CRITICAL PATH INC, 424B3, 2000-07-27

CRITICAL PATH INC
424B3, 2000-07-27
BUSINESS SERVICES, NEC

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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-39958

PROSPECTUS

logo

$300,000,000 of 5 3/4% Convertible Subordinated Notes due April 1, 2005

2,956,380 Shares of Common Stock

CRITICAL PATH, INC.

COMMON STOCK
-------------------------

This Prospectus relates to the offering by certain Selling Holders of up to
$300,000,000 of 5 3/4% Convertible Subordinated Notes due April 1, 2005 of
Critical Path and up to 2,956,380 shares of Common Stock that are issuable upon
conversion of the Notes at a conversion rate of 9.8546 shares per $1,000
principal amount of the Notes. These Selling Holders may sell the securities
from time to time. We will pay certain of the expenses of this offering;
however, the Selling Holders will bear the cost of all brokerage commissions and
discounts. We will not receive any proceeds from the sale of securities by the
Selling Holders.

The 5 3/4% Convertible Subordinated Notes due April 1, 2005 were sold to
qualified institutional buyers in reliance on Rule 144A under the Securities Act
of 1933. Holders may convert the Notes into shares of Critical Path's Common
Stock at any time before their maturity or the business day before their
redemption or repurchase by Critical Path. The conversion rate is 9.8546 shares
per $1,000 principal amount of Notes, subject to adjustment in certain
circumstances. This is equivalent to a conversion price of approximately $101.48
per share.

Interest on the Notes is payable on April 1 and October 1 of each year with
the first interest payment due on October 1, 2000. The Notes are subordinated in
right of payment to all senior debt of Critical Path and effectively
subordinated to all existing and future debt and all other liabilities of
Critical Path's subsidiaries.

On or after the third business day after April 1, 2003 through March 31,
2004, the Company has the option to redeem all or a portion of the Notes which
have not been previously converted at the redemption price equal to 102.30% of
the principal amount. During the period from April 1, 2004 through March 31,
2005, the Company has the option to redeem all or a portion of the Notes which
have not been previously converted at the redemption price equal to 101.15% of
the principal amount. The Notes will be non-callable for three years. In the
event of a "Change in Control," as defined in the Notes' Offering Circular, the
Holders have the option of requiring the Company to repurchase any Notes held at
a price of 100% of the principal amount of the Notes plus accrued interest to
the date of repurchase.

The Selling Holders may offer and sell all the securities in the
over-the-counter market or on one or more exchanges. The Selling Holders may
sell the shares at the then prevailing market price for the shares or in
negotiated transactions.

The Notes are eligible for trading on the Portal Market of the National
Association of Securities Dealers, Inc. Our Common Stock is listed on the Nasdaq
National Market under the symbol "CPTH." On July 26, 2000, the closing price of
our Common Stock on the Nasdaq National Market was $66.3125 per share.
-------------------------

INVESTING IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
-------------------------

The Securities and Exchange Commission (the "Commission") may take the view
that, under certain circumstances, the Selling Holders and any broker-dealers or
agents that participate with the Selling Holders in the distribution of the
securities may be deemed to be "underwriters" within the meaning of the
Securities Act. Commissions, discounts or concessions received by any such
broker-dealer or agent may be deemed to be underwriting commissions under the
Securities Act. See "Plan of Distribution."
-------------------------

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 DATE OF THIS PROSPECTUS IS JULY 27, 2000
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You should rely only on the information contained in this Prospectus.
Neither we nor any of the Selling Holders have authorized anyone to provide you
with information different from that contained in this Prospectus. The Selling
Holders are offering to sell, and seeking offers to buy, securities 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 securities. In this
Prospectus, the "Company," "Critical Path," "we," "us," and "our" refer to
Critical Path, Inc., a California corporation.

TABLE OF CONTENTS

<TABLE>
<S> <C>
Where You Can Find More Information......................... 1
The Company................................................. 2
Risk Factors................................................ 4
Ratio of Earnings to Fixed Charges.......................... 17
Use of Proceeds............................................. 18
Selling Holders............................................. 18
Description of Notes........................................ 26
Plan of Distribution........................................ 46
Legal Matters............................................... 47
Experts..................................................... 47
</TABLE>

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WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special 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 at 450 Fifth Street, NW, Washington, D.C. 20549.
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."

The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this Prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934:

- Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2000;
and

- Our Annual Report on Form 10-K/A for the fiscal year ended December 31,
1999; and

- The description of our Common Stock set forth in our Registration
Statement on Form 8-A filed on February 1, 1999.

You may request a copy of these filings, at no cost, by writing or
telephoning us as follows:

Critical Path, Inc.
320 First Street
San Francisco, California 94105
Attention: Investor Relations
(415) 808-8800

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THE COMPANY

We are a leading provider of complete end-to-end Internet messaging and
collaboration solutions for Internet service providers or ISPs,
telecommunications providers, web hosting companies, web portals and
corporations. We provide services and products, both on a hosted and licensed
basis, that enable our customers to provide feature-rich email, messaging,
collaboration and directory services to their customers and employees. Our
allsourcing strategy provides flexibility to our customers by giving them the
option of using our Critical Path hosted services, licensing our software to run
on their own hardware, or selecting a combination of both. Our solutions enable
customers to improve messaging performance, reduce the cost of providing
messaging services and focus on other aspects of their businesses.

We have over 2,000 customers and reach over 100 million end-users and 20
million wireless devices through our customer relationships. Our customers
include leading Internet companies such as AltaVista, eBay, E*TRADE, ICQ (a
subsidiary of America Online) and Netscape as well traditional enterprises such
as General Electric, Proctor & Gamble and Promus Hotel Corporation.
International customers include Aether Systems, Avantel, British
Telecommunications, Cable and Wireless, Eircell, Global Telesystems Group, Korea
Telecom, Sina and Starmedia. In addition, we have a number of relationships to
expand our distribution channels with companies such as British
Telecommunications, Compuserve, France Telecom, MCI Worldcom, Mitsui, Network
Solutions, NTT, Qwest Communications, Sprint, US West and VeriSign.

There are a number of trends that are driving demand for messaging and
collaboration solutions. Email has broadened from a simple messaging tool to a
widely accepted form of communication. At the same time, the complexity of
individual messages and the scale of the supporting applications and hardware
are growing dramatically, forcing businesses to dedicate significant resources
to the operation and maintenance of their messaging systems. In addition,
customers are increasingly demanding reliable and scalable service and enhanced
product offerings. Accordingly, it is important for businesses to adopt more
effective approaches to the management of their messaging and collaboration
needs.

Our end-to-end solutions complement our core email hosting services and
support the growing demands of our rapidly expanding worldwide customer base. We
provide a full spectrum of messaging and collaboration solutions, such as
calendaring, document archival, Internet fax, secure document delivery, resource
management and wireless access. Our solutions are supported by our global
infrastructure with data centers located worldwide connected to key Internet
exchange points.

In recent months, we have significantly expanded our range of products and
services and the delivery options we offer our domestic and international
customers. Our extended messaging solutions include support for wireless devices
through relationships with American Mobile Satellite, Arch Communications,
Cellnet, VAST and other international wireless carriers; integrated calendaring
and resource scheduling; bi-directional fax to email, security measures and
directory services and collaborative messaging. In addition to our outsourced
hosted services, we now offer midsourcing, where a customer selects which
products and services to outsource to augment their existing messaging
infrastructure, and insourcing, where a customer installs and maintains our
software.

Our objective is to be the premier provider of comprehensive, advanced
messaging and collaboration services. We plan to attain this goal by:

- Extending our technology leadership in messaging applications;

- Acquiring new businesses and technologies that could expand our product
and service offerings;

- Developing and leveraging strategic relationships;

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- Increasing our sales and marketing efforts;

- Offering value-added products and services such as secure guaranteed
delivery, collaborative messaging and calendaring; and

- Expanding our international presence.

RECENT DEVELOPMENTS

To achieve our objectives, we have announced several recent acquisitions,
strategic relationships and other initiatives that have expanded our range of
products and customers and broadened our global reach, including:

Netmosphere Acquisition. On June 16, 2000, we announced the signing of a
definitive agreement to acquire Netmosphere, Inc., a provider of e-business
solutions for project collaboration and communications. The estimated purchase
price will be approximately $40 million in our common stock and will be
accounted for using the purchase method of accounting. The acquisition, which is
expected to close on or before June 30, 2000, will expand our suite of
collaborative applications, enabling us to offer customers business solutions
for managing mission-critical projects that increase organizational efficiency
through visibility, analysis, communication and knowledge-sharing.

Critical Path Pacific Alliance. We have entered into a joint venture with
Mitsui and Co., Ltd. and NTT Communications Corp. to bring our messaging
solutions to Japan. The joint venture will leverage our technology,
infrastructure and services; Mitsui's extensive partnerships in Japan and
throughout Asia; and NTT's Data Centers and technical backbone to deliver
advanced Internet messaging services to the Japanese business and wireless
markets.

Reincorporation. At our Annual Meeting of shareholders on June 13, 2000,
our shareholders approved a management proposal to change our state of
incorporation from California to Delaware. This reincorporation has not yet been
effected.

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RISK FACTORS

Investing in these securities 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 the Notes or our Common Stock. Our
business, operating results and financial condition could be adversely affected
by any of the following risks. The trading price of the Notes or 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.

RISKS RELATED TO THE PURCHASE OF THE NOTES

WE ARE SIGNIFICANTLY LEVERAGED AS A RESULT OF THE SALE OF THE NOTES.

In connection with the sale of the notes, we incurred $300 million of
indebtedness. As a result of this indebtedness, our principal and interest
payment obligations increased substantially. The degree to which we will be
leveraged could materially and adversely affect our ability to obtain financing
for working capital, acquisitions or other purposes and could make us more
vulnerable to industry downturns and competitive pressures. Our ability to meet
our debt service obligations will be dependent upon our future performance,
which will be subject to financial, business and other factors affecting our
operations, many of which are beyond our control.

We will require substantial amounts of cash to fund scheduled payments of
interest on the notes, payment of the principal amount of the notes, payment of
principal and interest on our other indebtedness, future capital expenditures
and any increased working capital requirements. If we are unable to meet our
cash requirements out of cash flow from operations, we may not be able to obtain
alternative financing. In the absence of such financing, our ability to respond
to changing business and economic conditions, to make future acquisitions, to
absorb adverse operating results or to fund capital expenditures or increased
working capital requirements may be adversely affected. If we do not generate
sufficient increases in cash flow from operations to repay the notes at
maturity, we could attempt to refinance the notes; however, such a refinancing
may not be available on terms acceptable to us, if at all. Our failure to
satisfy our obligations with respect to the notes at maturity or with respect to
payments of interest would constitute a default under the indenture and could
cause a default under agreements governing our other indebtedness.

THE NOTES WILL RANK BELOW OUR SENIOR DEBT, AND WE MAY BE UNABLE TO REPAY OUR
OBLIGATIONS UNDER THE NOTES.

The notes are unsecured and subordinated in right of payment to all of our
senior debt, including senior debt we may incur in the future. Because the notes
are subordinate to senior debt, in the event of (1) our bankruptcy, liquidation
or reorganization, (2) acceleration of the notes due to an event of default
under the indenture or (3) certain other events, we will make payments on the
notes only after we have satisfied all of our senior debt obligations.
Therefore, we may not have sufficient assets remaining to pay amounts on any or
all of the notes. In addition, the notes will be subordinate to all

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liabilities, including trade payables, of any of our subsidiaries and any
subsidiaries that we may in the future acquire or establish. Consequently, our
right to receive assets of any subsidiaries upon their liquidation or
reorganization, and the rights of the holders of the notes to share in those
assets, would be subordinate to the claims of the subsidiaries' creditors.

The notes will be our obligations exclusively. The indenture for the notes
does not limit our ability, or that of any of our presently existing or future
subsidiaries, to incur senior debt, other indebtedness and other liabilities. We
may have difficulty paying our obligations under the notes if we, or any of our
subsidiaries, incur additional indebtedness or liabilities. As of December 31,
1999, we had approximately $12.2 million senior debt outstanding and the
aggregate amount of debt and other liabilities of our subsidiaries on a pro
forma basis was approximately $8.7 million. From time to time we may incur
additional indebtedness, including senior debt, which could adversely affect our
ability to pay our obligations under the notes.

WE MAY BE UNABLE TO REPURCHASE THE NOTES.

At maturity, the entire outstanding principal amount of the notes will
become due and payable by us. In addition, if a Change in Control, as defined in
the indenture, of Critical Path occurs, each holder of the notes may require
that we repurchase all or a portion of the notes. At maturity or if a Change in
Control occurs, we cannot assure you that we will have sufficient funds or will
be able to arrange for additional financing to pay the principal amount or
repurchase price due. Under the terms of the indenture for the notes, we may
elect, if we meet certain conditions, to pay the repurchase price with shares of
common stock. Any future borrowing arrangements or agreements relating to senior
debt to which we become a party may contain restrictions on, or prohibitions
against, our repurchase of the notes. In the event that the maturity date or
Change in Control occurs at a time when we are prohibited from repurchasing the
notes, we could try to obtain the consent of the lenders under those
arrangements to purchase the notes or we could attempt to refinance the
borrowings that contain the restrictions. If we do not obtain the necessary
consents or refinance these borrowings, we will be unable to repurchase the
notes. In that case, our failure to repurchase any tendered notes or notes due
upon maturity would constitute an event of default under the indenture. Any such
default, in turn, may cause a default under the terms of our senior debt. As a
result, in such circumstances, the subordination provisions of the indenture
would, absent a waiver, prohibit any repurchase of the notes until we pay the
senior debt in full.

