SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted
[X] Definitive Proxy Statement by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule
l4a-11(c) or Rule 14a-12
NaviSite, Inc.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules l4a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
[NaviSite Logo]
NaviSite, Inc.
400 Minuteman Road
Andover, Massachusetts 01810
November 16, 2000
To our Stockholders:
I am pleased to invite you to attend the Annual Meeting of Stockholders of
NaviSite, Inc. to be held on Wednesday, December 20, 2000 at 3:00 p.m., local
time, at the Westin Hotel at Copley Place, 10 Huntington Avenue, Boston,
Massachusetts 02116.
Specific details regarding admission to the meeting and the business to be
conducted at the Annual Meeting are included in the accompanying Notice of
Annual Meeting of Stockholders and Proxy Statement. We encourage you to
carefully read these materials, as well as the enclosed Annual Report to
stockholders for the fiscal year ended July 31, 2000. NaviSite's Board of
Directors recommends that you vote in favor of each proposal set forth in the
Notice of Annual Meeting and Proxy Statement.
Your vote is important. Whether or not you plan to attend the Annual
Meeting, I hope you will vote as soon as possible. Voting by written proxy
will ensure your representation at the Annual Meeting if you do not attend in
person. If you do attend the Annual Meeting, you may withdraw your proxy and
vote in person if you so desire.
Thank you for your continued support.
Sincerely,
Joel B. Rosen
Chief Executive Officer and
President
NAVISITE, INC.
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders of NaviSite, Inc., a Delaware corporation
("NaviSite"), will be held on Wednesday, December 20, 2000 at 3:00 p.m., local
time, at the Westin Hotel at Copley Place, 10 Huntington Avenue, Boston,
Massachusetts 02116, to consider and act upon the following matters:
(1) To elect six members of the board of directors of NaviSite (the "Board
of Directors") to serve for one-year terms;
(2) To approve an amendment increasing the maximum number of shares of
common stock, par value $.01 per share, of NaviSite (the "NaviSite
Common Stock"), subject to awards made under NaviSite's Amended and
Restated 1998 Equity Incentive Plan;
(3) To approve an amendment to allow for the monthly vesting of options
granted under NaviSite's Amended and Restated 1998 Director Stock
Option Plan;
(4) To approve the amendment and restatement of NaviSite's 1999 Stock
Option Plan for Non-Employee Directors to (i) permit the grant of
annual options to all non-employee directors, and (ii) to provide for
the monthly vesting of such annual options;
(5) To approve an amendment increasing the number of shares of NaviSite
Common Stock reserved for issuance under NaviSite's 1999 Employee Stock
Purchase Plan;
(6) To ratify the appointment by the Board of Directors of KPMG LLP as the
independent auditors of NaviSite for the fiscal year ending July 31,
2001; and
(7) To transact such other business as may properly come before the meeting
or any adjournment thereof.
Only stockholders of record as of the close of business on October 25, 2000
are entitled to notice of, and to vote at, the Annual Meeting. All
stockholders are cordially invited to attend the meeting. The stock transfer
books of NaviSite will remain open for the purchase and sale of NaviSite
Common Stock.
By order of the Board of Directors,
Scott N. Semel
Secretary
Andover, Massachusetts
November 16, 2000
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY CARD AND PROMPTLY MAIL IT IN THE ENCLOSED ENVELOPE
IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES AT THE MEETING. NO
POSTAGE NEED BE AFFIXED IF THE PROXY CARD IS MAILED IN THE UNITED STATES.
NAVISITE, INC.
----------------
PROXY STATEMENT
Annual Meeting of Stockholders
To Be Held on December 20, 2000
----------------
General
This Proxy Statement is furnished in connection with the solicitation of
proxies by the board of directors of NaviSite, Inc., a Delaware corporation
("NaviSite"), for use at NaviSite's 2000 Annual Meeting of Stockholders to be
held on Wednesday, December 20, 2000 (the "Annual Meeting") at the Westin
Hotel at Copley Place, 10 Huntington Avenue, Boston, Massachusetts 02116, and
at any adjournments thereof, for the purposes set forth in the Notice of
Annual Meeting of Stockholders (the "Notice of Annual Meeting").
