<PAGE>
                                                                    EXHIBIT 4.26

     THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
     SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN
     REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
     SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
     TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER
     OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.

                               CRITICAL PATH, INC.

                    CONVERTIBLE SUBORDINATED PROMISSORY NOTE

$3,465,000.00                                          San Francisco, California
                                                       January 16, 2004

          Critical Path, Inc., a California corporation (the "Company"), the
principal office of which is located in San Francisco, California, for value
received hereby promises to pay to the order of Permal U.S. Opportunities
Limited, or its registered assigns ("Holder"), the sum of three million four
hundred sixty-five thousand dollars ($3,465,000), or such lesser amount as shall
then equal the outstanding principal amount hereof on the terms and conditions
set forth hereinafter. The outstanding principal amount hereof and all accrued
and unpaid interest hereon, as set forth below, shall be due and payable on the
earlier to occur of (i) January 16, 2008, (ii) when declared due and payable by
Holder upon the occurrence of an Event of Default (as defined below), (iii)
consummation of a Qualified Asset Sale, (iv) a Change of Control, or (v) any
sale of capital stock or Stock Equivalents by the Company, any cash capital
contribution from any third person or any other debt or equity financing
consummated by the Company after the date of issuance of this Note which, in the
case of (v), individually or in the aggregate raises proceeds of at least forty
million dollars ($40,000,000) in cash or cash equivalents (the earliest of the
events set forth in items (i)-(v) immediately above, the "Maturity Date").

          The following is a statement of the rights of the Holder of this Note
and the conditions to which this Note is subject, and to which the Holder
hereof, by the acceptance of this Note, agrees:

          1. Definitions. Except as otherwise defined herein, each capitalized
term used herein shall have the meaning assigned to it in the Note Purchase
Agreement, as in effect on the date hereof, and without regard to any subsequent
termination of the Note Purchase Agreement. All other references to the Note
Purchase Agreement in this Note refer to the Note Purchase Agreement as in
effect on the date hereof, and without regard to any subsequent termination of
the Note Purchase Agreement. As used in this
<PAGE>
                                                                               2


Note, the following terms, unless the context otherwise requires, have the
following meanings:

               1.1 "Affiliate" means any Person who is an "affiliate" as defined
in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange
Act of 1934, as amended.

               1.2 "Capitalized Lease Obligations" means, with respect to any
Person, all rental obligations of such Person which, under GAAP, are or will be
required to be capitalized on the books of such Person, in each case taken at
the amount thereof accounted for as indebtedness in accordance with such
principles.

               1.3 "Change of Control" shall mean (i) any merger, consolidation
or other business combination transaction (or series of related transactions) in
which the stockholders owning a majority of the voting securities of the Company
prior to such transaction do not own a majority of the voting securities of the
surviving entity, (ii) any tender offer, exchange offer or other transaction
whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as amended) (other than
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell
Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and
the Affiliates of the foregoing, provided that Affiliates shall be deemed not to
include any portfolio companies of any of the foregoing) obtains a majority of
the outstanding shares of capital stock entitled to vote in the election of
directors, (iii) any proxy contest in which a majority of the Board of Directors
of the Company (or persons appointed by such Board of Directors) prior to such
contest do not constitute a majority of the Company's Board of Directors after
such contest or (iv) any other transaction described in any stockholder rights
agreement or "poison pill," if any, to which the Company is party, which may
permit the holders of any rights or similar certificates to exercise the rights
evidenced thereby.

               1.4 "Company" shall have the meaning set forth in the recitals
hereto, and includes any corporation that shall succeed to or assume the
obligations of the Company under this Note.

               1.5 "Common Conversion Date" shall have the meaning set forth in
Section 3.1(b) hereof.

               1.6 "Common Stock" means the common stock, par value $0.001 per
share, of the Company.

               1.7 "Conversion Date" shall mean the Subsequent Closing Date.

               1.8 "Domestic Subsidiary" shall have the meaning set forth in
Section 5.10 hereof.
<PAGE>
                                                                               3


               1.9 "Event of Default" shall have the meaning set forth in
Section 6 hereof.

               1.10 "GA Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated November 26, 2003, issued by the Company to the GAP
Entities pursuant to the Purchase and Exchange Agreement.

               1.11 "GAP Entities" shall mean General Atlantic Partners 74,
L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG.

               1.12 "Guarantor" shall have the meaning set forth in the Security
Agreement.