THERE MAY BE NO PUBLIC MARKET FOR THE NOTES, AND THERE MAY BE RESTRICTIONS ON
RESALE OF THE NOTES.

Prior to this offering, there has been no trading market for the notes.
Although the initial purchasers have advised us that they currently intend to
make a market in the notes, they are not obligated to do so and may discontinue
their market-making activities at any time without notice. Consequently, we
cannot ensure that any market for the notes will develop, or if one does
develop, that it will be maintained: If an active market for the notes fails to
develop or be sustained, the trading price of the notes could be materially and
adversely affected. We do not intend to apply for listing of the notes on any
securities exchange or any automated quotation system.

The notes and the common stock to be issued upon conversion of the notes
have been registered under the Securities Act and are not transferable except
upon satisfaction of the conditions described under "Notice to Investors".
Although we have agreed to use our reasonable best efforts to have declared
effective a shelf registration statement covering the notes and the common stock
issuable upon conversion of the notes within 180 days after the date the notes
are originally issued, we may not be able to have the registration statement
declared effective within that time period, if at all.

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RISKS RELATED TO OUR BUSINESS

WE HAVE A LIMITED OPERATING HISTORY UPON WHICH YOU CAN EVALUATE OUR BUSINESS AND
FACE RISKS ASSOCIATED WITH EARLY STAGE COMPANIES THAT MAY ADVERSELY AFFECT OUR
BUSINESS.

Because we have had 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. 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;

- Integrate the operations of the companies that we have recently acquired;

- Manage growing domestic and international operations;

- Create and maintain strategic relationships;

- Expand sales and marketing activities;

- Expand our customer base and retain key clients;

- Introduce new services;

- 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 HAVE A HISTORY OF LOSSES, EXPECT CONTINUING LOSSES AND WE MAY NEVER ACHIEVE
PROFITABILITY.

As of March 31, 2000, we had an accumulated deficit of approximately $206.4
million. We have not achieved profitability in any period, and expect to
continue to incur net losses for the foreseeable future. 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 operating results and
financial condition in the near term.

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 end-to-end Internet messaging and collaboration
solutions, 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 revenues do not correspondingly increase, our operating results and
financial condition could be negatively affected.

Should we continue to incur net losses in future periods, we may not be
able to increase the number of employees or investment in capital equipment,
sales and marketing programs, and research and development in accordance with
our present plans. 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.

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DUE TO OUR LIMITED OPERATING HISTORY AND THE EMERGING NATURE OF THE INTERNET
MESSAGING AND COLLABORATION SOLUTIONS MARKET, 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 messaging and
collaboration solutions market. Our revenues could fall short of expectations if
we experience delays or cancellations of even a small number of orders. We often
offer volume-based pricing, which may affect operating margins. A number of
factors are likely to cause fluctuations in operating results, including, but
not limited to:

- Continued growth of the Internet in general and of messaging and
collaboration usage in particular;

- Demand for outsourced messaging services;

- Demand for licensing of messaging, directory, and other products;

- 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 business and infrastructure;

- Technical difficulties or system outages;

- The announcement or introduction of new or enhanced services by
competitors;

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

- The pricing policies of competitors;

- Failure to increase international sales; and

- Governmental regulation surrounding the Internet and messaging in
particular.

In addition to the factors set forth above, 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
have incurred and expect to continue to incur substantial non-cash charges
associated with the grant of warrants to our customers and other parties with
which we have commercial relationships. For example, we recognized a $2.1
million non-cash charge to advertising expense during the first quarter of 2000
in connection with the amortization of a warrant to ICQ, a subsidiary of America
Online.

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

FURTHER ACQUISITIONS COULD RESULT IN DILUTION, OPERATING DIFFICULTIES AND OTHER
CONSEQUENCES.

We expect to acquire or invest in additional businesses, products, services
and technologies that complement or augment our service offerings and customer
base. Since January 1999, we have completed the acquisition of eight companies
for an aggregate consideration consisting of cash, Common Stock and the
assumption of stock options and warrants totaling approximately $1.3 billion.

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

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agreements, and 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 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 to pay for acquisitions by issuing additional Common Stock, which
would dilute current 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 favorable terms. 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
operating expenses.

WE WILL FACE TECHNICAL, OPERATIONAL AND STRATEGIC CHALLENGES THAT MAY PREVENT US
FROM SUCCESSFULLY INTEGRATING NETMOSPHERE, REMARQ, DOCSPACE, ISOCOR, FAXNET,
XETI, AMPLITUDE, DOTONE AND FABRIK.

Acquisitions involve risks related to the integration and management of
acquired technology, operations and personnel. The integration of Netmosphere,
RemarQ, docSpace, ISOCOR, FaxNet, Xeti, Amplitude, dotOne, and Fabrik
Communications into our business has been and will be a complex, time consuming
and expensive process and may disrupt our business if not completed in a timely
and efficient manner. We must operate as a combined organization utilizing,
common information and communication systems, operating procedures, financial
controls and human resources practices. In particular, we are currently
evaluating, upgrading or replacing our financial information systems and
establishing uniformity among the systems of the acquired businesses. We may
encounter substantial difficulties, costs and delays involved in integrating the
operations of our subsidiaries, including:

- potential incompatibility of business cultures;

- perceived adverse changes in business focus;

- potential conflicts in sponsor, advertising or strategic relationships;
and

- the loss of key employees and diversion of the attention of management
from other ongoing business concerns.

Consequently, we may not be successful in integrating acquired businesses
or technologies and may not achieve anticipated revenue and cost benefits. We
also cannot guarantee that these acquisitions will result in sufficient revenues
or earnings to justify our investment in, or expenses related to, these
acquisitions or that any synergies will develop. If we fail to execute our
acquisition strategy successfully for any reason, our business will suffer
significantly.

WE HAVE EXPERIENCED RAPID GROWTH WHICH HAS PLACED A STRAIN ON RESOURCES AND OUR
FAILURE TO MANAGE GROWTH COULD CAUSE OUR BUSINESS TO SUFFER.

We have expanded our operations rapidly and intend to continue this
expansion. The number of our employees increased from 93 on December 31, 1998 to
921 on March 31, 2000. This expansion has placed, and is expected to continue to
place, a significant strain on 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 to properly manage these systems and procedural transitions could
impair our ability to attract and service customers, and could cause us to incur
higher operating costs and delays in the execution of our business plan. We will
also need to continue the expansion of our operations and employee base. Our

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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.

IF WE FAIL TO EXPAND SALES AND MARKETING ACTIVITIES, WE MAY BE UNABLE TO EXPAND
OUR BUSINESS.

Our ability to increase revenues will depend on our ability to successfully
recruit, train and retain 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.

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. 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 encountered 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 revenues. Because
the majority of our sales and marketing personnel have recently joined us and
have limited experience working together, our sales and marketing organizations
may not be able to compete successfully against the larger and more experienced
sales and marketing organizations of our competitors. If we do not successfully
expand 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 MESSAGING AND COLLABORATION SERVICES AND COULD HARM OUR BUSINESS AND
REPUTATION.

Our customers have in the past experienced some interruptions in our
messaging service. We believe that these interruptions will continue to occur
from time to time. These interruptions are due to hardware failures, unsolicited
bulk email, or "spam," attacks and operating system failures. For example, in
January 2000, our customers experienced a service interruption due to an
operating system failure. Our revenues depend on the number of end-users who use
our messaging services. Our business will suffer if we experience frequent or
long system interruptions that result in the unavailability or reduced
performance of systems or networks or reduce our ability to provide email
services. We expect to experience occasional temporary capacity constraints due
to sharply increased traffic, which may cause unanticipated system disruptions,
slower response times, impaired quality and degradation in levels of customer
service. If this were to continue to happen, our business and reputation could
suffer dramatically.

We have entered into service agreements with some customers that require
minimum performance standards, including standards regarding the availability
and response time of messaging services. If we fail to meet these standards, our
customers could terminate their relationships with us and we could be subject to
contractual monetary penalties. Any unplanned interruption of services may
adversely affect our ability to attract and retain customers.

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 revenues from
international operations do not exceed the expense of

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establishing and maintaining these operations, our business, financial condition
and operating results will suffer. At present, we have international operations
in Argentina, Brazil, Canada, Denmark, France, Germany, Ireland, Italy,
Switzerland and the United Kingdom and for the three months ended March 31, 2000
we derived approximately 50% of our revenues from international sales. 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 including U.S. export
restrictions on encryption technologies;

- 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 some countries.

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

WE DEPEND ON STRATEGIC RELATIONSHIPS AND OTHER SALES CHANNELS AND THE LOSS OF
ANY STRATEGIC RELATIONSHIPS COULD HARM OUR BUSINESS AND HAVE AN ADVERSE IMPACT
ON REVENUES.

We depend on strategic relationships to expand distribution channels and to
undertake joint product development and marketing efforts. Our ability to
increase revenues depends upon marketing 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, MCI Worldcom
and US West, among others. We depend on a broad acceptance of outsourced
messaging services on the part of potential partners and acceptance of our
company as the supplier for these outsourced messaging services. We also depend
on joint marketing and product development through 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 messaging services in E*TRADE's international strategic relationships.
Our agreements with strategic partners typically do not restrict them from
introducing competing services. These agreements typically are for terms of one
to three years, and automatically renew for additional one-year periods unless
either party gives prior notice of its intention to terminate the agreement. In
addition, these agreements are terminable by our partners without cause, and
some agreements are terminable by us, upon 30-120 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
strategic relationships, fail to renew these agreements or relationships or fail
to develop new strategic relationships, business will suffer. The loss of any
key strategic relationships would have an adverse impact on current and future
revenue. In addition to

10
<PAGE> 13

strategic relationships, we also depend on the ability of our customers to sell
and market our services to their end-users.

WE MAY NOT BE ABLE TO RESPOND TO THE RAPID TECHNOLOGICAL CHANGE OF THE INTERNET
MESSAGING AND COLLABORATION 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 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 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 be unable to use new technologies
effectively or adapt services to customer requirements or emerging industry
standards.

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

WE WILL CONTINUE TO 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 a substantial portion of our revenues have been derived from
sales of email service offerings and we currently expect that email service
offerings will account for a substantial portion 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.

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<PAGE> 14

WE EXPECT THE MESSAGING 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, which currently
offers email products primarily to Internet service providers that provide
access to the Internet; web hosting companies; web sites intended to be major
starting sites 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 current competitors increase the
sophistication of their offerings and as new participants enter the market. Many
current and potential competitors have longer operating histories, larger
customer bases, greater brand recognition and significantly greater financial,
marketing and other resources than we do and may enter into strategic or
commercial relationships with larger, more established and better-financed
companies. Further, any delays in the general market acceptance of the email
hosting concept would likely harm our competitive position. Any delay would also
allow competitors additional time to improve their service or product offerings,
and 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.

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 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
MESSAGING TRAFFIC.

We must continue to expand and adapt our network infrastructure as the
number of users and the amount of information we 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 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
messaging traffic increases or upgrade our systems and infrastructure to
accommodate future traffic levels, which may cause service degradation or
outages. We may also not be able to achieve or maintain a sufficiently high
capacity of data transmission as

12
<PAGE> 15

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
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 customers' changing
requirements in a timely manner or at all.

BECAUSE WE PROVIDE MESSAGING AND COLLABORATION 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. To
date we have not experienced a significant adverse effect from these
interruptions. However, because we provide messaging and collaboration services
over the Internet, interruptions or delays in Internet transmissions will
adversely affect customers' ability to send or receive their 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 Level 3, Qwest,
Exodus and TeleHouse to transmit 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 messaging 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 sales. If we did not increase
prices in response to rising access costs, 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 FAILURES, WE MAY NOT BE ABLE TO PROVIDE ADEQUATE SERVICE
AND OUR BUSINESS AND REPUTATION COULD BE DAMAGED.

Our ability to successfully receive and send messages and provide
acceptable levels of customer service largely depends on the efficient and
uninterrupted operation of computer and communications hardware and network
systems. 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 minimum performance standards,
and could have a material adverse effect on 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 senior
management and other key personnel, many of whom have worked together for only a
short period of time. For example, our Chief Operating Officer and Chief
Financial Officer have joined us within the past five months. The loss of the
services of any senior management or other key personnel, including the
President, David Thatcher, and Chief Executive Officer, Douglas Hickey, could
materially and adversely affect business results. We do not have long-term
employment agreements with any executive officers 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.

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<PAGE> 16

UNKNOWN SOFTWARE DEFECTS COULD DISRUPT 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. We may not
discover software defects that affect new or current services or enhancements
until after they are deployed. Although we have not experienced any material
software defects to date, it is possible that, despite testing, defects may
occur in the software. These defects could cause service interruptions, which
could damage our reputation or increase service costs, cause us to lose revenue,
delay market acceptance or divert development resources, any of which could
cause business to suffer.

WE MAY NEED ADDITIONAL CAPITAL AND RAISING ADDITIONAL CAPITAL MAY DILUTE
EXISTING SHAREHOLDERS.

We believe that existing capital resources will enable us to maintain
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
capital requirements vary materially from those current 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 INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS.