The Notice of Annual Meeting, this Proxy Statement, the accompanying proxy
card and NaviSite's Annual Report to stockholders for the fiscal year ended
July 31, 2000 (the "2000 Annual Report") are being mailed to stockholders on
or about November 16, 2000.
Voting Securities and Votes Required
Only holders of record of common stock, par value $.01 per share, of
NaviSite (the "NaviSite Common Stock") as of the close of business on October
25, 2000 (the "Record Date") will be entitled to receive notice of and vote at
the Annual Meeting and any adjournments thereof. On the Record Date, there
were an aggregate of 58,595,317 shares of NaviSite Common Stock outstanding
and entitled to vote. The holders of NaviSite Common Stock are entitled to one
vote for each share held as of the Record Date on any proposal presented at
the Annual Meeting.
A quorum of stockholders is necessary to hold a valid annual meeting. Under
NaviSite's By-Laws, as amended (the "By-Laws"), a quorum will exist at the
Annual Meeting if a majority of the outstanding shares of NaviSite Common
Stock entitled to vote at the Annual Meeting are represented in person or by
proxy. For purposes of determining the presence of a quorum, abstentions and
broker "non-votes" (where a broker or nominee does not exercise discretionary
authority to vote on a matter) will be counted as present.
The affirmative vote of the holders of a plurality of the shares of NaviSite
Common Stock cast at the Annual Meeting is required for the election of
directors (Proposal No. 1). The affirmative vote of the holders of a majority
of the shares of NaviSite Common Stock voting on the matter is required to
approve the amendment to NaviSite's Amended and Restated 1998 Equity Incentive
Plan (Proposal No. 2); the amendment to NaviSite's Amended and Restated 1998
Director Stock Option Plan (Proposal No. 3); the amendment and restatement of
NaviSite's 1999 Stock Option Plan for Non-Employee Directors (Proposal No. 4);
the amendment to NaviSite's 1999 Employee Stock Purchase Plan (Proposal No.
5); and to ratify the appointment of KPMG LLP as NaviSite's independent
auditors for the fiscal year ending July 31, 2001 (Proposal No. 6). Neither
abstentions nor broker non-votes will have any effect upon the outcome of
voting with respect to the election of directors (Proposal No. 1).
Abstentions, however, will have the effect of a negative vote with respect to
Proposal Nos. 2, 3, 4, 5 and 6 because approval of each of these proposals
requires the affirmative vote of a majority of the shares of NaviSite Common
Stock voting on a matter, as will broker non-votes in the case of Proposal No.
2. Broker non-votes will have no effect on the outcome of voting with respect
to Proposal Nos. 3, 4, 5 and 6.
Proxies
Voting Your Proxy
You may vote in person at the Annual Meeting or by proxy. We recommend you
vote by proxy even if you plan to attend the Annual Meeting. You can always
change your vote at the Annual Meeting.
1
Voting instructions are included on your proxy card. If you properly
complete, sign and date your proxy card and submit it to us in time to vote,
one of the individuals named as your proxy will vote your shares as you have
directed. If you sign and timely return your proxy card but do not indicate
how your shares are to be voted with respect to one or more of the proposals
to be voted on at the Annual Meeting, your shares will be voted for each of
such proposals, and the individuals named in the proxy card will have
discretionary authority to vote upon any adjournment of the Annual Meeting,
including for the purposes of soliciting additional proxies.
Revoking Your Proxy
You may revoke your proxy before it is voted by:
. Notifying NaviSite's Secretary in writing before the Annual Meeting that
you have revoked your proxy; or
. Voting in person at the Annual Meeting.
Voting in Person
If you plan to attend the Annual Meeting and wish to vote in person, we will
give you a ballot at the meeting. However, if your shares are held in the name
of your broker, bank or other nominee, you must bring a proxy from your
nominee authorizing you to vote your "street name" shares held as of the
Record Date.