               1.13 "Holder" shall mean the registered holder of this Note from
time to time, and in the plural, shall mean all registered holders of Notes from
time to time issued by the Company pursuant to the Note Purchase Agreement.

               1.14 "Intercreditor Agreement" shall mean the Intercreditor
Agreement, dated the date hereof, among the GAP Entities, Permal U.S.
Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners,
L.P., Zaxis Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund,
L.P.

               1.15 "Interest Amount" shall have the meaning set forth in
Section 3.1 hereof.

               1.16 "Investment" means (i) the acquisition (whether for cash,
property, services, assumption of Indebtedness, securities or otherwise) of
assets (other than equipment, inventory, supplies or other assets acquired in
the ordinary course of business of the Company), capital stock, bonds, notes,
debentures, partnership, joint venture or other ownership interests or other
securities of any Person, (ii) any deposit with, or advance, loan or other
extension of credit to, or on behalf of, any Person (other than deposits made in
connection with the purchase of equipment, inventory, services, leases, supplies
or other assets in the ordinary course of business of the Company), and (iii)
any other capital contribution to or investment in any Person, including,
without limitation, any guaranty obligation incurred for the benefit of any
Person. For the sake of clarity, Investments shall include any transfer of
property or assets by the Company to any of its Subsidiaries or by any
Subsidiary of the Company to any other Subsidiary.

               1.17 "Loan Documents" shall have the meaning set forth in the
Security Agreement.

               1.18 "Note" shall mean this note, and in the plural, shall mean
all notes issued to the Lenders pursuant to the terms of the Note Purchase
Agreement, including this Note, and all amendments, modifications and extensions
thereto.

               1.19 "Note Purchase Agreement" means that certain Convertible
Note Purchase Agreement, dated January 16, 2004, among the Company, the Holder
and
<PAGE>
                                                                               4


the other parties thereto from time to time, and all amendments, modifications
and extensions thereto.

               1.20 "Permitted Investments" means (i) Investments in cash or
cash equivalents, (ii) accounts receivable created, acquired or made in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (iii) Investments existing on the closing date, and
listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty
obligations permitted by Section 5.3 of this Agreement, (v) loans to employees,
directors or officers of the Company in connection with the award of convertible
bonds or capital stock under a stock incentive plan, stock option plan or other
equity-based compensation plan or arrangement, (vi) other advances or loans to
employees, directors, officers or agents of the Company in the ordinary course
of business not to exceed $500,000 in the aggregate at any time outstanding;
(vii) loans, advances and investments in foreign Subsidiaries (that are not
incorporated or otherwise organized under the laws of the United States of
America or any state thereof) in an amount not to exceed $1,000,000 in the
aggregate at any time outstanding; (viii) any acquisition for which the prior
written consent of the Holders of a majority of the outstanding principal amount
of all of the Notes issued by the Company pursuant to the Note Purchase
Agreement has been obtained, (ix) other loans, advances and investments of a
nature not contemplated by the foregoing sections in an amount not to exceed
$500,000 in the aggregate at any time outstanding or (x) Investments by the
Company in the Guarantor.

               1.21 "Permitted Liens" shall have the meaning set forth in
Section 5.4.

               1.22 "Person" means any individual, firm, corporation,
partnership, trust, joint venture, joint stock company, limited liability
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.

               1.23 "Price Per Share" shall have the meaning attributed to such
term in the Series E Certificate of Determination, as filed with the Secretary
of State of the State of California.

               1.24 "Purchase and Exchange Agreement" shall mean the Convertible
Note Purchase and Exchange Agreement, dated November 18, 2003, among the
Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as amended.

               1.25 "Qualified Asset Sale" means the sale, transfer or other
disposition of any of the assets of the Company or any of its Subsidiaries,
other than (a) sales of assets in the ordinary course of business, (b) sales of
assets where the proceeds are used to repay Indebtedness owing to SVB, (c) the
sale, transfer or other disposition of assets of the Company where the proceeds
are applied to the purchase price or traded in for credit against the purchase
price of other assets, provided that any such purchase is made, or credit
issued, within 90 days of the sale, transfer or other disposition, and (d) one
or more sales of the Company's assets (other than sales otherwise included in
clauses
<PAGE>
                                                                               5


(a), (b), and (c) immediately above) which collectively yield up to an aggregate
of one million dollars ($1,000,000) in gross proceeds to the Company while this
Note is outstanding.