We regard our copyrights, service marks, trademarks, trade secrets and
similar intellectual property as critical to our success, and we rely on
trademark and copyright law, trade secret protection and confidentiality and/or
license agreements with employees, customers and partners to protect proprietary
rights. Despite these precautions, unauthorized third parties may infringe or
copy portions of our services or reverse engineer or obtain and use information
that we regard as proprietary. 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 several patents pending in the United States and may
seek additional patents in the future. We do not know if the patent application
or any future patent application will be issued with the scope of the claims
sought, if at all, or whether any patents received 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 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 copyrights, trademarks and
similar proprietary rights belonging to us. In addition, other parties have
asserted and may assert infringement claims against us. For example, a company
that we acquired is a party to a lawsuit involving alleged infringement of a
third party's patent. The recently acquired company has denied the allegations
of infringement and has made counterclaims. Although we have not received notice
of any other 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 business, including claims of alleged
infringement of 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 operating our business.

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<PAGE> 17

WE MAY NEED TO LICENSE THIRD-PARTY TECHNOLOGIES AND WE FACE RISKS IN DOING SO.

We intend to continue to license certain technology from third parties,
including 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 proprietary technology, and an inability to
generate revenues from new technology sufficient to offset associated
acquisition and maintenance costs. An 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.

THE TRADING PRICES AND VOLUMES OF OUR STOCK HAVE BEEN VOLATILE AND WE EXPECT
THAT THIS VOLATILITY WILL CONTINUE.

Our stock price and trading volumes have 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 results of operations;

- Changes in or failure to meet securities analysts' expectations;

- Announcements of technological innovations and acquisitions;

- Introduction of new services by us or our competitors;

- 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
on 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 messaging 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
messaging services 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
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.

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<PAGE> 18

WE MAY HAVE LIABILITY FOR INTERNET CONTENT AND WE MAY NOT HAVE ADEQUATE
LIABILITY INSURANCE.

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

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

FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS THE PRICE OF OUR COMMON STOCK.

As of May 31, 2000, we had approximately 62.4 million shares of Common
Stock outstanding. Sales of a substantial number of shares of Common Stock in
the public market could cause the market price of our Common Stock to decline.
Recently, 7.6 million shares became eligible for sale under S-3 registration
statements that were filed to meet our registration rights obligations in
connection with recent acquisitions. Up to 2.9 million shares may be issued upon
the conversion of our Convertible Subordinated Notes and will become eligible
for sale under this S-3 registration statement that we will file to meet our
registration rights obligations in connection with our sale of Convertible
Subordinated Notes. Certain of our shareholders and warrantholders have
registration rights with respect to the Common Stock and Common Stock issuable
under the 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 principal
shareholders will beneficially own a substantial portion 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 significant corporate
transactions. This concentration of ownership may also delay or prevent a change
in control of our company.

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 our company. These provisions could
limit the price that investors might be willing to pay in the future for shares
of our Common Stock. Some of these provisions:

- Authorize the issuance of preferred stock which can be created and issued
by the board of directors without prior stockholder approval, commonly
referred to as "blank check" preferred stock, with rights senior to those
of Common Stock;

- Prohibit shareholder action by written consent; and

16
<PAGE> 19

- 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.

RATIO OF EARNINGS TO FIXED CHARGES

The following table sets forth the ratio of earnings to fixed charges for
the periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED
-------------------------------- MARCH 31,
1997 1998 1999 2000
------- -------- --------- ------------
<S> <C> <C> <C> <C>
Net loss.................................... $(1,074) $(11,461) $(116,941) $(76,942)
======= ======== ========= ========
Fixed charges
Interest expense.......................... $ 18 $ 388 $ 752 $ 274
Rentals................................... 11 73 418 382
------- -------- --------- --------
Total fixed charges....................... $ 29 $ 461 $ 1,170 $ 656
======= ======== ========= ========
Ratio of earnings to fixed charges.......... -- -- -- --
======= ======== ========= ========
</TABLE>

For the purposes of calculating this ratio, earnings consist of our
historic net loss, as reported. Fixed charges include interest on indebtedness,
amortization of debt issuance costs and the portion of rental expense under
operating leases deemed by us to be representative of the interest factor. Due
to our net losses for the years ended December 31, 1997, 1998, and 1999, and for
the three month period ended March 31, 2000, the ratio of coverage was less than
1:1.

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<PAGE> 20

USE OF PROCEEDS

We will not receive any of the proceeds from the sale from time to time of
the Notes or the Common Stock. All proceeds from the sale of the Common Stock
will go to the account of the Selling Holders. See "Selling Holders" and "Plan
of Distribution" below.

SELLING HOLDERS

The Notes and Common Stock to be offered and sold pursuant to this
prospectus were issued to the initial purchasers and subsequently sold in a
transaction exempt from the registration requirements of the Securities Act to
qualified institutional buyers pursuant to Rule 144A.

The following table lists, as of the date of this Prospectus, (i) the name
of each of the Selling Holders, (ii) the principal amount of the Notes that each
Selling Holder is offering hereby, (iii) the number of shares of Common Stock
that each Selling Holder beneficially owned as of such date, (iv) the number of
shares of Common Stock owned by each Selling Holder that may be offered for sale
from time to time by this Prospectus, and (v) the number of shares of Common
Stock to be held by each Selling Holder assuming the sale of all the Common
Stock offered under this Prospectus. Except as indicated, none of the Selling
Holders has held any position or office or had a material relationship with us
or any of our affiliates within the past three years other than as a result of
the ownership of our Common Stock. We may amend or supplement this Prospectus
from time to time to update the disclosure set forth herein.

18
<PAGE> 21

<TABLE>
<CAPTION>
PRINCIPAL SHARES OF
AMOUNT OF SHARES OF COMMON STOCK
NOTES COMMON SHARES OF COMMON BENEFICIALLY OWNED
BENEFICIALLY STOCK STOCK WHICH MAY AFTER OFFERING(2)
OWNED AND BENEFICIALLY BE SOLD PURSUANT -------------------
SELLING HOLDER OFFERED OWNED TO THIS PROSPECTUS NUMBER PERCENT(%)
-------------- ------------ ------------ ------------------ ------ ----------
<S> <C> <C> <C> <C> <C>
Mainstay VP Convertible Portfolio...... 1,000,000 9,854.60 9,854.60 0 *
c/o Mackay Shields LLC
9 West 57th Street, 33rd Floor
New York, NY 10019
AllState Insurance Company............. 1,500,000 14,781.90 14,781.90 0 *
3075 Sanders Road, Suite 1-613
Northbrook, IL 60062
TCW Group, Inc......................... 720,000 7,095.31 7,095.31 0 *
865 South Figueroa St., 21st Floor
Los Angeles, CA 90017
Chrysler Corporation Master
Retirement........................... 2,340,000 23,059.76 23,059.76 0 *
c/o Oaktree Capital Management, LLC
333 South Grand Avenue, 28th Floor
Los Angeles, CA 90071
KBC Financial Products................. 800,000 7,883.68 7,883.68 0 *
120 W. 45th Street
Tower 45, 25th Floor
New York, NY 10036
JMG Triton Offshore Fund Ltd. ......... 31,000,000 305,492.60 305,492.60 0 *
1999 Avenue of the Stars, Suite 2530
Los Angeles, CA 90067
Forest Fulcrum Fund LP................. 250,000 2,463.65 2,463.65 0 *
53 Forest Avenue
Old Greenwich, CT 06870
Forest Alternative Strategies Fund
AIVM................................. 25,000 246.37 246.37 0 *
53 Forest Avenue
Old Greenwich, CT 06870
Forest Convertible Fund................ 243,000 2,394.67 2,394.67 0 *
53 Forest Avenue
Old Greenwich, CT 06870
Forest Performance Fund................ 473,000 4,661.23 4,661.23 0 *
53 Forest Avenue
Old Greenwich, CT 06870
Zurich HFR Master Fund................. 102,000 1,005.17 1,005.17 0 *
c/o Forest Investment Management LLC
53 Forest Avenue
Old Greenwich, CT 06870
RBC Capital Services Inc. ............. 182,000 1,793.54 1,793.54 0 *
c/o Forest Investment Management LLC
53 Forest Avenue
Old Greenwich, CT 06870
Forest Global Convertible Fund AIV..... 3,525,000 34,737.47 34,737.47 0 *
c/o FIMC
53 Forest Avenue
Old Greenwich, CT 06870
AIG National Union Fire Insurance...... 1,325,000 13,057.35 13,057.35 0 *
c/o Froley Revy Investment Co.
10900 Wilshire Blvd., Ste 900
Los Angeles, CA 90024
OCM Convertible Trust.................. 705,000 6,947.49 6,947.49 0 *
c/o Oaktree Capital Management, LLC
333 South Grand Avenue, 28th Floor
Los Angeles, CA 90071
</TABLE>

19
<PAGE> 22

<TABLE>
<CAPTION>
PRINCIPAL SHARES OF
AMOUNT OF SHARES OF COMMON STOCK
NOTES COMMON SHARES OF COMMON BENEFICIALLY OWNED
BENEFICIALLY STOCK STOCK WHICH MAY AFTER OFFERING(2)
OWNED AND BENEFICIALLY BE SOLD PURSUANT -------------------
SELLING HOLDER OFFERED OWNED TO THIS PROSPECTUS NUMBER PERCENT(%)
-------------- ------------ ------------ ------------------ ------ ----------
<S> <C> <C> <C> <C> <C>
EQAT Alliance Growth Investors......... 3,040,000 29,957.98 29,957.98 0 *
c/o Susan Osborn, Alliance Capital
Management
1345 Avenue of the Americas,
40th Floor
New York, NY 10105
EQAT Alliance Growth & Income
Account.............................. 5,625,000 55,432.13 55,432.13 0 *
c/o Susan Osborn, Alliance Capital
Management
1345 Avenue of the Americas,
40th Floor
New York, NY 10105
Equitable Life Assurance
Separate Account -- Convertibles..... 3,395,000 33,456.37 33,456.37 0 *
c/o Susan Osborn, Alliance Capital
Management
1345 Avenue of the Americas,
40th Floor
New York, NY 10105
Equitable Life Assurance Separate
Account -- Balanced.................. 160,000 1,576.74 1,576.74 0 *
c/o Susan Osborn, Alliance Capital
Management
1345 Avenue of the Americas,
40th Floor
New York, NY 10105
IBM Retirement Plan -- High Income..... 360,000 3,547.66 3,547.66 0 *
c/o Oaktree Capital Management, LLC
333 South Grand Avenue, 28th Floor
Los Angeles, CA 90071
Guardian Pension Trust................. 200,000 1,970.92 1,970.92 0 *
The Guardian Life Insurance Company
of America
7 Hanover Square/20-A
New York, NY 10004
Guardian Life Insurance Company........ 7,100,000 69,967.66 69,967.66 0 *
The Guardian Life Insurance Company
of America
7 Hanover Square/20-A
New York, NY 10004
Family Service Life Insurance
Company.............................. 200,000 1,970.92 1,970.92 0 *
The Guardian Life Insurance Company
of America
7 Hanover Square/20-A
New York, NY 10004
Chase Securities, Inc. ................ 2,000,000 19,709.20 19,709.20 0 *
c/o Chase H&Q
Attn: Convertible Securities, 8th
Floor
270 Park Avenue
New York, NY 10017
CIBC World Markets..................... 30,973,000 305,226.53 305,226.53 0 *
One World Financial Center
200 Liberty Street
New York, NY 10281
</TABLE>

20
<PAGE> 23

<TABLE>
<CAPTION>
PRINCIPAL SHARES OF
AMOUNT OF SHARES OF COMMON STOCK
NOTES COMMON SHARES OF COMMON BENEFICIALLY OWNED
BENEFICIALLY STOCK STOCK WHICH MAY AFTER OFFERING(2)
OWNED AND BENEFICIALLY BE SOLD PURSUANT -------------------
SELLING HOLDER OFFERED OWNED TO THIS PROSPECTUS NUMBER PERCENT(%)
-------------- ------------ ------------ ------------------ ------ ----------
<S> <C> <C> <C> <C> <C>
Starvest Combined Portfolio............ 1,700,000 16,752.82 16,752.82 0 *
c/o Froley, Revy Investment Company
10900 Wilshire Blvd., Ste 900
Los Angeles, CA 90024
Memphis Light, Gas & Water Retirement
Fund................................. 1,930,000 19,019.38 19,019.38 0 *
c/o Susan Osborn, Alliance Capital
Management
1345 Avenue of the Americas,
40th Floor
New York, NY 10105
The TCW Group, Inc. ................... 100,000 985.46 985.46 0 *
865 South Figueroa St., 21st Floor
Los Angeles, CA 90017
Vanguard Convertible Securities Fund,
Inc. ................................ 2,715,000 26,755.24 26,755.24 0 *
c/o Oaktree Capital Management, LLC
333 South Grand Avenue, 28th Floor
Los Angeles, CA 90071
The TCW Group, Inc. ................... 8,350,000 82,285.91 82,285.91 0 *
865 South Figueroa St., 21st Floor
Los Angeles, CA 90017
Delaware PERS.......................... 2,150,000 21,187.39 21,187.39 0 *
c/o Froley, Revy Investment Co.
10900 Wilshire Blvd., Ste 900
Los Angeles, CA 90024
State Employees' Retirement Fund of the
State of Delaware.................... 1,185,000 11,677.70 11,677.70 0 *
c/o Oaktree Capital Management, LLC
333 South Grand Avenue, 28th Floor
Los Angeles, CA 90071
JMG Capital Partners L.P. ............. 14,000,000 137,964.40 137,964.40 0 *
1999 Avenue of the Stars, Suite 2530
Los Angeles, CA 90067
Morgan Stanley & Co., Inc. ............ 10,000,000 98,546.00 98,546.00 0 *
1585 Broadway
New York, NY 10036
ECT Investments, Inc. ................. 2,000,000 19,709.20 19,709.20 0 *
1400 Smith Street, 30th Floor
Houston, TX 77002
Fir Tree Value Fund, L.P. ............. 3,594,410 35,421.47 35,421.47 0 *
535 Fifth Avenue, 31st Floor
New York, NY 10017
Fir Tree Institutional Value Fund,
L.P. ................................ 1,310,620 12,915.64 12,915.64 0 *
535 Fifth Avenue, 31st Floor
New York, NY 10017
Fir Tree Value Partners, LDC........... 374,970 3,695.18 3,695.18 *
535 Fifth Avenue, 31st Floor
New York, NY 10017
The TCW Group, Inc. ................... 9,340,000 92,041.96 92,041.96 0 *
865 South Figueroa St., 21st Floor
Los Angeles, CA 90017
</TABLE>