Proxy Solicitation
This solicitation is made on behalf of the board of directors of NaviSite
(the "Board of Directors") and NaviSite will bear the costs of the
solicitation. Proxies may also be solicited by telephone, fax or personal
interview by the directors, officers and employees of NaviSite and its
affiliates, who will not receive additional compensation for the solicitation.
NaviSite will also reimburse banks, brokerage firms and other custodians,
nominees and fiduciaries for reasonable expenses incurred by them in sending
proxy materials to shareholders.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Pursuant to the By-Laws, all of NaviSite's directors are elected at each
annual meeting of stockholders and hold office until his or her successor has
been duly elected and qualified or until his or her earlier death, resignation
or removal. The By-Laws further provide that the number of directors shall be
fixed from time to time by a majority of the Board of Directors. Currently the
number of directors has been fixed at six, and there are no vacancies on the
Board of Directors.
The Board of Directors recommends that the nominees named below be elected
directors of NaviSite. The persons named as proxies will vote to elect the six
nominees named below as directors of NaviSite unless the proxy card is marked
otherwise. Each nominee is presently serving as a director, has consented to
being named in this Proxy Statement and has indicated his willingness to serve
if elected. If for any reason any nominee should become unable or unwilling to
serve, the persons named as proxies may vote the proxy for the election of a
substitute nominee. The Board of Directors has no reason to believe that any
nominee will be unable to serve.
Biographical and certain other information concerning NaviSite's directors,
each of whom is a nominee for re-election, is set forth below. Information
with respect to the number of shares of NaviSite Common Stock beneficially
owned by each director, as of October 31, 2000, appears below in the section
entitled "Security Ownership of Certain Beneficial Owners and Management."
2
Nominees for Election to the Board of Directors
Craig D. Goldman, age 56, has served as a director of NaviSite since March
1998. Since March 1996, Mr. Goldman has served as President and Chief
Executive Officer of Cyber Consulting Services Corp., a technology consulting
firm. From October 1991 to March 1996, Mr. Goldman served as Senior Vice
President and Chief Information Officer and from March 1988 to October 1991,
Mr. Goldman served as Senior Vice President, Technology and Operations of
Chase Manhattan Bank. Mr. Goldman also serves as a director of CMGI, Inc.,
Engage, Inc., MangoSoft, Inc. and divine interVentures, Inc.
Andrew J. Hajducky III, age 46, has served as a director of NaviSite since
February 1997. Since October 1995, Mr. Hajducky has served as Executive Vice
President, Chief Financial Officer and Treasurer of CMGI, Inc. From 1990 to
October 1995, Mr. Hajducky was the Entrepreneurial Services Partner of the
Merger and Acquisition division of the public accounting firm of Ernst & Young
LLP. Mr. Hajducky also serves as a director of Engage, Inc.
James F. Moore, Ph.D., age 52, has served as a director of NaviSite since
July 2000. Since 1990, Mr. Moore has served as Chief Executive Officer of
GeoPartners Research, Inc, a business strategy and technology advisory company
and as a general partner of GeoPartners Ventures, a venture capital firm
investing in technology companies. Mr. Moore also serves as a director of
Key3Media Group, Inc.
Stephen D.R. Moore, age 49, has served as a director of NaviSite since
August 1999. Since January 1997, Mr. Moore has served as Chairman and Chief
Executive Officer of Stream International, Inc., a provider of outsourced
technical support services. From April 1995 to September 1996, Mr. Moore
served as President, and from September 1996 to January 1997, Mr. Moore served
as Chief Operating Officer of Stream Holdings Inc., a software services firm.
Prior to that time, from May 1992 to April 1995, Mr. Moore served as President
of Corporate Software, Inc., an outsource technical support provider, after
having served as its Vice President, European Operations.
Joel B. Rosen, age 43, has served as NaviSite's Chief Executive Officer and
as one of NaviSite's directors since April 1999. In May 2000, Mr. Rosen was
also elected President of NaviSite. From January 1996 to August 1998, Mr.