               1.26 "Restricted Payment" means (a) any dividend or other
distribution (whether in cash, securities or other property) with respect to any
shares of any class of capital stock of the Company or any of its Subsidiaries
or (b) any payment (whether in cash, securities or other property), including
any sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any shares of any class
of capital stock of the Company or any Subsidiary or any option, warrant or
other right to acquire any such shares of capital stock of the Company or any
Subsidiary.

               1.27 "Security Agreement" means that certain Guaranty and
Security Agreement, of even date herewith between the Company, Compass Holding
Corp., the Lenders and the other parties thereto from time to time, and all
amendments, modifications and extensions thereto.

               1.28 "Series E Conversion Price" shall have the meaning set forth
in the Series E Certificate of Determination.

               1.29 "Series E Preferred Stock" means the Series E Preferred
Stock, par value $0.001, of the Company.

               1.30 "Subordination Agreement" shall have the meaning set forth
in Section 5.3.

               1.31 "Subsequent Closing Date" shall have the meaning set forth
in Section 2.4(e) of the Note Purchase Agreement.

               1.32 "SVB" means Silicon Valley Bank, a California chartered
bank, or any Affiliates thereof.

               1.33 "Ten Percent Holder" means, with respect to a class of
equity securities of the Company, a Person (together with such Person's
Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of such
class of equity securities of the Company, as defined by Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

               1.34 "UCC" shall have the meaning set forth in Section 5.4.

          2. Interest. Simple interest shall accrue at the rate of ten percent
(10%) per annum (or such lesser amount as shall equal the highest rate of
interest allowable under applicable law) (the "Interest Rate"), on the
outstanding principal of this Note from the date of this Note until the Maturity
Date or the date this Note is otherwise repaid. The Company shall not be
obligated to make any payments of interest which shall have accrued under this
Note prior to the Maturity Date. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. In the event that the
<PAGE>
                                                                               6


principal amount of this Note, any interest, or any amount payable hereunder is
not paid in full when such amount becomes due and payable, or upon the
occurrence of an Event of Default, interest shall accrue at the lesser of (a)
the initial Interest Rate plus five percent (5%) per annum or (b) the highest
rate of interest allowable under applicable law, on the balance of all amounts
outstanding until such overdue amounts are paid or the Event of Default is
cured, and such interest shall be payable on demand.

          3. Conversion.

               3.1 Conversion.

                    (a) On the Conversion Date, the principal amount of this
Note plus the accrued and unpaid interest thereon (the "Interest Amount"), shall
be automatically converted into the number of fully paid and nonassessable
shares of Series E Preferred Stock equal to the quotient obtained by dividing
(a) the entire principal amount of this Note plus the Interest Amount by (b) the
Price Per Share.

                    (b) In the event that the Conversion Date has not occurred
on or prior to April 30, 2004 (the "Common Conversion Date"), then, following
the Common Conversion Date, the principal amount of this Note plus the Interest
Amount shall be convertible, at the option of Holder and from time to time, into
Common Stock at a conversion price per share equal to $1.65, as adjusted for any
stock dividends, stock splits or similar consolidations or subdivisions,
following the date hereof; provided, however, that Holder shall not be permitted
to convert any portion of the principal of this Note or the Interest Amount into
Common Stock pursuant to this Section 3.1(b) if, at the time of such conversion,
the conversion would cause Holder to be a Ten Percent Holder.

               3.2 Notice of Conversion. Upon conversion of this Note as
provided in Section 3.1, Holder shall surrender this Note to the Company and
shall state the name or names in which the certificate or certificates for such
shares of Series E Preferred Stock or Common Stock, as the case may be, are to
be issued. The Person or Persons entitled to receive the shares of Series E
Preferred Stock or Common Stock, as the case may be, issuable upon such
conversion shall be treated for all purposes as the record holder or holders (a)
of such shares of Series E Preferred Stock as of the Conversion Date and (b) of
such shares of Common Stock as of the date of any conversion pursuant to Section
3.1(b).

               3.3 Delivery of Stock Certificates. Upon conversion of this Note
as provided in Section 3.1, the Company at its expense will issue and deliver to
Holder of this Note a certificate or certificates (bearing such legends as are
required by applicable state and federal securities laws in the opinion of
counsel to the Company) for the number of full shares of Series E Preferred
Stock or Common Stock, as the case may be, issuable upon such conversion.

               3.4 Mechanics and Effect of Conversion. No fractional shares of
Series E Preferred Stock or Common Stock, as the case may be, shall be issued
upon conversion of this Note. In lieu of the Company issuing any fractional
shares to Holder
<PAGE>
                                                                               7


upon the conversion of this Note, the Company shall pay to Holder the amount of
outstanding principal and interest that is not so converted. Upon conversion of
all amounts due under this Note, the Company shall be released from all of its
obligations under this Note.

