of the
Form S-1, which is incorporated herein by reference.

(b) Financial Statement Schedules

Schedules other than those referred to above have been omitted because they
are not applicable or not required or because the information is included
elsewhere in the Financial Statements or the notes thereto.

Item 17. Undertakings

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of 1933,
as amended, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to

II-2
<PAGE>

Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of
this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act of
1933, as amended, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

(3) The Registrant will provide to the underwriters at the closing(s) specified
in the underwriting agreement certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery to each
purchaser.

II-3
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Francisco, State of
California, on the 11th day of May, 1999.

Critical Path, Inc.

/s/ Douglas T. Hickey
By: _________________________________
Douglas T. Hickey
President, Chief Executive
Officer and Director

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.

<TABLE>
<CAPTION>
Name Title Date
---- ----- ----

<S> <C> <C>
/s/ Douglas T. Hickey President, Chief Executive May 11, 1999
____________________________________ Officer and Director
Douglas T. Hickey (Principal Executive
Officer)

/s/ David A. Thatcher Executive Vice President, May 11, 1999
____________________________________ Chief Financial Officer
David A. Thatcher (Principal Financial Officer)
and Accounting Officer

/s/ David C. Hayden Chairman of the Board May 11, 1999
____________________________________
David C. Hayden

Director May 11, 1999
____________________________________
Christos M. Cotsakos

Director May 11, 1999
____________________________________
Lisa Gansky

/s/ Kevin R. Harvey Director May 11, 1999
____________________________________
Kevin R. Harvey

Director May 11, 1999
____________________________________
James A. Smith

/s/ George Zachary Director May 11, 1999
____________________________________
George Zachary
</TABLE>