Rosen served as Executive Vice President of Aspen Technology, Inc., an
enterprise software and services provider, where he was responsible for
managing two of Aspen Technology's three business units. From August 1988 to
January 1996, Mr. Rosen held several management positions within Aspen
Technology, including Director of Marketing, Vice President of Marketing and
Senior Vice President of Marketing and New Businesses. From 1984 to 1988, Mr.
Rosen was a Consultant and Manager at Bain & Company.
David S. Wetherell, age 46, has served as a director and Chairman of the
Board of Directors of NaviSite since February 1997. Since 1986, Mr. Wetherell
has served as Chairman of the Board, President, Chief Executive Officer and
Secretary of CMGI, Inc. Mr. Wetherell also serves as the Chairman of the Board
of Directors of Engage, Inc.
The Board of Directors recommends a vote FOR the election of the above-named
nominees as directors of NaviSite.
Board and Committee Meetings
The Board of Directors held four meetings during the fiscal year ended July
31, 2000. Each director attended at least 75% of the aggregate of the number
of Board of Directors meetings and the number of meetings held by all
committees on which he served.
The Board of Directors has designated two principal standing committees, an
audit committee (the "Audit Committee") and a compensation committee ("the
Compensation Committee").
3
The Audit Committee currently consists of four non-employee directors,
Messrs. Goldman, Hajducky, J. Moore and S. Moore. The Audit Committee oversees
NaviSite's accounting policies and practices and financial reporting and
internal control structures, recommends to the Board of Directors the
appointment of independent auditors to audit NaviSite's financial statements
each year and confers with the auditors and oversees NaviSite's officers for
purposes of reviewing NaviSite's system of internal accounting and financial
controls. During the last fiscal year, the Audit Committee consisted of
Messrs. Goldman, Hajducky and S. Moore and held one meeting.
The Compensation Committee currently consists of four non-employee
directors, Messrs. Goldman, J. Moore, S. Moore and Wetherell. The Compensation
Committee of the Board of Directors determines salaries, incentives and other
forms of compensation for officers and other key employees of NaviSite and
administers NaviSite's incentive compensation and benefit plans. During the
last fiscal year, the Compensation Committee consisted of Messrs. Goldman, S.
Moore and Wetherell and held one meeting.
Compensation of Directors
NaviSite does not currently pay any cash compensation to members of its
Board of Directors for their services as members of the Board of Directors,
although directors are reimbursed for their reasonable travel expenses
incurred in connection with attending Board of Directors and committee
meetings. Directors who are also NaviSite officers or employees are eligible
to participate in NaviSite's Amended and Restated 1998 Equity Incentive Plan.
Any director who is not also an officer or employee of NaviSite, any
subsidiary of NaviSite or CMGI, Inc., a Delaware corporation ("CMGI"), is
entitled to non-statutory option grants under NaviSite's Amended and Restated
1998 Director Stock Option Plan and 1999 Stock Option Plan for Non-Employee
Directors.
Security Ownership of Certain Beneficial Owners and Management
The following tables set forth certain information as of October 31, 2000,
with respect to the beneficial ownership of NaviSite Common Stock and the
common stock, par value $.01 per share, of CMGI (the "CMGI Common Stock") by
the following:
. each person known by NaviSite to beneficially own more than 5% of the
outstanding shares of NaviSite Common Stock;
. each of NaviSite's directors;
. each of the Named Executive Officers (as defined below under the heading
"Executive Compensation and Other Information"); and
. all of the named executive officers and directors as a group.
For purposes of the following tables, beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission (the
"SEC"). Except as otherwise noted in the footnotes to the respective tables,
NaviSite believes that each person or entity named in the tables has sole
voting and investment power with respect to all shares of NaviSite Common
Stock or CMGI Common Stock, as the case may be, shown as beneficially owned by
them, subject to applicable community property laws.