          4. Adjustments. The number of shares of Series E Preferred Stock or
Common Stock convertible hereunder are subject to adjustment from time to time
as follows:

               4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at
any time while this Note remains outstanding and unexpired there shall be (a) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (b) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise or (c) a sale or
transfer of the Company's stock, properties or assets as, or substantially as,
an entirety to any other Person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that Holder
shall thereafter be entitled to receive by converting this Note the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon conversion of this Note would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Note had been converted immediately before such reorganization,
merger, consolidation, sale or transfer (notwithstanding that the Stockholder
Approval may not yet have been obtained), all subject to further adjustment as
provided in this Section 4. The foregoing provisions of this Section 4.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation. If the
per share consideration payable to Holder hereof for shares in connection with
any such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
Company's Board of Directors based on the amount the Holder would have otherwise
been entitled to receive had the transaction or transactions not occurred. In
all events, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions of this
Note with respect to the rights and interests of Holder after the transaction,
to the end that the provisions of this Note shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon conversion of this Note. The Company shall be
obligated to retain and set aside, or otherwise make fair provision for exercise
of the right of the Holder to receive, the shares of stock and/or other
securities, cash or other property provided for in this Section 4.1.

               4.2 Election of Holder upon Merger or Sale of Assets.
Notwithstanding anything to the contrary contained herein, if an event shall
occur as provided in Section 4.1 hereof that would otherwise result in the
occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first
paragraph of this Note, then the
<PAGE>
                                                                               8


Holder may, in its sole discretion, by written notice to the Company elect to
convert the principal amount of this Note plus the Interest Amount into the
number of shares of stock or other securities or property described in Section
4.1, in lieu of receiving payment in full of all amounts outstanding under this
Note. The number of shares of stock or other securities or property to be issued
upon such conversion shall be determined in accordance with Section 4.1 hereof,
taking into account the occurrence of such event.

               4.3 Reclassification, Etc. If the Company shall, at any time
while this Note, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, change any of the securities as to
which conversion rights under this Note exist into the same or a different
number of securities of any other class or classes, this Note shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable with respect to the securities that were subject to the conversion
rights under this Note immediately prior to such reclassification or other
change, and the Price Per Share shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 4.

               4.4 Split, Subdivision or Combination of Shares. If the Company
at any time while this Note, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the shares of Series E Preferred
Stock or Common Stock into a different number of securities of the same class,
the Price Per Share or conversion price, as the case may be, shall be
proportionately adjusted.

               4.5 Series E Adjustments. The initial Series E Conversion Price
of the shares of Series E Preferred Stock issued upon conversion of this Note
pursuant to Section 3.1 shall equal the Series E Conversion Price in effect on
the Conversion Date, subject to the adjustment of such Series E Conversion Price
from time to time thereafter as provided in the Series E Certificate of
Determination.

               4.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 4, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.

               4.7 No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of Holder against impairment.

          5. Covenants. The Company covenants and agrees that until the earlier
of (i) the date on which all Obligations (as defined in the Security Agreement)
have been paid in full or (ii) the date on which all amounts outstanding under
the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b):
<PAGE>
                                                                               9


               5.1 Financial Statements and Other Information. The Company shall
deliver to the Holder of this Note the financial statements and other
information required to be delivered under Section 8.1 of the Note Purchase
Agreement.

               5.2 Financial Covenants. The Company shall at all times comply
with the financial and other covenants set forth in Schedule 8.5 to the Note
Purchase Agreement as if such covenants were set forth herein.

               5.3 Indebtedness. The Company shall not, and shall not permit any
Subsidiary to, issue, incur, assume, create or have outstanding any
Indebtedness, provided, however, that the foregoing shall not restrict nor
operate to prevent:

                    (a) Indebtedness in favor of the Holders under the Loan
Documents;

                    (b) Indebtedness existing on the date hereof, as set forth
on Schedule 3.22 to the Note Purchase Agreement;

                    (c) Indebtedness for accounts payable incurred in the
ordinary course of business by the Company;

                    (d) Indebtedness incurred solely for the purpose of
financing the acquisition of any equipment, machinery, software, improvements or
any other similar property, or extensions, renewals or replacements of any of
the foregoing for the same or a lesser amount; provided, that the aggregate
outstanding principal amount of all Indebtedness permitted pursuant to this
clause (d) outstanding for more than sixty (60) days after the incurrence of
such Indebtedness shall not at any time exceed $500,000;