21
<PAGE> 24

<TABLE>
<CAPTION>
PRINCIPAL SHARES OF
AMOUNT OF SHARES OF COMMON STOCK
NOTES COMMON SHARES OF COMMON BENEFICIALLY OWNED
BENEFICIALLY STOCK STOCK WHICH MAY AFTER OFFERING(2)
OWNED AND BENEFICIALLY BE SOLD PURSUANT -------------------
SELLING HOLDER OFFERED OWNED TO THIS PROSPECTUS NUMBER PERCENT(%)
-------------- ------------ ------------ ------------------ ------ ----------
<S> <C> <C> <C> <C> <C>
The Frist Foundation................... 535,000 5,272.21 5,272.21 0 *
c/o Susan Osborn, Alliance Capital
Management
1345 Avenue of the Americas,
40th Floor
New York, NY 10105
Nalco Chemical Company................. 550,000 5,420.03 5,420.03 0 *
c/o Froley, Revy Investment Company
10900 Wilshire Blvd., Ste 900
Los Angeles, CA 90024
HT Insight Convertible Securities
Fund................................. 200,000 1,970.92 1,970.92 0 *
8800 Tinicum Boulevard
3rd Floor, Suite 2000
Philadelphia, PA 19153
Robertson Stephens..................... 2,000,000 19,709.20 19,709.20 0 *
555 California Street
24th Floor
San Francisco, CA 94104
Island Holdings........................ 75,000 739.10 739.10 0 *
c/o Froley, Revy Investment Company
10900 Wilshire Blvd., Ste 900
Los Angeles, CA 90024
The TCW Group, Inc. ................... 1,535,000 15,126.81 15,126.81 0 *
865 South Figueroa St., 21st Floor
Los Angeles, CA 90017
AIM Strategic Income Fund.............. 1,300,000 12,810.98 12,810.98 0 *
c/o AIM Capital Management
11 Greenway Plaza, Suite 100
Houston, TX 77046
ICI American Holdings Trust............ 1,150,000 11,332.79 11,332.79 0 *
c/o Froley, Revy Investment Company
10900 Wilshire Blvd., Ste 900
Los Angeles, CA 90024
Zeneca Holdings Trust.................. 875,000 8,622.78 8,622.78 0 *
c/o Froley, Revy Investment Company
10900 Wilshire Blvd., Ste 900
Los Angeles, CA 90024
State of Oregon Equity................. 6,580,000 64,843.27 64,843.27 0 *
c/o Froley, Revy Investment Company
10900 Wilshire Blvd., Ste 900
Los Angeles, CA 90024
Van Kampen Convertible Securities
Fund................................. 678,000 6,681.42 6,681.42 0 *
c/o Van Kampen Asset Management Inc.
2800 Post Oak Blvd.
Houston, TX 77056
Van Kampen Harbor Fund................. 3,822,000 37,664.28 37,664.28 0 *
c/o Van Kampen Asset Management Inc.
2800 Post Oak Blvd.
Houston, TX 77056
Munder NetNet Fund..................... 50,000,000 492,730.00 492,730.00 0 *
Munder Capital Management
480 Pierce Street
Birmingham, MI 48009
</TABLE>

22
<PAGE> 25

<TABLE>
<CAPTION>
PRINCIPAL SHARES OF
AMOUNT OF SHARES OF COMMON STOCK
NOTES COMMON SHARES OF COMMON BENEFICIALLY OWNED
BENEFICIALLY STOCK STOCK WHICH MAY AFTER OFFERING(2)
OWNED AND BENEFICIALLY BE SOLD PURSUANT -------------------
SELLING HOLDER OFFERED OWNED TO THIS PROSPECTUS NUMBER PERCENT(%)
-------------- ------------ ------------ ------------------ ------ ----------
<S> <C> <C> <C> <C> <C>
State of Connecticut Combined
Investment Funds..................... 2,645,000 26,065.42 26,065.42 0 *
333 South Grand Avenue, 28th Floor
Los Angeles, CA 90071
The TCW Group, Inc. ................... 865,000 8,524.23 8,524.23 0 *
865 South Figueroa St., 21st Floor
Los Angeles, CA 90071
Motion Picture Industry Health Plan --
Active Member Fund................... 275,000 2,710.02 2,710.02 0 *
c/o Oaktree Capital Management, LLC
333 South Grand Avenue, 28th Floor
Los Angeles, CA 90071
Motion Picture Industry Health Plan --
Retiree Member Fund.................. 135,000 1,330.37 1,330.37 0 *
c/o Oaktree Capital Management, LLC
333 South Grand Avenue, 28th Floor
Los Angeles, CA 90071
Grace Brothers Limited................. 2,500,000 24,636.50 24,636.50 0 *
1560 Sherman Avenue, Ste 900
Evanston, IL 60201
Argent Classic Convertible............. 7,000,000 68,982.20 68,982.20 0 *
Arbtrage Fund (Bermuda) L.P.
73 Front Street, Hamilton HM12
P.O. Box HM 3013 Hamilton HMMX
Bermuda
Fiduciary Trust Company
International........................ 1,160,000 11,431.34 11,431.34 0 *
2 World Trade Center
New York, NY 10048
Deutsche Bank AG....................... 12,200,000 120,226.12 120,226.12 0 *
1251 Avenue of Americas Inc.
New York, NY 10020
Fidelity Financial Trust: Fidelity
Convertible Securities Fund.......... 13,600,000 134,022.56 134,022.56 0 *
FMR Corp
82 Devonshire Street, E20E
Boston, Massachusetts 02109
Quattro Fund, LLC...................... 750,000 7,390.95 7,390.95 0 *
230 Park Avenue, 4th Floor
New York, NY 10169
Museum of Fine Arts, Boston............ 10,000 98.55 98.55 0 *
c/o The Putnam Advisory Company, Inc.
7 Shattuck Road, Mailstop C-8-A
Andover, MA 01810
ProMutual.............................. 36,000 354.77 354.77 0 *
c/o The Putnam Advisory Company, Inc.
7 Shattuck Road, Mailstop C-8-A
Andover, MA 01810
University of Rochester................ 9,000 88.69 88.69 0 *
c/o The Putnam Advisory Company, Inc.
7 Shattuck Road, Mailstop C-8-A
Andover, MA 01810
</TABLE>

23
<PAGE> 26

<TABLE>
<CAPTION>
PRINCIPAL SHARES OF
AMOUNT OF SHARES OF COMMON STOCK
NOTES COMMON SHARES OF COMMON BENEFICIALLY OWNED
BENEFICIALLY STOCK STOCK WHICH MAY AFTER OFFERING(2)
OWNED AND BENEFICIALLY BE SOLD PURSUANT -------------------
SELLING HOLDER OFFERED OWNED TO THIS PROSPECTUS NUMBER PERCENT(%)
-------------- ------------ ------------ ------------------ ------ ----------
<S> <C> <C> <C> <C> <C>
Parker-Hannifin Corporation............ 17,000 167.53 167.53 0 *
c/o The Putnam Advisory Company, Inc.
7 Shattuck Road, Mailstop C-8-A
Andover, MA 01810
Putnam Convertible Income-Growth
Trust................................ 260,000 2,562.20 2,562.20 0 *
c/o The Putnam Investment Management,
Inc.
7 Shattuck Road, Mailstop C-8-A
Andover, MA 01810
Putnam Balanced Retirement Fund........ 19,000 187.24 187.24 0 *
c/o The Putnam Investment Management,
Inc.
7 Shattuck Road, Mailstop C-8-A
Andover, MA 01810
Putnam Convertible Opportunities and
Income Trust......................... 26,000 256.22 256.22 0 *
c/o The Putnam Investment Management,
Inc.
7 Shattuck Road, Mailstop C-8-A
Andover, MA 01810
Putnam Asset Allocation Funds-Balanced
Portfolio............................ 67,000 660.26 660.26 0 *
c/o The Putnam Investment Management,
Inc.
7 Shattuck Road, Mailstop C-8-A
Andover, MA 01810
Putnam Asset Allocation Funds-
Conservative Portfolio............... 42,000 413.89 413.89 0 *
c/o The Putnam Investment Management,
Inc.
7 Shattuck Road, Mailstop C-8-A
Andover, MA 01810
New York Life Insurance Company........ 14,300,000 140,920.78 140,920.78 0 *
51 Madison Avenue, Room 203
New York, NY 10010
New York Life Insurance and
Annuity Corp. ....................... 1,200,000 11,825.52 11,825.52 0 *
51 Madison Avenue, Room 203
New York, NY 10010
Christian Science Trustees for Gifts
and Endowment........................ 235,000 2,315.83 2,315.83 0 *
c/o Susan Osborn, Alliance Capital
Management
1345 Avenue of the Americas, 40th
Floor
New York, NY 10105
Credit Suisse First Boston
Corporation.......................... 1,500,000 14,781.90 14,781.90 0 *
Attn: Reorg. Dept
5 World Trade Center
New York, NY 10048
Other.................................. 11,116,000 109,543.73 109,543.73 0 *

Total......................... 300,000,000 2,956,380 2,956,380 0 *
</TABLE>

24
<PAGE> 27

------------------------
* Indicates less than one percent.

(1) The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Exchange Act, and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under
such rule, beneficial ownership includes any shares as to which the
individual has sole or shared voting power or investment power and also any
shares which the individual has the right to acquire within 60 days after
June 23, 2000 through the exercise of any stock option or other right.
Unless otherwise indicated in the footnotes, each person has sole voting and
investment power (or shares such powers with his or her spouse) with respect
to the shares shown as beneficially owned.

(2) Assumes the sale of all Common Stock offered under this Prospectus.

25
<PAGE> 28

DESCRIPTION OF NOTES

The notes were issued under an indenture between us and State Street Bank &
Trust Company of California, N.A., as trustee and which was filed as an exhibit
to our quarterly report on form 10-Q (file no 000-25331) and is incorporated
hereby by reference. The indenture and the notes are governed by New York law.
Because this section is a summary, it does not describe every aspect of the
Notes and the indenture. The following summaries of certain provisions of the
indenture do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, the detailed provision of the notes and the
indenture, including the definitions therein of certain terms.

GENERAL

The notes are general, unsecured obligations of Critical Path. The notes
are subordinated, which means that they will rank behind certain of our
indebtedness as described below. The notes are limited to $300,000,000 aggregate
principal amount. We are required to repay the principal amount of the notes in
full on April 1, 2005.

The notes will bear interest at 5 3/4% per annum from March 31, 2000. We
will pay interest on the notes on April 1 and October 1 of each year, commencing
on October 1, 2000. Interest payable per $1,000 principal amount of notes for
the period from March 31, 2000 to October 1, 2000 will be $28.9097.

You may convert the notes into shares of our common stock initially at the
conversion rate stated on the front cover of this offering circular at any time
before the close of business on April 1, 2005, unless the notes have been
previously redeemed or repurchased. Holders of notes called for redemption or
submitted for repurchase will be entitled to convert the notes up to and
including the business day immediately preceding the date fixed for redemption
or repurchase, as the case may be. The conversion rate may be adjusted as
described below.

We may redeem the notes at our option at any time on or after the third
business day after April 1, 2003, in whole or in part, at the redemption prices
set forth below under "-- Optional Redemption by Critical Path," plus accrued
and unpaid interest to the redemption date. If there is a change in control of
us, you will have the right to require us to repurchase your notes as described
below under "-- Repurchase at Option of Holders Upon a Change in Control."

FORM, DENOMINATION, TRANSFER, EXCHANGE AND BOOK-ENTRY PROCEDURES

The notes are issuable:

- only in fully registered form;

- without interest coupons; and

- in denominations of $1,000 and greater multiples.

The notes are evidenced by one or more global notes, which has been
deposited with the trustee as custodian for DTC and registered in the name of
Cede & Co., as nominee of DTC. The global note and any notes issued in exchange
for the global note are subject to restrictions on transfer and bear the legend
relating to the Rule 144A exemption. Except as set forth below, record ownership
of the global note may be transferred, in whole or in part, only to another
nominee of DTC or to a successor of DTC or its nominee.