II-4
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation. (Incorporated by
reference to Exhibit 3(i)(b) to the Registrant's Registration
Statement on Form S-1 (File No. 333-71499))
3.2 Amended and Restated Bylaws. (Incorporated by reference to Exhibit
3(ii)(b) to the Registrant's Registration Statement on Form S-1 (File
No. 333-71499))
4.1 Form of Common Stock Certificate. (Incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form S-1
(File No. 333-71499))
4.2 Warrant to Purchase Preferred Stock dated September 11, 1998 issued
by the Registrant to Hambrecht & Quist LLC. (Incorporated by
reference to Exhibit 4.2 to the Registrant's Registration Statement
on Form S-1 (File No. 333-71499))
4.3 Warrant to Purchase Preferred Stock dated January 13, 1999 issued by
the Registrant to Hambrecht & Quist LLC. (Incorporated by reference
to Exhibit 4.3 to the Registrant's Registration Statement on Form S-1
(File No. 333-71499))
4.4 Warrant to Purchase Common Stock dated January 29, 1999 issued by the
Registrant to America Online, Inc. (Incorporated by reference to
Exhibit 4.4 to the Registrant's Registration Statement on Form S-1
(File No. 333-71499))
*5.1 Opinion of Wilson Sonsini Goodrich & Rosati.
10.1 Form of Indemnification Agreement between the Registrant and each of
its directors and officers. (Incorporated by reference to Exhibit
10.1 to the Registrant's Registration Statement on Form S-1 (File No.
333-71499))
10.2 Employee Stock Purchase Plan. (Incorporated by reference to Exhibit
10.2 to the Registrant's Registration Statement on Form S-1 (File No.
333-71499))
10.3 1998 Stock Plan and forms of stock option agreements thereunder.
(Incorporated by reference to Exhibit 10.3 to the Registrant's
Registration Statement on Form S-1 (File No. 333-71499))
10.4 Series B Preferred Stock Purchase Agreement dated September 11, 1998.
(Incorporated by reference to Exhibit 10.4 to the Registrant's
Registration Statement on Form S-1 (File No. 333-71499))
10.5 Amendment to Series B Preferred Stock Purchase Agreement dated
January 13, 1999. (Incorporated by reference to Exhibit 10.5 to the
Registrant's Registration Statement on Form S-1 (File No. 333-71499))
10.6 Amended and Restated Investors' Rights Agreement dated September 11,
1998. (Incorporated by reference to Exhibit 10.6 to the Registrant's
Registration Statement on Form S-1 (File No. 333-71499))
10.7 Amendment to the Amended and Restated Investors' Rights Agreement
dated January 13, 1999. (Incorporated by reference to Exhibit 10.7 to
the Registrant's Registration Statement on Form S-1 (File No. 333-
71499))
10.8 Master Equipment Lease Agreement dated April 28, 1998, and Lease Line
Schedule thereto, by and between the Registrant and Lighthouse
Capital Partners II, L.P. (Incorporated by reference to Exhibit 10.8
to the Registrant's Registration Statement on Form S-1 (File No. 333-
71499))
10.9 Master Lease Agreement dated May 1, 1998, and addendum thereto, by
and between the Registrant and Comdisco, Inc. (Incorporated by
reference to Exhibit 10.9 to the Registrant's Registration Statement
on Form S-1 (File No. 333-71499))
10.10 Standard Industrial/Multitenant Lease-Gross dated June 20, 1997 by
and between the Registrant and 501 Folsom Street Building.
(Incorporated by reference to Exhibit 10.10 to the Registrant's
Registration Statement on Form S-1 (File No. 333-71499))
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.11 Letter Agreement dated October 1, 1998 by and between the Registrant
and Douglas Hickey. (Incorporated by reference to Exhibit 10.11 to
the Registrant's Registration Statement on Form S-1 (File No. 333-
71499))
10.12 Promissory Note and Security Agreement dated November 2, 1998 by and
between the Registrant and Douglas Hickey. (Incorporated by reference
to Exhibit 10.12 to the Registrant's Registration Statement on Form
S-1 (File No. 333-71499))
10.13 Warrant Agreement dated April 28, 1998 by and between the Registrant
and Lighthouse Capital Partners II, L.P. (Incorporated by reference
to Exhibit 10.13 to the Registrant's Registration Statement on Form
S-1 (File No. 333-71499))
10.14 Warrant Agreement dated May 1, 1998 by and between the Registrant and
Comdisco, Inc. (Incorporated by reference to Exhibit 10.14 to the
Registrant's Registration Statement on Form S-1 (File No. 333-71499))
10.15 Master Services Agreement dated December 10, 1998 by and between the
Registrant and US West Communications Services, Inc. (Incorporated by
reference to Exhibit 10.15 to the Registrant's Registration Statement
on Form S-1 (File No. 333-71499))
10.16 Email Services Agreement dated May 27, 1998 by and between the
Registrant and Network Solutions, Inc. (Incorporated by reference to
Exhibit 10.16 to the Registrant's Registration Statement on Form S-1
(File No. 333-71499))
10.17 Email Services Agreement dated July 6, 1998 by and between the
Registrant and StarMedia Network, Inc. (Incorporated by reference to
Exhibit 10.17 to the Registrant's Registration Statement on Form S-1
(File No. 333-71499))
10.18 Amendment to Email Services Agreement September 30, 1998 by and
between the Registrant and E*TRADE Group, Inc. (Incorporated by
reference to Exhibit 10.18 to the Registrant's Registration Statement
on Form S-1 (File No. 333-71499))
10.19 Email Services Agreement dated September 14, 1998 by and between the
Registrant and Sprint Communications Company L.P. (Incorporated by
reference to Exhibit 10.19 to the Registrant's Registration Statement
on Form S-1 (File No. 333-71499))
10.20 Email Services Agreement dated March 19, 1998 by and between the
Registrant and NTX, Inc. dba TABNet, Inc. (Incorporated by reference
to Exhibit 10.20 to the Registrant's Registration Statement on Form
S-1 (File No. 333-71499))
10.21 QuickStart Loan and Security Agreement dated May 12, 1998 by and
between the Registrant and Silicon Valley Bank. (Incorporated by
reference to Exhibit 10.21 to the Registrant's Registration Statement
on Form S-1 (File No. 333-71499))
10.22 Email Services Agreement dated January 29, 1999 by and between the
Registrant and ICQ, Inc. (Incorporated by reference to Exhibit 10.22
to the Registrant's Registration Statement on Form S-1 (File No. 333-
71499))
10.23 Sublease dated February 8, 1999 by and between Times Direct
Marketing, Inc. and Critical Path. (Incorporated by reference to
Exhibit 10.23 to the Registrant's Registration Statement on Form S-1
(File No. 333-71499))
10.24 Promissory Note and Security Agreement dated January 26, 1999 by and
between the Registrant and Bill Rinehart. (Incorporated by reference
to Exhibit 10.24 to the Registrant's Registration Statement on Form
S-1 (File No. 333-71499))
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit
5.1).
24.1 Power of Attorney. (see signature page)
</TABLE>
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* To be filed by amendment.

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated January 28, 1999, except
for Note 9, which is as of March 26, 1999, relating to the consolidated
financial statements of Critical Path, Inc., which appears in such Prospectus.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.

/s/ PricewaterhouseCoopers LLP

San Jose, California
May 10, 1999