                    (e) Indebtedness of the Company evidenced by Capitalized
Lease Obligations, provided, that in no event shall the aggregate principal
amount of Capitalized Lease Obligations permitted by this clause (e) exceed
$500,000 at any time outstanding; and

                    (f) Any extension, renewal, refinancing, refunding, or
replacement (each, a "refinancing") of Indebtedness permitted by clauses (b) and
(e) above, on such terms and conditions as are, on the whole, not materially
more onerous to the Company than the terms and conditions of such original
Indebtedness on the date of such refinancing (including that the principal
amount of such refinancing Indebtedness does not exceed the principal amount of,
plus the amount of accrued and unpaid interest on, the Indebtedness so
refinanced (plus the amount of reasonable premium and fees and expenses incurred
in connection therewith)), provided that, in the case of a refinancing of
Indebtedness owed by the Company or any Subsidiary to SVB, this clause (f) shall
only apply to the extent consistent with the Subordination Agreement, dated as
of the date hereof, by and among SVB, the Holders and the Company (the
"Subordination Agreement").
<PAGE>
                                                                              10


               5.4 Liens. The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
the Company or any of its Subsidiaries, whether now owned or hereafter acquired,
or sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable), or assign any right to receive income or permit the
filing of any financing statement under the Uniform Commercial Code, as from
time to time in effect in the relevant jurisdiction (the "UCC"), or any other
similar notice of Lien under any similar recording or notice statute; provided,
that the provisions of this Section 5.4 shall not prevent the creation,
incurrence, assumption or existence of the following:

                    (a) Liens arising in the ordinary course of business by
statute in connection with worker's compensation, unemployment insurance, old
age benefits, social security obligations, statutory obligations or other
similar charges (other then Liens arising under ERISA), good faith cash deposits
in connection with tenders, contracts or leases to which the Company or any
Subsidiary is a party or other cash deposits required to be made in the ordinary
course of business, provided, that such Liens do not have a material adverse
effect on the ability of the Company to repay amounts due under the Notes;

                    (b) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due or Liens for taxes, assessments or governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP;

                    (c) Liens in respect of property or assets of the Company or
its Subsidiaries imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as carriers',
warehousemen's, materialmen's and mechanics' liens and other similar Liens
arising in the ordinary course of business, and (i) which do not in the
aggregate materially detract from the value of the Company's and its
Subsidiaries' property or assets taken as a whole or result in a material
adverse effect on the Condition of the Company or (ii) which are being contested
in good faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to any such
Lien;

                    (d) the pledge of assets for the purpose of securing an
appeal, stay or discharge in the course of any legal proceeding, provided that
the aggregate amount of liabilities of the Company and its Subsidiaries secured
by a pledge of assets permitted under this subsection, including interest and
penalties thereon, if any, shall not be in excess of $500,000 at any one time
outstanding;

                    (e) any interest or title of a lessor under any operating
lease;
<PAGE>
                                                                              11


                    (f) easements, rights-of-way, restrictions and other similar
encumbrances against real property incurred in the ordinary course of business;

                    (g) the Liens existing on the date hereof identified on
Schedule 3.22 to the Note Purchase Agreement;

                    (h) Liens on cash deposited with account debtors to secure
performance by the Company or any Subsidiary in the ordinary course of business
subject to customary and reasonable terms;

                    (i) Liens upon assets of the Company or its Subsidiaries
subject to Capitalized Lease Obligations, provided, that (A) such Liens only
serve to secure the payment of Indebtedness permitted by Section 5.3(e) arising
under such Capitalized Lease Obligation and (B) the Lien encumbering the asset
giving rise to the Capitalized Lease Obligation does not encumber any other
asset of the Company or its Subsidiaries;

                    (j) Liens placed upon equipment, machinery, software,
improvements or any other similar property, used in the ordinary course of
business of the Company or any of its Subsidiaries at the time of the
acquisition thereof by the Company or any of its Subsidiaries or within ninety
(90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above;
provided, that the Liens encumbering the equipment, machinery software,
improvements or any other similar property so acquired do not encumber any other
asset of the Company or its Subsidiaries;

                    (k) set-off rights of depository institutions; and

                    (l) Liens created by the Security Agreement (collectively
with clauses (a) through (k) hereof, the "Permitted Liens").