NaviSite Common Stock
The percentage ownership of NaviSite Common Stock of each person or entity
named in the following table is based on 58,595,317 shares of NaviSite Common
Stock outstanding as of October 31, 2000. Shares of NaviSite Common Stock
issuable under options that are currently exercisable or exercisable within 60
days after October 31, 2000 ("Presently Exercisable Options") are deemed
outstanding and are included in the number of shares beneficially owned by a
person named in the table and are used to compute the percentage ownership of
that person. These shares are not, however, deemed outstanding for computing
the percentage ownership of any other person or entity. All numbers in this
Proxy Statement relating to shares of NaviSite Common Stock give effect to a
two-for-
4
one split of NaviSite Common Stock, effective April 5, 2000. Unless otherwise
indicated, the address of each person listed in the table is c/o NaviSite,
Inc., 400 Minuteman Road, Andover, Massachusetts 01810.
Navisite Common Stock
------------------------------
Number of Shares Percentage of
Beneficially Common Stock
Name and Address of Beneficial Owner Owned Outstanding
- ------------------------------------ ---------------- -------------
CMGI, Inc. .................................... 40,115,979 68.5%
100 Brickstone Square
Andover, Massachusetts 01810
Joel B. Rosen(1)............................... 416,052 *
Robert B. Eisenberg............................ 10,043 *
Kenneth W. Hale(2)............................. 121,398 *
Peter C. Kirwan, Jr.(3)........................ 51,071 *
Jay S. Seaton(4)............................... 121,025 *
J. Andrew Sherman(5)........................... 132,175 *
David S. Wetherell(6).......................... 40,115,979 68.5%
Craig D. Goldman(7)............................ 60,000 *
Andrew J. Hajducky III(8)...................... 40,115,979 68.5%
James F. Moore(9).............................. 2,604 *
Stephen D.R. Moore(10)......................... 25,000 *
All executive officers and directors as a group
(11 persons)(11).............................. 41,055,347 70.1%
- --------
* Percentage is less than 1% of the total number of outstanding shares of
common stock of NaviSite.
(1) Includes 415,137 shares issuable upon the exercise of Presently
Exercisable Options.
(2) Includes 120,000 shares issuable upon the exercise of Presently
Exercisable Options.
(3) Includes 19,168 shares issuable upon the exercise of Presently
Exercisable Options.
(4) Includes 120,000 shares issuable upon the exercise of Presently
Exercisable Options.
(5) Includes 130,833 shares issuable upon the exercise of Presently
Exercisable Options.
(6) Includes 40,115,979 shares owned by CMGI. Mr. Wetherell disclaims
beneficial ownership of all 40,115,979 shares owned by CMGI.
(7) Includes 40,000 shares issuable upon the exercise of Presently
Exercisable Options.
(8) Includes 40,115,979 shares owned by CMGI. Mr. Hajducky disclaims
beneficial ownership of all 40,115,979 shares owned by CMGI.
(9) Includes 2,604 shares issuable upon the exercise of Presently Exercisable
Options.
(10) Includes 15,000 shares issuable upon the exercise of Presently
Exercisable Options.
(11) Includes 862,742 shares issuable upon the exercise of Presently
Exercisable Options and 40,115,979 shares owned by CMGI. Messrs.
Wetherell and Hajducky disclaim beneficial ownership of all 40,115,979
shares owned by CMGI.
5
CMGI's Common Stock
The percentage ownership of CMGI's Common Stock of each person or entity
named in the following table is based on 319,044,158 shares of CMGI Common
Stock outstanding as of October 31, 2000. Shares of CMGI Common Stock issuable
under options that are Presently Exercisable Options are deemed outstanding
and are included in the number of shares beneficially owned by a person named
in the table and are used to compute the percentage ownership of that person.
These shares are not, however, deemed outstanding for computing the percentage
ownership of any other person or entity. All numbers in this Proxy Statement
relating to shares of CMGI Common Stock give effect to three two-for-one stock
splits of CMGI Common Stock, effective January 11, 1999, May 27, 1999 and
January 11, 2000. The address of each person named in the table is c/o
NaviSite, Inc., 400 Minuteman Road, Andover, Massachusetts 01810.