26
<PAGE> 29

The global note will not be registered in the name of any person, or
exchanged for notes that are registered in the name of any person, other than
DTC or its nominee unless either of the following occurs:

- DTC notifies us that it is unwilling, unable or no longer qualified to
continue acting as the depositary for the global note; or

- an event of default with respect to the notes represented by the global
note has occurred and is continuing.

In those circumstances, DTC will determine in whose names any securities
issued in exchange for the global note will be registered.

DTC or its nominee will be considered the sole owner and holder of the
global note for all purposes, and as a result:

- you cannot get notes registered in your name if they are represented by
the global note;

- you cannot receive physical certificated notes in exchange for your
beneficial interest in the global notes;

- you will not be considered to be the owner or holder of the global note
or any note it represents for any purpose; and

- all payments on the global note will be made to DTC or its nominee.

The laws of some jurisdictions require that certain kinds of purchasers,
such as insurance companies, can only own securities in definitive, certificated
form. These laws may limit your ability to transfer your beneficial interests in
the global note to these types of purchasers.

Only institutions, such as a securities broker or dealer, that have
accounts with DTC or its nominee (called participants) and persons that may hold
beneficial interests through participants can own a beneficial interest in the
global note. The only place where the ownership of beneficial interests in the
global note will appear and the only way the transfer of those interests can be
made will be on the records kept by DTC (for their participants' interests) and
the records kept by those participants (for interests of persons held by
participants on their behalf).

Secondary trading in bonds and notes of corporate issuers is generally
settled in clearinghouse (that is, next-day) funds. In contrast, beneficial
interests in a global note usually trade in DTC's same-day funds settlement
system, and settle in immediately available funds. We make no representations as
to the effect that settlement in immediately available funds will have on
trading activity in those beneficial interests.

We will make cash payments of interest on and principal of and the
redemption or repurchase price of the global note, as well as any payment of
liquidated damages, to Cede, the nominee for DTC, as the registered owner of the
global note. We will make these payments by wire transfer of immediately
available funds on each payment date.

We have been informed that DTC's practice is to credit participants'
accounts on the payment date with payments in amounts proportionate to their
respective beneficial interests in the notes represented by the global note as
shown on DTC's records, unless DTC has reason to believe that it will not
receive payment on that payment date. Payments by participants to owners of
beneficial interests in notes represented by the global note held through
participants will be the responsibility of those participants, as is now the
case with securities held for the accounts of customers registered in street
name.

27
<PAGE> 30

We will send any redemption notices to Cede. We understand that if less
than all the notes are being redeemed, DTC's practice is to determine by lot the
amount of the holdings of each participant to be redeemed

We also understand that neither DTC nor Cede will consent or vote with
respect to the notes. We have been advised that under its usual procedures, DTC
will mail an omnibus proxy to us as soon as possible after the record date. The
omnibus proxy assigns Cede's consenting or voting rights to those participants
to whose accounts the notes are credited on the record date identified in a
listing attached to the omnibus proxy.

Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants, the ability of a person having a beneficial
interest in the principal amount represented by the global note to pledge the
interest to persons or entities that do not participate in the DTC book-entry
system, or otherwise take actions in respect of that interest, may be affected
by the lack of a physical certificate evidencing its interest.

DTC has advised us that it will take any action permitted to be taken by a
holder of notes, including the presentation of notes for exchange, only at the
direction of one or more participants to whose account with DTC interests in the
global note are credited and only in respect of such portion of the principal
amount of the notes represented by the global note as to which such participant
or participants has or have given such direction.

DTC has also advised us as follows:

- DTC is a limited purpose trust company organized under the laws of the
State of New York, member of the Federal Reserve System, "clearing
corporation" within the meaning of the Uniform Commercial Code, as
amended, and "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act.

- DTC was created to hold securities for its participants and facilitate
the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants.

- Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and may include certain other
organizations.

- Certain participants, or their representatives, together with other
entities, own DTC.

- Indirect access to the DTC System is available to other entities such as
banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly.

The policies and procedures of DTC, which may change periodically, will
apply to payments, transfers, exchanges and other matters relating to beneficial
interests in the global note. We and the trustee have no responsibility or
liability for any aspect of DTC's or any participants' records relating to
beneficial interests in the global note, including for payments made on the
global note. Further, we and the trustee are not responsible for maintaining,
supervising or reviewing any of those records.

CONVERSION RIGHTS

Holders have the option to convert any portion of the principal amount of
any note that is an integral multiple of $1,000 into shares of our common stock
at any time on or prior to the close of business on the maturity date, unless
the notes have been previously redeemed or repurchased. The conversion rate will
be equal to 9.8546 shares per $1,000 principal amount of notes. The conversion
rate is equivalent to a conversion price of approximately $101.48 per share.
Holders' right to convert a note called for redemption or delivered for
repurchase will terminate at the close of business on the

28
<PAGE> 31

business day immediately preceding the redemption date or repurchase date for
that note, unless we default in making the payment due upon redemption or
repurchase.

Holders may convert all or part of any note by delivering the note at the
Corporate Trust Office of the trustee in the Borough of Manhattan, The City of
New York, accompanied by a duly signed and completed conversion notice, a copy
of which may be obtained by the trustee. The conversion date will be the date on
which the note and the duly signed and completed conversion notice are so
delivered.

As promptly as practicable on or after the conversion date, we will issue
and deliver to the trustee a certificate or certificates for the number of full
shares of our common stock issuable upon conversion, together with payment in
lieu of any fraction of a share. The certificate will then be sent by the
trustee to the conversion agent for delivery to the holder. The shares of our
common stock issuable upon conversion of the notes will be fully paid and
nonassessable and will rank equally with the other shares of our common stock.

If holders surrender a note for conversion on a date that is not an
interest payment date, they will not be entitled to receive any interest for the
period from the next preceding interest payment date to the conversion date,
except as described below in this paragraph. Any note surrendered for conversion
during the period from the close of business on any regular record date to the
opening of business on the next succeeding interest payment date (except notes,
or portions thereof, called for redemption on a redemption date or to be
repurchased on a repurchase date for which the right to convert would terminate
during such period) must be accompanied by payment of an amount equal to the
interest payable on such interest payment date on the principal amount of notes
being surrendered for conversion. In the case of any note that has been
converted after any regular record date but before the next succeeding interest
payment date, interest payable on such interest payment date shall be payable on
such interest payment date notwithstanding such conversion, and such interest
shall be paid to the holder of such note on such regular record date.

No other payment or adjustment for interest, or for any dividends in
respect of our common stock, will be made upon conversion. Holders of our common
stock issued upon conversion will not be entitled to receive any dividends
payable to holders of our common stock as of any record time or date before the
close of business on the conversion date. We will not issue fractional shares
upon conversion. Instead, we will pay cash based on the market price of our
common stock at the close of business on the conversion date.

Holders will not be required to pay any taxes or duties relating to the
issue or delivery of our common stock on conversion but you will be required to
pay any tax or duty relating to any transfer involved in the issue or delivery
of our common stock in a name other than yours. Certificates representing shares
of our common stock will not be issued or delivered unless all taxes and duties,
if any, payable by holders have been paid.

The conversion rate will be subject to adjustment for, among other things:

- dividends and other distributions payable in our common stock on shares
of our capital stock,

- the issuance to all holders of our common stock of rights, options or
warrants entitling them to subscribe for or purchase our common stock at
less than the then current market price of such common stock as of the
record date for shareholders entitled to receive such rights, options or
warrants,

- subdivisions, combinations and reclassifications of our common stock,

29
<PAGE> 32

- distributions to all holders of our common stock of evidences of our
indebtedness, shares of capital stock, cash or assets, including
securities, but excluding:

- those dividends, rights, options, warrants and distributions
referred to above,

- dividends and distributions paid exclusively in cash, and

- distributions upon mergers or consolidations discussed below,

- distributions consisting exclusively of cash, excluding any cash portion
of distributions referred to in the bullet point immediately above, or
cash distributed upon a merger or consolidation to which the next
succeeding bullet point applies, to all holders of our common stock in an
aggregate amount that, combined together with:

- other all-cash distributions made within the preceding 365-day
period in respect of which no adjustment has been made, and

- any cash and the fair market value of other consideration payable
in connection with any tender offer by us or any of our
subsidiaries for our common stock concluded within the preceding
365-day period in respect of which no adjustment has been made,

exceeds 10% of our market capitalization, being the product of the current
market price per share of the common stock on the record date for such
distribution and the number of shares of common stock then outstanding, and

- the successful completion of a tender offer made by us or any of our
subsidiaries for our common stock which involves an aggregate
consideration that, together with:

- any cash and other consideration payable in a tender offer by us or
any of our subsidiaries for our common stock expiring within the
365-day period preceding the expiration of that tender offer in
respect of which no adjustment has been made, and

- the aggregate amount of all cash distributions referred to in the
immediately preceding bullet point above to all holders of our
common stock within the 365-day period preceding the expiration of
that tender offer in respect of which no adjustments have been
made,

exceeds 10% of our market capitalization on the expiration of such tender
offer.

We reserve the right to effect such increases in the conversion rate in
addition to those required by the foregoing provisions as we consider to be
advisable in order that any event treated for United States federal income tax
purposes as a dividend of stock or stock rights will not be taxable to the
recipients. We will not be required to make any adjustment to the conversion
rate until the cumulative adjustments amount to 1.0% or more of the conversion
rate. We will compute all adjustments to the conversion rate and will give
notice by mail to holders of the registered notes of any adjustments.

In the event that we consolidate or merge with or into another entity or
another entity is merged into us, or in case of any sale or transfer of all or
substantially all of our assets, each note then outstanding will become
convertible only into the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer by a holder of the
number of shares of common stock into which the notes were convertible
immediately prior to the consolidation or merger or sale or transfer. The
preceding sentence will not apply to a merger that does not result in any
reclassification, conversion, exchange or cancellation of the common stock.

We may increase the conversion rate for any period of at least 20 days,
upon at least 15 days notice, if our board of directors determines that the
increase would be in our best interest. The board

30
<PAGE> 33

of directors' determination in this regard will be conclusive. We will give
holders of notes at least 15 days' notice of such an increase in the conversion
rate. Any increase, however, will not be taken into account for purposes of
determining whether the closing price of our common stock exceeds the conversion
price by 105% in connection with an event that otherwise would be a change in
control as defined below.

If at any time we make a distribution of property to our stockholders that
would be taxable to such stockholders as a dividend for United States federal
income tax purposes, such as distributions of evidences of indebtedness or
assets by us, but generally not stock dividends on common stock or rights to
subscribe for common stock, and, pursuant to the anti-dilution provisions of the
indenture, the number of shares into which notes are convertible is increased,
that increase may be deemed for United States federal income tax purposes to be
the payment of a taxable dividend to holders of notes. See "Certain United
States Federal Income Tax Considerations -- U.S. Holders."

SUBORDINATION

The notes are subordinated and, as a result, the payment of the principal,
any premium and interest, including liquidated damages, on the notes, including
amounts payable on any redemption or repurchase, will be subordinated to the
prior payment in full, in cash or other payment satisfactory to holders of
senior debt, of all of our senior debt. The notes are also effectively
subordinated to any debt or other liabilities of our subsidiaries. As of
December 31, 1999, we had approximately $12.2 million of senior debt and the
aggregate amount of debt and other liabilities of our subsidiaries on a pro
forma basis was approximately $8.7 million.

"Senior debt" is defined in the indenture to mean: the principal of, and
premium, if any, and interest, including all interest accruing subsequent to the
commencement of any bankruptcy or similar proceeding, whether or not a claim for
post-petition interest is allowable as a claim in any such proceeding, on, and
all fees and other amounts payable in connection with, the following, whether
absolute or contingent, secured or unsecured, due or to become due, outstanding
on the date of the indenture or thereafter created, incurred or assumed:

- our indebtedness evidenced by a credit or loan agreement, note, bond,
debenture or other written obligation,

- all of our obligations for money borrowed,

- all of our obligations evidenced by a note or similar instrument given in
connection with the acquisition of any businesses, properties or assets
of any kind,

- our obligations:

- as lessee under leases required to be capitalized on the balance
sheet of the lessee under generally accepted accounting principles,
or

- as lessee under other leases for facilities, capital equipment or
related assets, whether or not capitalized, entered into or leased
for financing purposes,

- all of our obligations under interest rate and currency swaps, caps,
floors, collars, hedge agreements, forward contracts or similar
agreements or arrangements,

- all of our obligations with respect to letters of credit, bankers'
acceptances and similar facilities, including reimbursement obligations
with respect to the foregoing,

- all of our obligations issued or assumed as the deferred purchase price
of property or services, but excluding trade accounts payable and accrued
liabilities arising in the ordinary course of business,

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<PAGE> 34

- all obligations of the type referred to in the above clauses of another
person and all dividends of another person, the payment of which, in
either case, we have assumed or guaranteed, or for which we are
responsible or liable, directly or indirectly, jointly or severally, as
obligor, guarantor or otherwise, or which are secured by a lien on our
property, and

- renewals, extensions, modifications, replacements, restatements and
refundings of, or any indebtedness or obligation issued in exchange for,
any such indebtedness or obligation described in the above clauses of
this definition.

Senior debt will not include the notes or any other indebtedness or
obligation if its terms or the terms of the instrument under which or pursuant
to which it is issued expressly provide that it is not superior in right of
payment to the notes.