               5.5 Fundamental Changes. The Company will not, and will not
permit any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (in one transaction or a series of transactions)
all or substantially all of its assets, or all or substantially all of the stock
of any of its Subsidiaries (in each case, whether now owned or hereafter
acquired), or liquidate or dissolve, except that, if at the time and immediately
after giving effect thereto no Event of Default shall have occurred and be
continuing (i) the Company or any of its Subsidiaries may, with the prior
written consent of the Holders, merge with or into any other Person; (ii) any
wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with
or into the Company or any other wholly-owned Subsidiary of the Company; (iii)
any Subsidiary (other than the Guarantor, and except as otherwise prohibited by
this Note) may sell, transfer, lease or otherwise dispose of its assets to the
Company or to another wholly-owned Subsidiary of the Company; and (iv) any
Subsidiary may liquidate or dissolve if the board of directors of the Company
determine in good faith that such liquidation or dissolution is in its best
interests and is not disadvantageous to the Holders.
<PAGE>
                                                                              12


               5.6 Restricted Payments. The Company will not, and the Company
will not permit any Subsidiary to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except that (i) any Subsidiary
may make a Restricted Payment to the Company or any of its wholly-owned
Subsidiaries, and (ii) the Company or any of its Subsidiaries may make any
Restricted Payment required by the terms of the Note Purchase Agreement and the
other documents executed in connection therewith.

               5.7 Transactions with Affiliates. The Company will not, and the
Company will not permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions that are at prices and on terms and
conditions not less favorable to the Company or such Subsidiary than could be
obtained on an arm's length basis from unrelated third parties, (b) transactions
exclusively between the Company and the Guarantor and (c) transactions under the
agreements listed on Schedule 3.17 to the Note Purchase Agreement.

               5.8 Investments. The Company will not, and the Company will not
permit any Domestic Subsidiary (as hereinafter defined) to, make an Investment
in any Person, except for Permitted Investments.

               5.9 Nature of Business. The Company will not, and the Company
will not permit any Subsidiary to, engage in any business other than that
conducted on the date hereof and any businesses reasonably related thereto.

               5.10 Property of Existing Domestic Subsidiaries. The Company will
not permit, or suffer to allow, any Subsidiary that is incorporated or otherwise
organized under the laws of the United States of America or any state thereof (a
"Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease,
license, purchase or otherwise acquire any personal or real property (excluding
any material intellectual property) in excess of $50,000 for all property held
by such Subsidiary, or $250,000 in the aggregate for all property held by all
Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own
or otherwise hold any rights to any material intellectual property or (iv)
otherwise conduct any business or maintain operations.

               5.11 Formation of Subsidiaries. The Company will not, and will
not cause or permit any of its Subsidiaries to, form, acquire or permit the
existence of any new domestic Subsidiary, without causing such domestic
Subsidiary to execute and deliver to the Holders a secured guaranty of the Notes
and related security document, in form and substance satisfactory to the
Holders.

               5.12 Books and Records. The Company shall keep proper books of
record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company and its
Subsidiaries in accordance with GAAP consistently applied.
<PAGE>
                                                                              13


               5.13 Inspection. The Company shall, and shall cause each of its
Subsidiaries to, permit representatives of the Holders to visit and inspect any
of its properties, to examine its corporate, financial and operating records and
make copies thereof or abstracts therefrom, and to discuss its affairs, finances
and accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested upon notice to the Company.

               5.14 Maintenance of Business. The Company shall, and shall cause
each Subsidiary to, preserve and maintain its existence. The Company shall, and
shall cause each Subsidiary to, preserve and keep in force and effect all
licenses, permits, franchises, approvals, patents, trademarks, trade names,
trade styles, copyrights, and other property rights necessary to the proper
conduct of its business, except where the failure to do so could not reasonably
be expected to have a material adverse effect on the Condition of the Company or
on the prospects of repayment of the Notes.

               5.15 Maintenance of Properties. The Company shall, and shall
cause each Subsidiary to, maintain, preserve and keep its property and equipment
in good repair, working order and condition (ordinary wear and tear excepted)
and shall from time to time make all needful and proper repairs, renewals,
replacements, additions and betterments thereto so that at all times the
efficiency thereof shall by fully preserved and maintained, except in each case
to the extent that, in the reasonable business judgment of such Person, any such
property or equipment is no longer necessary for the proper conduct of the
business of such Person.