CMGI Common Stock
-----------------------------
Percentage
Number of Shares of
Beneficially Common Stock
Name and Address of Beneficial Owner Owned Outstanding
- ------------------------------------ ---------------- ------------
Joel B. Rosen(1)................................ 83,333 *
Robert B. Eisenberg............................. 105,250 *
Kenneth W. Hale(2).............................. 12,702 *
Peter J. Kirwan, Jr.(3)......................... 3,133 *
Jay S. Seaton(4)................................ 4,584 *
J. Andrew Sherman(5)............................ 5,972 *
David S. Wetherell(6)........................... 36,424,149 *
Craig D. Goldman(7)............................. 150,381 *
Andrew J. Hajducky III(8)....................... 534,021 *
James F. Moore.................................. -- --
Stephen D.R. Moore.............................. -- --
All executive officers and directors as a group
(11 persons)(9)................................ 37,323,525 11.70%
- --------
* Percentage is less than 1% of the total number of outstanding shares of
common stock of CMGI.
(1) Includes 83,333 shares issuable upon the exercise of Presently Exercisable
Options.
(2) Includes 11,000 shares issuable upon the exercise of Presently Exercisable
Options.
(3) Includes 3,001 shares issuable upon the exercise of Presently Exercisable
Options.
(4) Includes 4,500 shares issuable upon the exercise of Presently Exercisable
Options.
(5) Includes 5,000 shares issuable upon the exercise of Presently Exercisable
Options.
(6) Includes 3,265,525 shares which may be acquired by Mr. Wetherell pursuant
to Presently Exercisable Options. Also includes (i) 16,932,672 shares held
by a limited liability company of which Mr. Wetherell owns a membership
interest and which is managed by a limited liability company of which Mr.
Wetherell is a manager and (ii) 434,988 shares held by Mr. Wetherell and
his wife as trustees for the David S. Wetherell Charitable Trust, for a
total of 17,367,660 shares with respect to which Mr. Wetherell disclaims
beneficial ownership.
(7)Includes 150,381 shares issuable upon the exercise of Presently Exercisable
Options.
(8)Includes 372,497 shares issuable upon the exercise of Presently Exercisable
Options.
(9)Includes 3,895,237 shares issuable upon the exercise of Presently
Exercisable Options.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires NaviSite's directors, officers and persons who own
more than 10% of a registered class of NaviSite's equity securities
(collectively, "Reporting Persons") to file reports of ownership and changes
in ownership with the SEC. Based solely upon review of copies of such reports,
or other written representations from Reporting Persons, NaviSite believes
that, during the fiscal year ended July 31, 2000, all Reporting Persons
complied with all applicable requirements of Section 16(a) of the Exchange Act
except James F. Moore, who filed one late Form 3.
6
Executive Compensation and Other Information
Summary Compensation Table
The following table sets forth certain summary information with respect to
the compensation paid during the fiscal year ended July 31, 2000 and the
fiscal year ended July 31, 1999 to NaviSite's chief executive officer,
NaviSite's former president and each of the other four most highly compensated
executive officers whose total annual salary and bonuses for fiscal year 2000
exceeded $100,000 (the "Named Executive Officers"). The 1999 grants of
NaviPath, Inc. ("NaviPath") options referenced in the footnotes to the table
resulted from the adjustment of awards made prior to the reorganization of our
predecessor into two companies, NaviSite and NaviNet, Inc., now known as
NaviPath. In the table below, columns required by the regulations of the SEC
have been omitted where no information was required to be disclosed under
those columns.
Annual Long-Term
Compensation Compensation
---------------- ------------
Securities
Name and Principal Underlying All Other
Position July 31, Salary Bonus Options Compensation
- ------------------ -------- -------- ------- ------------ ------------
Joel B. Rosen(1)........ 2000 $200,000 $75,000 -- $ --
Chief Executive Officer
and President 1999 56,061 25,000 1,268,332(3) --
Robert B. Eisenberg(2).. 2000 137,107 -- -- 2,059(9)
Former President 1999 133,033 35,500 238,999(4) 2,563(9)
Kenneth W. Hale......... 2000 138,040 15,000 50,000 2,734(9)
Chief Financial Officer 1999 118,976 8,500 225,749(5) 2,550(9)
and Treasurer
Peter C. Kirwan, Jr..... 2000 113,542 175,804 56,000 1,791(9)
Chief Technology Officer 1999 104,095 -- 124,000(6) 1,500(9)
Jay S. Seaton........... 2000 137,215 12,500 30,000 1,432(9)
Vice President,
Marketing 1999 130,668 10,000 216,000(7) 1,754(9)
J. Andrew Sherman....... 2000 143,750 -- 70,000 208,990(10)
Vice President, Sales 1999 137,500 -- 263,249(8) 140,520(11)
- --------
(1) Mr. Rosen was appointed NaviSite's Chief Executive Officer in April 1999
and President in May 2000.