We may not make any payment on account of principal, premium or interest,
including liquidated damages, if any, on the notes, or redemption or repurchase
of the notes, if:

- we default in our obligations to pay principal, premium, interest or
other amounts on our senior debt, including a default under any
redemption or repurchase obligation, and the default continues beyond any
applicable grace period that we may have to make these payments; or

- any other default occurs and is continuing on any designated senior debt;
and

- the default permits the holders of the designated senior debt to
accelerate its maturity, and

- the trustee has received a notice (a payment blockage notice) of
the default from us, the holder of such debt or such other person
permitted to give such notice under the indenture.

If payments of the notes have been blocked by a payment default on senior
debt, payments on the notes may resume when the payment default has been cured
or waived or ceases to exist.

If payments on the notes have been blocked by a nonpayment default,
payments on the notes may resume on the earlier of:

- the date the nonpayment default is cured or waived or ceases to exist, or

- 179 days after the payment blockage notice is received.

No nonpayment default that existed on the day a payment blockage notice was
delivered to the trustee can be used as the basis for any subsequent payment
blockage notice. In addition, once a holder of designated senior debt has
blocked payment on the notes by giving a payment blockage notice, no new period
of payment blockage can be commenced pursuant to a subsequent payment blockage
notice unless and until both of the following are satisfied:

- 365 days have elapsed since the effectiveness of the immediately prior
payment blockage notice; and

- all scheduled payments of principal, any premium and interest with
respect to the notes that have come due have been paid in full in cash.

"Designated senior debt" means our obligations under any particular senior
debt in which the instrument creating or evidencing the same or the assumption
or guarantee thereof, or related agreements or documents to which we are a
party, expressly provides that such indebtedness shall be designated senior debt
for purposes of the indenture. The instrument, agreement or other document
evidencing any designated senior debt may place limitations and conditions on
the right of such senior debt to exercise the rights of designated senior debt.

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<PAGE> 35

In addition, all principal, premium, if any, interest and other amounts due
on all senior debt must be paid in full in cash before you are entitled to
receive any payment otherwise due upon any acceleration of the principal on the
notes as a result of:

- an event of default of the notes, or

- payment or distribution of our assets to creditors upon any dissolution,
winding up, liquidation or reorganization, whether voluntary or
involuntary, marshaling of assets, assignment for the benefit of
creditors, or in bankruptcy, insolvency, receivership or other similar
proceedings.

In the event of insolvency, creditors who are holders of senior debt are
likely to recover more, ratably, than you because of this subordination. The
subordination may result in a reduction or elimination of payments on the notes
to you.

In addition, the notes will be "structurally subordinated" to all
indebtedness and other liabilities of our subsidiaries, including trade payables
and lease obligations. This occurs because our right to receive any assets of
our subsidiaries upon their liquidation or reorganization, and your right to
participate in those assets, will be effectively subordinated to the claims of
that subsidiary's creditors, including trade creditors, except to the extent
that we are recognized as a creditor of such subsidiary. If we are recognized as
a creditor of that subsidiary, our claims would still be subordinate to any
security interest in the assets of the subsidiary and any indebtedness of the
subsidiary senior to us.

The indenture does not limit our ability to incur senior debt or our
ability or the ability of our subsidiaries to incur any other indebtedness.

OPTIONAL REDEMPTION BY CRITICAL PATH

On or after the third business day after April 1, 2003, we may redeem the
notes in whole or in part, at the prices set forth below. If we elect to redeem
all or part of the notes, we will give at least 30, but no more than 60, days
notice to holders.

The redemption price, expressed as a percentage of principal amount, is as
follows for the following periods:

<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ ----------
<S> <C>
Beginning on the third business day after April 1, 2003 and
ending on March 31, 2004.................................. 102.300%
Beginning on April 1, 2004 and ending on March 31, 2005..... 101.150%
</TABLE>

and thereafter is equal to 100% of the principal amount. In each case, we will
pay interest to, but excluding the redemption date.

No sinking fund is provided for the notes, which means that the indenture
does not require us to redeem or retire the notes periodically.

PAYMENT AND CONVERSION

We will make all payments of principal and interest on the notes by dollar
check drawn on an account maintained at a bank in The City of New York. If
holders hold registered notes with a face value greater than $2,000,000, at
their request we will make payments of principal or interest to them by wire
transfer to an account maintained by you at a bank in The City of New York.
Payment of any interest on the notes will be made to the person in whose name
the note, or any predecessor note, is registered at the close of business on
March 15 or September 15, whether or not a business day, immediately preceding
the relevant interest payment date (a "regular record date"). If holders hold
registered notes with a face value in excess of $2,000,000 and they would like
to receive payments by

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<PAGE> 36

wire transfer, they will be required to provide the trustee with wire transfer
instructions at least 15 days prior to the relevant payment date.

Payments on any global note registered in the name of DTC or its nominee
will be payable by the trustee to DTC or its nominee in its capacity as the
registered holder under the indenture. Under the terms of the indenture, we and
the trustee will treat the persons in whose names the notes, including any
global note, are registered as the owners for the purpose of receiving payments
and for all other purposes. Consequently, neither we, the trustee nor any of our
agents or the trustee's agents has or will have any responsibility or liability
for:

- any aspect of DTC's records or any participant's or indirect
participant's records relating to or payments made on account of
beneficial ownership interests in the global note, or for maintaining,
supervising or reviewing any of DTC's records or any participant's or
indirect participant's records relating to the beneficial ownership
interests in the global note, or

- any other matter relating to the actions and practices of DTC or any of
its participants or indirect participants.

We will not be required to make any payment on the notes due on any day
which is not a business day until the next succeeding business day. The payment
made on the next succeeding business day will be treated as though it were paid
on the original due date and no interest will accrue on the payment for the
additional period of time.

Notes may be surrendered for conversion at the Corporate Trust Office of
the trustee in the Borough of Manhattan, New York. Notes surrendered for
conversion must be accompanied by appropriate notices and any payments in
respect of interest or taxes, as applicable, as described above under
"-- Conversion Rights".

We have initially appointed the trustee as paying agent and conversion
agent. We may terminate the appointment of any paying agent or conversion agent
and appoint additional or other paying agents and conversion agents. However,
until the notes have been delivered to the trustee for cancellation, or moneys
sufficient to pay the principal of, premium, if any, and interest on the notes
have been made available for payment and either paid or returned to us as
provided in the indenture, the trustee will maintain an office or agency in the
Borough of Manhattan, New York for surrender of notes for conversion. Notice of
any termination or appointment and of any change in the office through which any
paying agent or conversion agent will act will be given in accordance with
"-- Notices" below.

All moneys deposited with the trustee or any paying agent, or then held by
us, in trust for the payment of principal of, premium, if any, or interest on
any notes which remain unclaimed at the end of two years after the payment has
become due and payable will be repaid to us, and you will then look only to us
for payment.

REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE IN CONTROL

If a "change in control" as defined below occurs, you will have the right,
at your option, to require us to repurchase all of your notes not previously
called for redemption, or any portion of the principal amount thereof, that is
equal to $1,000 or an integral multiple of $1,000. The price we are required to
pay is 100% of the principal amount of the notes to be repurchased, together
with interest accrued to, but excluding, the repurchase date.

At our option, instead of paying the repurchase price in cash, we may pay
the repurchase price in our common stock valued at 95% of the average of the
closing prices of the our common stock for the five trading days immediately
preceding and including the third trading day prior to the

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<PAGE> 37

repurchase date. We may only pay the repurchase price in our common stock if we
satisfy conditions provided in the indenture.

Within 30 days after the occurrence of a change in control, we are
obligated to give to you notice of the change in control and of the repurchase
right arising as a result of the change of control. We must also deliver a copy
of this notice to the trustee. To exercise the repurchase right, you must
deliver on or before the 30th day after the date of our notice irrevocable
written notice to the trustee of your exercise of your repurchase right,
together with the notes with respect to which the right is being exercised. We
are required to repurchase the notes on the date that is 45 days after the date
of our notice.

A change in control will be deemed to have occurred at the time after the
notes are originally issued that any of the following occurs:

- any person, including any syndicate or group deemed to be a "person"
under Section 13(d)(3) of the Exchange Act, acquires a beneficial
ownership, directly or indirectly, through a purchase, merger or other
acquisition transaction or series of transactions, of shares of our
capital stock entitling the person to exercise 50% or more of the total
voting power of all shares of our capital stock that is entitled to vote
generally in elections of directors, other than an acquisition by us, any
of our subsidiaries or any of our employee benefit plans; or

- we merge or consolidate with or into any other person, any merger of
another person into us or we convey, sell, transfer or lease all or
substantially all of our assets to another person, other than

- any such transaction:

- that does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of our
capital stock, and

- pursuant to which the holders of 50% or more of the total
voting power of all shares of our capital stock entitled
to vote generally in elections of directors immediately
prior to such transaction have the entitlement to
exercise, directly or indirectly, 50% or more of the total
voting power of all shares of capital stock entitled to
vote generally in the election of directors of the
continuing or surviving corporation immediately after such
transaction, and

- any merger which is effected solely to change our jurisdiction
of incorporation and results in a reclassification, conversion
or exchange of outstanding shares of our common stock into
solely shares of common stock.

However, a change in control will not be deemed to have occurred if:

- the closing price per share of our common stock for any five trading days
within the period of 10 consecutive trading days ending immediately after
the later of the change in control or the public announcement of the
change in control, in the case of a change in control relating to an
acquisition of capital stock, or the period of 10 consecutive trading
days ending immediately before the change in control, in the case of
change in control relating to a merger, consolidation or asset sale,
equals or exceeds 105% of the conversion price of the notes in effect on
each of those trading days, or

- all of the consideration, excluding cash payments for fractional shares
and cash payments made pursuant to dissenters' appraisal rights, in
merger or consolidation otherwise constituting a change of control under
the first and second bullet points in the preceding paragraph above
consists of shares of common stock traded on a national securities
exchange or quoted on the

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<PAGE> 38

Nasdaq National Market, or will be so traded or quoted immediately
following such merger or consolidation, and as a result of such merger or
consolidation the notes become convertible solely into such common stock.

For purposes of these provisions:

- the conversion price is equal to $1,000 divided by the conversion rate;

- whether a person is a "beneficial owner" will be determined in accordance
with Rule 13d-3 under the Exchange Act; and

- a "person" includes any syndicate or group that would be deemed to be a
person under Section 13(d)(3) of the Exchange Act.

The rules and regulations promulgated under the Exchange Act requires the
dissemination of prescribed information to security holders in the event of an
issuer tender offer and may apply in the event that the repurchase option
becomes available to you. We will comply with this rule to the extent it applies
at that time.

We may, to the extent permitted by applicable law, at any time purchase
notes in the open market, by tender at any price or by private agreement. Any
note that we purchase may, to the extent permitted by applicable law and subject
to restrictions contained in the purchase agreement with the underwriters, be
re-issued or resold or may, at our option, be surrendered to the trustee for
cancellation. Any notes surrendered for cancellation may not be re-issued or
resold and will be canceled promptly.

The definition of change in control includes a phrase relating to the
conveyance, transfer, sale, lease or disposition of all or substantially all of
our assets. There is no precise, established definition of the phrase
substantially all under applicable law. Accordingly, holders ability to require
us to repurchase your notes as a result of conveyance, transfer, sale, lease or
other disposition of less than all of our assets may be uncertain.

The foregoing provisions would not necessarily provide holders with
protection if we are involved in a highly leveraged or other transaction that
may adversely affect them.

Our ability to repurchase notes upon the occurrence of a change in control
is subject to important limitations. Some of the events constituting a change in
control could result in an event of default under our senior debt. Moreover, a
change in control could cause an event of default under, or be prohibited or
limited by, the terms of our senior debt. As a result, unless we were to obtain
a waiver, a repurchase of the notes in cash could be prohibited under the
subordination provisions of the indenture until the senior debt is paid in full.
Although we have the right to repurchase the notes with our common stock,
subject to certain conditions, we cannot assure holders that we would have the
financial resources, or would be able to arrange financing, to pay the
repurchase price in cash for all the notes that might be delivered by holders of
notes seeking to exercise the repurchase right. If we were to fail to repurchase
the notes when required following a change in control, an event of default under
the indenture would occur, whether or not such repurchase is permitted by the
subordination provisions of the indenture. Any such default may, in turn, cause
a default under our senior debt. See "-- Subordination".

MERGERS AND SALES OF ASSETS BY CRITICAL PATH

We may not consolidate with or merge into any other person or convey,
transfer, sell or lease our properties and assets substantially as an entirety
to any person, and we may not permit any person to

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<PAGE> 39

consolidate with or merge into us or convey, transfer, sell or lease such
person's properties and assets substantially as an entirety to us unless:

- the person formed by such consolidation or into or with which we are
merged or the person to which our properties and assets are so conveyed
transferred, sold or leased, shall be a corporation, limited liability
company, partnership or trust organized and existing under the laws of
the United States, any State within the United States or the District of
Columbia and, if we are not the surviving person, the surviving person
assumes the payment of the principal of, premium, if any, and interest on
the notes and the performance of our other covenants under the indenture,
and

- immediately after giving effect to the transaction, no event of default,
and no event that, after notice or lapse of time or both, would become an
event of default, will have occurred and be continuing.