          6. The occurrence of any one or more of the following events shall
constitute an "Event of Default":

               6.1 Failure To Pay. (i) The failure of the Company to pay any
principal due under any of the Notes when due and payable (whether by
acceleration, declaration, extension or otherwise), or (ii) the failure of the
Company to pay any other amounts due under any of the Notes when due and payable
if such failure is not cured within five (5) days of Company's receipt of notice
thereof from any of the Holders.

               6.2 Financial Covenants. The failure of Company or any of its
Subsidiaries to perform, observe or comply with any of the Financial Covenants
set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by
reference in this Note in Section 5.2.

               6.3 Other Covenants and Agreements. The failure of Company or any
of its Subsidiaries to perform, observe or comply with any of the covenants of
this Note, the Security Agreement or any of the other Loan Documents (other than
the Financial Covenants set forth on Schedule 8.5 to the Note Purchase
Agreement, and incorporated by reference in this Note in Section 5.2), if such
failure is not cured within sixty (60) days.
<PAGE>
                                                                              14


               6.4 Representations and Warranties. If any representation or
warranty made by the Company or any of its Subsidiaries in the Loan Documents is
not true and correct in all material respects on the Initial Closing Date.

               6.5 Default on Other Obligations. The occurrence of any condition
or default under any other indebtedness for borrowed money of the Company or any
of its Subsidiaries with a principal amount of at least five hundred thousand
dollars ($500,000) that results in the acceleration of such indebtedness which
is not cured within sixty (60) days.

               6.6 Involuntary Bankruptcy. There shall be filed against the
Company or any of its Subsidiaries an involuntary petition or other pleading
seeking the entry of a decree or order for relief under the United States
Bankruptcy Code or any similar federal or state insolvency or similar laws
ordering: (a) the liquidation of the Company or any of its Subsidiaries or (b) a
reorganization of the Company or any of its Subsidiaries or the business and
affairs of the Company or any of its Subsidiaries or (c) the appointment of a
receiver, liquidator, assignee, custodian, trustee or similar official for the
Company or any of its Subsidiaries of the property of the Company or any of its
Subsidiaries.

               6.7 Voluntary Bankruptcy. The commencement by the Company or any
of its Subsidiaries of a voluntary case under the federal bankruptcy laws or any
federal or state insolvency or similar laws or the consent by the Company or any
of its Subsidiaries to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or similar official for the Company or
any of its Subsidiaries of any of the property of the Company or any of its
Subsidiaries or the making by the Company or any of its Subsidiaries of an
assignment for the benefit of creditors, or the failure by Company or any of its
Subsidiaries generally to pay its debts as the debts become due.

               6.8 Judgments, Awards. Any judgment or order for the payment of
money is rendered against the Company or any of its Subsidiaries in an amount in
excess of five hundred thousand dollars ($500,000) individually or in the
aggregate and either (i) enforcement proceedings are commenced by any creditor
upon such judgment or order and not stayed, or (ii) there is any period of sixty
(60) consecutive days during which such judgment has not been paid in full or a
stay of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, is not in effect.

               6.9 Attachment by Lenders. Any assets of the Company or any of
its Subsidiaries shall be attached, levied upon, seized or repossessed, or come
into the possession of a trustee, receiver or other custodian and a
determination by any Holder, in good faith but in its sole discretion, that the
same could have a material adverse effect on the prospect for the Holders to
fully and punctually realize the full benefits conferred on the Holders by the
Loan Documents.

               6.10 Adverse Change in Financial Condition. Any event having a
material adverse effect on the business, operations, assets, properties or
condition of the
<PAGE>
                                                                              15


Company and its Subsidiaries taken as a whole shall have occurred and be
continuing or a material adverse effect on the validity or enforceability of
this or any of the other Loan Documents or the rights or remedies of the Holders
hereunder or thereunder.

          7. Remedies. Upon and after the occurrence of an Event of Default, the
Holder shall be entitled to the exercise the rights and remedies set forth in
the Security Agreement, the other Loan Documents and under applicable law, all
such rights and remedies being cumulative and enforceable alternatively,
successively or concurrently.

          8. Prepayment. The Company may not prepay this Note prior to the
Maturity Date without the prior written consent of the Holders.

          9. Seniority.

                    (a) Except as set forth in the Subordination Agreement, the
Notes will rank senior in right of payment to all other indebtedness of the
Company, other than the GA Notes, with respect to which the Notes will be pari
passu in right of payment in accordance with the Intercreditor Agreement.

                    (b) Notwithstanding anything to the contrary contained in
the Notes, this Note and the other Notes, and the terms and the conditions
hereof and thereof, are subject to the Intercreditor Agreement.

          10. Assignment. Subject to the restrictions on transfer described in
Section 12 below, the rights and obligations of the Company and Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties. The Company shall not be permitted to assign this
Note without the prior written consent of the Holders.

          11. Waiver of Notice. The Company hereby waives notice, presentment,
demand, protest and notice of dishonor.

          12. Transfer of This Note. With respect to any offer, sale or other
disposition of this Note, Holder will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such Holder's counsel, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any
federal or state law then in effect); provided, that no opinion shall be
required for any transfer to an Affiliate or if the transfer is made in
compliance with the Securities Act, so long as the transferee can make the same
representations and warranties at the time of transfer as set forth in Sections
4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly
upon delivering such written notice and opinion, if so required, Holder may sell
or otherwise dispose of this Note, all in accordance with the terms of the
notice delivered to the Company. Each Note thus transferred shall bear a legend
as to the applicable restrictions on transferability in order to ensure
compliance with the Securities Act, unless in the opinion of counsel for the
Company such legend is not required in order to ensure compliance with the
<PAGE>
                                                                              16


Securities Act. The Company may issue stop transfer instructions to its transfer
agent in connection with such restrictions. Notwithstanding the foregoing, the
Holder shall not be permitted to transfer this Note to any Person who is not an
Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii)
the receipt of written notice from the Company that Stockholder Approval cannot
be obtained, or the occurrence of an actual vote of the Company's shareholders
entitled to vote (whether by written consent or at a meeting specially called
for such purpose), the result of which is a decision by a majority of the
Company's shareholders entitled to vote to decline to grant Stockholder
Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of
an Event of Default.

          13. Treatment of Note. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.

          14. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by nationally recognized courier
service or mailed by registered or certified mail, postage prepaid, to the
respective addresses of the parties as set forth on the signature pages hereto
or if sent by facsimile to the respective facsimile numbers of the parties set
forth on the signature pages hereto. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively be
deemed to have been given and received when personally delivered or three (3)
business days after deposited in the mail or one business day after sent by
courier or upon confirmation of facsimile delivery in the manner set forth
above.

          15. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon Holder or any other Person the right to vote or to
consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company.

          16. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, excluding that body of law
relating to conflict of laws.

          17. Amendments and Waivers. No amendments or waivers of any provision
of this Note, and no consent by the Holder to any departure by the Company,
shall in any event be effective unless the same shall be in writing, and signed
by the Holders of a majority of the outstanding principal amount of all of the
Notes issued by the Company pursuant to the Note Purchase Agreement, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given.

          18. Severability. Any provision of this Note that is prohibited or
unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or
<PAGE>
                                                                              17


render unenforceable such provision in any other jurisdiction.

          19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY
(A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF
RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION
WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY
TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY
OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN
THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER
OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE.
THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND
VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER
HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY
INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT
THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE
COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF
RIGHT TO TRIAL BY JURY. EACH OF THE COMPANY AND THE HOLDER REPRESENTS AND
WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE
MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE
WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH
COUNSEL.

          20. Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except as otherwise indicated, all references herein to Sections refer to
Sections hereof.

              [the remainder of this page intentionally left blank]
<PAGE>
                                                                              18


          IN WITNESS WHEREOF, the Company has caused this Note to be issued this
16th day of January, 2004.

                                    COMPANY:

                                    CRITICAL PATH, INC.,
                                    a California corporation

                                    By: /s/ William E. McGlashan, Jr.
                                        ----------------------------------------
                                        Name: William E. McGlashan, Jr.
                                        Title: Chairman, Chief Executive Officer

                                        Critical Path, Inc.
                                        350 The Embarcadero
                                        San Francisco, CA 94105-1204
                                        Telecopy: (415) 541-2300
                                        Attention: Chief Financial Officer

                                        With a copy to:

                                        Pillsbury Winthrop LLP
                                        50 Fremont Street
                                        San Francisco, CA 94105
                                        Telecopy: (415) 983-1200
                                        Attention: Gregg Vignos, Esq.

Name of Holder: PERMAL U.S. OPPORTUNITIES LIMITED

Address:        c/o Apex Capital, LLC
                25 Orinda Way, Suite 300
                Orinda, CA 94563
                Attention: Adam Fiore, General Counsel

Telephone:      (925) 253-6125

Facsimile:      (925) 253-1809