EVENTS OF DEFAULT

The following will be events of default under the indenture:

- we fail to pay principal of or premium, if any, on any note when due,
whether or not prohibited by the subordination provisions of the
indenture;

- we fail to pay any interest, including liquidated damages, on any note
when due, which failure continues for 30 days, whether or not prohibited
by the subordination provisions of the indenture;

- we fail to provide notice of a change in control, whether or not such
notice is prohibited by the subordination provisions of the indenture;

- we fail to perform any other covenant in the indenture;

- any indebtedness under any bonds, debentures, notes or other evidences of
indebtedness for money borrowed, or any guarantee thereof, by us or any
of our significant subsidiaries in an aggregate principal amount in
excess of $10 million is not paid when due either at its stated maturity
or upon acceleration thereof, and such indebtedness is not discharged, or
such acceleration is not rescinded or annulled, within a period of 30
days after notice as provided in the indenture; and

- certain events of bankruptcy, insolvency or reorganization involving us
or any of our significant subsidiaries.

Subject to the provisions of the indenture relating to the duties of the
trustee in case an event of default shall occur and be continuing, the trustee
will be under no obligation to exercise any of its rights or powers under the
indenture at the request or direction of any holder, unless the holder shall
have reasonable indemnity to the trustee. Subject to providing indemnification
of the trustee, the holders of a majority in aggregate principal amount of the
outstanding notes will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the trustee or exercising
any trust or power conferred on the trustee.

If an event of default other than an event of default arising from events
of insolvency, bankruptcy or reorganization occurs and is continuing, either the
trustee or the holders of at least 25% in principal amount of the outstanding
notes may, subject to the subordination provisions of the indenture, accelerate
the maturity of all notes. However, after such acceleration, but before a
judgment or decree based on acceleration, the holders of a majority in aggregate
principal amount of outstanding notes may, under certain circumstances, rescind
and annul the acceleration if all events of default, other than the non-payment
of principal of the notes that have become due solely by such

37
<PAGE> 40

declaration of acceleration, have been cured or waived as provided in the
indenture. If an event of default arising from events of insolvency, bankruptcy
or reorganization occurs, then the principal of, and accrued interest on, all
the notes will automatically become immediately due and payable without any
declaration or other act on the part of the holders of the notes or the trustee.
For information as to waiver of defaults, see "-- Meetings, Modification and
Waiver" below.

Holders will not have any right to institute any proceeding with respect to
the indenture, or for any remedy under the indenture, unless:

- holders give the trustee written notice of a continuing event of default;

- the holders of at least 25% in aggregate principal amount of the
outstanding notes have made written request and offered reasonable
indemnity to the trustee to institute proceedings;

- the trustee has not received from the holders of a majority in aggregate
principal amount of the outstanding notes a direction inconsistent with
the written request; and

- the trustee shall have failed to institute such proceeding within 60 days
of the written request.

However, these limitations do not apply to a suit instituted by holders for
the enforcement of payment of the principal of, premium, if any, or interest,
including liquidated damages, on your note on or after the respective due dates
expressed in the note or the right to convert the note in accordance with the
indenture.

We will be required to furnish to the trustee annually a statement as to
our performance of certain of our obligations under the indenture and as to any
default in such performance.

MEETINGS, MODIFICATION AND WAIVER

The indenture contains provisions for convening meetings of the holders of
notes to consider matters affecting their interests.

Certain limited modifications of the indenture may be made without the
necessity of obtaining the consent of the holders of the notes. Other
modifications and amendments of the indenture may be made, and certain past
defaults by us may be waived, either:

- with the written consent of the holders of not less than a majority in
aggregate principal amount of the notes at the time outstanding, or

- by the adoption of a resolution, at a meeting of holders of the notes at
which a quorum is present, by the holders of at least 66 2/3% in
aggregate principal amount of the notes represented at such meeting.

The quorum at any meeting called to adopt a resolution will be persons
holding or representing a majority in aggregate principal amount of the notes at
the time outstanding and, at any reconvened meeting adjourned for lack of a
quorum, 25% of such aggregate principal amount.

However, a modification or amendment requires the consent of the holder of
each outstanding note affected if it would:

- change the stated maturity of the principal or interest of a note;

- reduce the principal amount of, or any premium or interest on, any note;

- reduce the amount payable upon a redemption or mandatory repurchase;

- modify the provisions with respect to the repurchase rights of holders of
notes in a manner adverse to the holders;

- change the place or currency of payment on a note;

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<PAGE> 41

- impair the right to institute suit for the enforcement of any payment on
any note;

- modify our obligation to maintain an office or agency in New York City;

- modify the subordination provisions in a manner that is adverse to the
holders of the notes;

- adversely affect the right to convert the notes;

- modify our obligation to deliver information required under Rule 144A to
permit resales of the notes and common stock issued upon conversion of
the notes if we cease to be subject to the reporting requirements under
the Exchange Act;

- reduce the above-stated percentage of the principal amount of the holders
whose consent is needed to modify or amend the indenture;

- reduce the percentage of the principal amount of the holders whose
consent is needed to waive compliance with certain provisions of the
indenture or to waive certain defaults; or

- reduce the percentage required for the adoption of a resolution or the
quorum required at any meeting of holders of notes at which a resolution
is adopted.

The holders of a majority in aggregate principal amount of the outstanding
notes may waive compliance by us with certain restrictive provisions of the
indenture by written consent. Holders of at least 66 2/3% in aggregate of the
principal amount of notes represented at a meeting may also waive compliance by
us with certain restrictive provisions of the indenture by the adoption of a
resolution at the meeting if a quorum of holders are present and certain other
conditions are met. The holders of a majority in aggregate principal amount of
the outstanding notes also may waive by written consent any past default under
the indenture, except a default in the payment of principal, premium, if any, or
interest.

NOTICES

Notice to holders of the registered notes will be given by mail to the
addresses as they appear in the security register. Notices will be deemed to
have been given on the date of such mailing.

Notice of a redemption of notes will be given not less than 30 nor more
than 60 days prior to the redemption date and will specify the redemption date.
A notice of redemption of the notes will be irrevocable.

REPLACEMENT OF NOTES

We will replace any note that becomes mutilated, destroyed, stolen or lost
at the expense of the holder upon delivery to the trustee of the mutilated notes
or evidence of the loss, theft or destruction satisfactory to us and the
trustee. In the case of a lost, stolen or destroyed note, indemnity satisfactory
to the trustee and us may be required at the expense of the holder of the note
before a replacement note will be issued.

PAYMENT OF STAMP AND OTHER TAXES

We will pay all stamp and other duties, if any, that may be imposed by the
United States or any political subdivision thereof or taxing authority thereof
or therein with respect to the issuance of the notes or of shares of stock upon
conversion of the notes. We will not be required to make any payment with
respect to any other tax, assessment or governmental charge imposed by any
government or any political subdivision thereof or taxing authority thereof or
therein.

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<PAGE> 42

GOVERNING LAW

The indenture and the notes will be governed by and construed in accordance
with the laws of the State of New York, United States of America.

THE TRUSTEE

If an event of default occurs and is continuing, the trustee will be
required to use the degree of care of a prudent person in the conduct of his own
affairs in the exercise of its powers. Subject to such provisions, the trustee
will be under no obligation to exercise any of its rights or powers under the
indenture at the request of any of the holders of notes, unless they shall have
furnished to the trustee reasonable security or indemnity.

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

This section summarizes some of the U.S. federal income tax considerations
relating to the purchase, ownership, and disposition of the notes and of common
stock into which the notes may be converted. This summary does not provide a
complete analysis of all potential tax considerations. The information provided
below is based on existing authorities. These authorities may change, or the
Internal Revenue Service (the "IRS") might interpret the existing authorities
differently. In either case, the tax consequences of purchasing, owning or
disposing of notes or common stock could differ from those described below. The
summary generally applies only to "U.S. Holders" that purchase notes in the
initial offering at their issue price and hold the notes or common stock as
"capital assets" (generally, for investment). For this purpose, U.S. Holders
include citizens or residents of the United States and corporations organized
under the laws of the United States or any state. An estate is a U.S. Holder if
its income is subject to U.S. federal income tax, regardless of its source.
Trusts are U.S. Holders if they are subject to the primary supervision of a U.S.
court and the control of one of more U.S. persons. Special rules apply to
nonresident alien individuals and foreign corporations or trusts ("Non-U.S.
Holders"). This summary describes some, but not all, of these special rules. For
U.S. federal income tax purposes, income earned through a foreign or domestic
partnership or similar entity is attributed to its owners. The summary generally
does not address tax considerations that may be relevant to particular investors
(such as certain financial institutions, insurance companies, tax-exempt
entities, dealers in securities or persons who have hedged the risk of owning
notes or common stock) because of their specific circumstances, or because they
are subject to special rules. Finally, the summary does not describe the effect
of the federal estate and gift tax laws on U.S. Holders or the effects of any
applicable foreign, state, or local laws.

INVESTORS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR
PARTICULAR SITUATIONS AND THE CONSEQUENCES OF FEDERAL ESTATE OR GIFT TAX LAWS,
FOREIGN, STATE, OR LOCAL LAWS, AND TAX TREATIES.

U.S. HOLDERS

Taxation of Interest

U.S. Holders will be required to recognize as ordinary income any interest
paid or accrued on the notes, in accordance with their regular method of
accounting. In general, if the terms of a debt instrument entitle a holder to
receive payments other than fixed periodic interest that exceed the issue price
of the instrument, the holder may be required to recognize additional interest
as "original issue discount" over the term of the instrument. We believe that
the notes will not be issued with original issue discount. We may be required to
make additional payments to holders of the notes as liquidated

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<PAGE> 43

damages if we do not file or cause to be declared effective a registration
statement, as described under "Description of Notes -- Registration Rights of
the Noteholders." The original issue discount rules allow contingent payments
such as these to be disregarded in computing a holder's interest income if the
contingency is "remote." We believe that the possibility that we will pay
liquidated damages is remote. Our determination in this regard is binding on
U.S. Holders unless they disclose their contrary position. If, contrary to
expectations, we pay liquidated damages, U.S. Holders would be required to
recognize additional interest income.

Sale, Exchange or Redemption of the Notes

A U.S. Holder will generally recognize capital gain or loss if the holder
disposes of a note in a sale, redemption or exchange other than a conversion of
the note into common stock. The holder's gain or loss will equal the difference
between the proceeds received by the holder and the holder's adjusted tax basis
in the note. The proceeds received by the holder will include the amount of any
cash and the fair market value of any other property received for the note. The
holder's tax basis in the note will generally equal the amount the holder paid
for the note. The portion of any proceeds that is attributable to accrued
interest will not be taken into account in computing the holder's capital gain
or loss. Instead, that portion will be recognized as ordinary interest income to
the extent that the holder has not previously included the accrued interest in
income. The gain or loss recognized by a holder on a disposition of the note
will be long-term capital gain or loss if the holder held the note for more than
one year. Long-term capital gains of individual taxpayers are generally taxed at
a maximum rate of 20 percent.

Conversion of the Notes

A U.S. Holder generally will not recognize any income, gain or loss on
converting a note into common stock. If the holder receives cash in lieu of a
fractional share of stock, however, the holder would be treated as if he
received the fractional share and then had the fractional share redeemed for the
cash. The holder would recognize gain or loss equal to the difference between
the cash received and that portion of his basis in the stock attributable to the
fractional share. The holder's aggregate basis in the common stock will equal
his adjusted basis in the note. The holder's holding period for the stock will
include the period during which he held the note.

Dividends

If, after a U.S. Holder converts a note into common stock, we make a
distribution in respect of that stock, the distribution will be treated as a
dividend, taxable to the U.S. Holder as ordinary income, to the extent it is
paid from our current or accumulated earnings and profits. If the distribution
exceeds our current and accumulated profits, the excess will be treated first as
a tax-free return of the holder's investment, up to the holder's basis in its
common stock. Any remaining excess will be treated as capital gain. If the U.S.
Holder is a U.S. corporation, it would generally be able to claim a deduction
equal to a portion of any dividends received.

The terms of the notes allow for changes in the conversion price of the
notes in certain circumstances. A change in conversion price that allows
noteholders to receive more shares of common stock on conversion may increase
the noteholders' proportionate interests in our earnings and profits or assets.
In that case, the noteholders would be treated as though they received a
dividend in the form of our stock. Such a constructive stock dividend could be
taxable to the noteholders, although they would not actually receive any cash or
other property. A taxable constructive stock dividend would result, for example,
if the conversion price is adjusted to compensate noteholders for distributions
of cash or property to our shareholders. Not all changes in conversion price
that allow noteholders to receive more stock on conversion, however, increase
the noteholders' proportionate interests in the company. For instance, a change
in conversion price could simply prevent the dilution
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of the noteholders' interests upon a stock split or other change in capital
structure. Changes of this type, if made by a bona fide, reasonable adjustment
formula, are not treated as constructive stock dividends. Conversely, if an
event occurs that dilutes the noteholders' interests and the conversion price is
not adjusted, the resulting increase in the proportionate interests of our
shareholders could be treated as a taxable stock dividend to them. Any taxable
constructive stock dividends resulting from a change to, or failure to change,
the conversion price would be treated like dividends paid in cash or other
property. They would result in ordinary income to the recipient, to the extent
of our current or accumulated earnings and profits, with any excess treated as a
tax-free return of capital and thereafter as capital gain.

Sale of Common Stock

A U.S. Holder will generally recognize capital gain or loss on a sale or
exchange of common stock. The holder's gain or loss will equal the difference
between the proceeds received by the holder and the holder's adjusted tax basis
in the stock. The proceeds received by the holder will include the amount of any
cash and the fair market value of any other property received for the stock. The
gain or loss recognized by a holder on a sale or exchange of stock will be
long-term capital gain or loss if the holder held the stock for more than one
year. In the case of individuals, long-term capital gains are generally taxed at
a maximum rate of 20 percent, while the deductibility of capital losses is
subject to limitation.

SPECIAL TAX RULES APPLICABLE TO NON-U.S. HOLDERS

Taxation of Interest

Payments of interest to nonresident persons or entities are generally
subject to U.S. federal income tax at a rate of 30 percent, collected by means
of withholding by the payor. Payments of interest on the notes to most Non-U.S.
Holders, however, will qualify as "portfolio interest," and thus will be exempt
from the withholding tax, if the holders certify their nonresident status as
described below. The portfolio interest exception will not apply to payments of
interest to a Non-U.S. Holder that:

- owns, directly or indirectly, at least 10 percent of our voting stock, or

- is a "controlled foreign corporation" that is related to us.

In general, a foreign corporation is a controlled foreign corporation if at
least 50 percent of its stock is owned, directly or indirectly, by one or more
U.S. persons that each owns, directly or indirectly, at least 10 percent of the
corporation's voting stock.

The portfolio interest exception and several of the special rules for
Non-U.S. Holders described below apply only if the holder certifies its
nonresident status. A Non-U.S. Holder can meet this certification requirement by
providing a Form W-8BEN or appropriate substitute form to us, or our paying
agent. If the holder holds the note through a financial institution or other
agent acting on the holder's behalf, the holder will be required to provide
appropriate documentation to the agent. The holder's agent will then be required
to provide certification to us or our paying agent, either directly or through
other intermediaries. For payments made to a foreign partnership after December
31, 2000, the certification requirements generally apply to the partners rather
than the partnership.

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Sale, Exchange or Redemption of Notes

Non-U.S. Holders generally will not be subject to U.S. federal income tax
on any gain realized on the sale, exchange, or other disposition of notes. This
general rule, however, is subject to several exceptions. For example, the gain
would be subject to U.S. federal income tax if:

- the gain is effectively connected with the conduct by the Non-U.S. Holder
of a U.S. trade or business,

- the Non-U.S. Holder was a citizen or resident of the United States and
thus is subject to special rules that apply to expatriates, or

- the rules of the Foreign Investment in Real Property Tax Act ("FIRPTA")
(described below) treat the gain as effectively connected with a U.S.
trade or business.

We do not believe that we are a USRPHC or that we will become one in the future.

Conversion of the Notes

A Non-U.S. Holder generally will not recognize any income, gain or loss on
converting a note into common stock. Any gain recognized as a result of the
holder's receipt of cash in lieu of a fractional share of stock would also
generally not be subject to U.S. federal income tax. See "Special Tax Rules
Applicable to Non-U.S. Holders -- Sale of Common Stock," below.

Dividends

Dividends paid to a Non-U.S. Holder on common stock received on conversion
of a note will generally be subject to U.S. withholding tax at a 30 percent
rate. The withholding tax might not apply, however, or might apply at a reduced
rate, under the terms of a tax treaty between the United States and the Non-U.S.
Holder's country of residence. A Non-U.S. Holder must demonstrate its
entitlement to treaty benefits by certifying its nonresident status. Some of the
common means of meeting this requirement are described above under "Special Tax
Rules Applicable to Non-U.S. Holders -- Taxation of Interest."

Sale of Common Stock

Non-U.S. Holders will generally not be subject to U.S. federal income tax
on any gains realized on the sale, exchange, or other disposition of common
stock. This general rule, however, is subject to exceptions, some of which are
described under "Special Tax Rules Applicable to Non-U.S. Holders -- Sale,
Exchange or Redemption of Notes."

Income or Gains Effectively Connected With a U.S. Trade or Business

The preceding discussion of the tax consequences of the purchase, ownership
or disposition of notes or common stock by a Non-U.S. Holder assumes that the
holder is not engaged in a U.S. trade or business. If any interest on the notes,
dividends on common stock, or gain from the sale, exchange or other disposition
of the notes or stock is effectively connected with a U.S. trade or business
conducted by the Non-U.S. Holder, then the income or gain will be subject to
U.S. federal income tax at the regular graduated rates. If the Non-U.S. Holder
is eligible for the benefits of a tax treaty between the United States and the
holder's country of residence, any "effectively connected" income or gain will
be subject to U.S. federal income tax only if it is also attributable to a
permanent establishment maintained by the holder in the United States. Payments
of dividends that are effectively connected with a U.S. trade or business, and
therefore included in the gross income of a Non-U.S. Holder, will not be subject
to the 30 percent withholding tax. To claim exemption from withholding, the
holder must certify its qualification, which can be done by filing a Form
W-8ECI. If the Non-U.S. Holder is a corporation, that

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portion of its earnings and profits that is effectively connected with its U.S.
trade or business would generally be subject to a "branch profits tax." The
branch profits tax rate is generally 30 percent, although an applicable tax
treaty might provide for a lower rate.

U.S. Federal Estate Tax

The estates of nonresident alien individuals are subject to U.S. federal
estate tax on property with a U.S. situs. The notes will not be U.S. situs
property as long as interest on the notes paid immediately before the death of
the holder would have qualified as portfolio interest, exempt from withholding
tax as described above under "Special Tax Rules Applicable to Non-U.S. Holders:
Taxation of Interest." Because we are a U.S. corporation, our common stock will
be U.S. situs property, and therefore will be included in the taxable estate of
a nonresident alien decedent. The U.S. federal estate tax liability of the
estate of a nonresident alien may be affected by a tax treaty between the United
States and the decedent's country of residence.

BACKUP WITHHOLDING AND INFORMATION REPORTING

The Code and the Treasury regulations require those who make specified
payments to report the payments to the IRS. Among the specified payments are
interest, dividends, and proceeds paid by brokers to their customers. The
required information returns enable the IRS to determine whether the recipient
properly included the payments in income. This reporting regime is reinforced by
"backup withholding" rules. These rules require the payors to withhold tax at a
31 percent rate from payments subject to information reporting if the recipient
fails to cooperate with the reporting regime by failing to provide his taxpayer
identification number to the payor, furnishing an incorrect identification
number, or repeatedly failing to report interest or dividends on his returns.
The information reporting and backup withholding rules do not apply to payments
to corporations, whether domestic or foreign.

Payments of interest or dividends to individual U.S. Holders of notes or
common stock will generally be subject to information reporting, and will be
subject to backup withholding unless the holder provides us or our paying agent
with a correct taxpayer identification number.

The information reporting and backup withholding rules do not apply to
payments that are subject to the 30 percent withholding tax on dividends or
interest paid to nonresidents, or to payments that are exempt from that tax by
application of a tax treaty or special exception. Therefore, payments of
dividends on common stock, or interest on notes, will generally not be subject
to information reporting or backup withholding. To avoid backup withholding on
dividends paid after December 31, 2000, a Non-U.S. Holder will have to certify
its nonresident status. Some of the common means of doing so are described under
"Special Rules Applicable to Non-U.S. Holders -- Taxation of Interest."

Payments made to U.S. Holders by a broker upon a sale of notes or common
stock will generally be subject to information reporting and backup withholding.
If, however, the sale is made through a foreign office of a U.S. broker, the
sale will be subject to information reporting but not backup withholding. If the
sale is made through a foreign office of a foreign broker, the sale will
generally not be subject to either information reporting or backup withholding.
This exception may not apply, however, if the foreign broker is owned or
controlled by U.S. persons, or is engaged in a U.S. trade or business.

Payments made to Non-U.S. Holders by a broker upon a sale of notes or
common stock will not be subject to information reporting or backup withholding
as long as the Non-U.S. Holder certifies its foreign status.

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Any amounts withheld from a payment to a holder of notes or common stock
under the backup withholding rules can be credited against any U.S. federal
income tax liability of the holder.

THE PRECEDING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR
SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR U.S. FEDERAL, STATE,
LOCAL, AND FOREIGN TAX CONSEQUENCES OF PURCHASING, HOLDING, AND DISPOSING OF OUR
NOTES OR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN
APPLICABLE LAWS.

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PLAN OF DISTRIBUTION

The Selling Holder may offer and sell the Notes or the Common Stock
issuable upon conversion of the Notes covered by this Prospectus from time to
time. The Selling Holder's pledgees, donees, transferees or other successors in
interest that receive securities as a gift, partnership distribution or other
non-sale related transfer may likewise offer and sell the securities from time
to time. The Selling Holders will act independently of us in making decisions
with respect to the timing, manner and size of each sale. The Selling Holders
may sell the securities on one or more exchanges, including the Nasdaq National
Market, or in the over-the-counter market or otherwise, at prices and at terms
then prevailing or at prices related to the then current market prices or in
negotiated transactions. The Selling Holders may sell the securities by one or
more of the following means of distribution: (a) a block trade in which the
broker-dealer so engaged will attempt to sell the shares as agent, but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker-dealer as principal and resale by such
broker-dealer for its own account pursuant to this Prospectus; and (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers.
We may amend this Prospectus from time to time to describe a specific plan of
distribution. In connection with distributions of the securities or otherwise,
the Selling Holders may enter into hedging transactions with broker-dealers or
other financial institutions. In connection with such transactions,
broker-dealers or other financial institutions may engage in short sales of our
securities in the course of hedging the positions they assume with the Selling
Holders. The Selling Holders may also sell our securities short and redeliver
the securities covered by this Prospectus to close out such short positions. The
Selling Holders may also enter into option or other transactions with
broker-dealers or other financial institutions which require the delivery to
such broker-dealer or other financial institution of the securities offered
under this Prospectus, which securities such broker-dealer or other financial
institution may resell pursuant to this Prospectus (as supplemented or amended
to reflect such transaction). The Selling Holders may also pledge the securities
registered hereunder to a broker-dealer or other financial institution and, upon
a default, such broker-dealer or other financial institution may effect sales of
the pledged securities pursuant to this Prospectus (as supplemented or amended
to reflect such transaction). In addition, the Selling Holders may also sell the
securities under Rule 144 rather than pursuant to this Prospectus if the
securities so qualify for resale under Rule 144.

In effecting sales, brokers, dealers or agents engaged by the Selling
Holders may arrange for other brokers or dealers to participate. Brokers,
dealers or agents may receive commissions, discounts or concessions from the
Selling Holders in amounts to be negotiated prior to the sale. Such brokers or
dealers and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales, and any such commission, discount or concession may be deemed to be
underwriting discounts or commissions under the Securities Act. We will pay all
expenses incident to the offering and sale of the securities covered by this
Prospectus to the public other than any commissions and discounts of
underwriters, dealers or agents and any transfer taxes.

In order to comply with the securities laws of certain states, if
applicable, the securities will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Common Stock may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.

We have advised the Selling Holders that the anti-manipulation rules set
forth in Regulation M under the Exchange Act may apply to sales of the Shares in
the market and to the activities of the Selling Holders and its affiliates. In
addition, we will make copies of this Prospectus available to the Selling
Holders and have informed them of the need for delivery of copies of this
Prospectus to

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purchasers at or prior to the time of any sale of the securities covered by this
Prospectus. The Selling Holders may indemnify any broker-dealer that
participates in transactions involving the sale of the securities against
certain liabilities, including liabilities arising under the Securities Act.

At the time a particular offer of the shares of securities covered by this
Prospectus is made, if required, a prospectus supplement will be distributed
that will set forth the number of shares being offered and the terms of the
offering, including the name of any underwriter, dealer or agent, the purchase
price paid by any underwriter, any discount, commission and other item
constituting compensation, any discount, commission or concession allowed or
reallowed or paid to any dealer, and the proposed selling price to the public.

The Selling Holders may or may not sell all or any of the securities
covered by this Prospectus.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California, our legal counsel.

EXPERTS

Our consolidated financial statements incorporated in this Prospectus by
reference to the Annual Report on Form 10-K/A for the year ended December 31,
1999, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

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WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE A STATEMENT THAT DIFFERS FROM
WHAT IS IN THIS PROSPECTUS. IF ANY PERSON DOES MAKE A STATEMENT THAT DIFFERS
FROM WHAT IS IN THIS PROSPECTUS, YOU SHOULD NOT RELY ON SUCH STATEMENT. THIS
PROSPECTUS IS NOT AN OFFER TO SELL, NOR IS IT SEEKING AN OFFER TO BUY, THESE
SECURITIES IN ANY STATE IN WHICH THE OFFER OR SALE IS NOT PERMITTED. THE
INFORMATION IN THIS PROSPECTUS IS COMPLETE AND ACCURATE AS OF ITS DATE, BUT THE
INFORMATION MAY CHANGE AFTER THAT DATE.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Where You Can Find More
Information........................ 1
The Company.......................... 2
Risk Factors......................... 4
Ratio of Earnings to Fixed Charges... 17
Use of Proceeds...................... 18
Selling Holders...................... 18
Description of Notes................. 26
Plan of Distribution................. 46
Legal Matters........................ 47
Experts.............................. 47
</TABLE>

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CRITICAL PATH, INC.

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PROSPECTUS
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July 27, 2000

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