(2) Mr. Eisenberg served as NaviSite's Chief Executive Officer from February
1997 to April 1999. Mr. Eisenberg resigned as President and director of
NaviSite in May 2000 and ended his employment with NaviSite in July 2000.
(3) Includes 1,068,332 shares of NaviSite Common Stock and 200,000 shares of
CMGI Common Stock.
(4) Includes 64,000 shares of CMGI Common Stock and 174,999 shares of common
stock, par value $.01 per share, of NaviPath ("NaviPath Common Stock").
(5) Includes 150,000 shares of NaviSite Common Stock, 32,000 shares of CMGI
Common Stock and 43,749 shares of NaviPath Common Stock.
(6) Includes 100,000 shares of NaviSite Common Stock and 24,000 shares of CMGI
Common Stock.
(7) Includes 200,000 shares of NaviSite Common Stock and 16,000 shares of CMGI
Common Stock.
(8) Includes 200,000 shares of NaviSite Common Stock, 32,000 shares of CMGI
Common Stock and 31,429 shares of NaviPath Common Stock.
(9) Represents the amount of matching contributions made by NaviSite under
CMGI's 401(k) plan.
(10) Includes $205,121 in commission payments and $3,869 of matching
contributions made by NaviSite under CMGI's 401(k) plan.
(11) Includes $137,186 in commission payments and $3,334 of matching
contributions made by NaviSite under CMGI's 401(k) plan.
7
Option Grants During the Fiscal Year Ended July 31, 2000
The following table sets forth information regarding options to purchase
NaviSite Common Stock granted to the Named Executive Officers during the
fiscal year ended July 31, 2000. The exercise price per share of each option
is equal to the fair market value of NaviSite Common Stock on the date of
grant, as determined pursuant to NaviSite's Amended and Restated 1998 Equity
Incentive Plan. Potential realizable values set forth in the table are net of
the exercise price, but before taxes associated with the exercise, and are
based on the assumption that NaviSite Common Stock appreciates at the annual
rate shown from the date of the grant until the expiration of the five-year
option term. These numbers are calculated based on rules of the SEC and do not
represent NaviSite's estimate or projection of future stock prices. The actual
amount a Named Executive Officer may realize, if any, will depend upon the
future performance of NaviSite Common Stock, overall stock market conditions
and the option-holder's continued employment with NaviSite through the vesting
period. Accordingly, the potential realizable values reflected in the table
may not be achieved. NaviSite has never granted any stock appreciation rights
STOCK OPTION GRANTS IN THE FISCAL YEAR ENDED JULY 31, 2000
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation
Individual Grants (1) for Option Term
-------------------------------------------------- ---------------------
Number of Percent of
Securities Total Options
Underlying Granted to
Options Employees in Exercise Price Expiration
Name Granted Fiscal Year Per Share Date 5% 10%
- ---- ---------- ------------- -------------- ---------- --------- -----------
Joel B. Rosen........... -- -- -- -- -- --
Kenneth W. Hale......... 50,000 1.01% $46.00 1/24/05 $ 635,448 $ 1,404,173
Peter C. Kirwan......... 56,000 1.13% $46.00 1/24/05 $ 711,701 $ 1,572,674
Jay S. Seaton........... 30,000 .61% $46.00 1/24/05 $ 381,269 $ 842,504
J. Andrew Sherman....... 70,000 1.42% $46.00 1/24/05 $ 889,627 $ 1,965,842
- --------
(1) The term of each option is five years from the date of grant. With respect
to each option grant, 25% of the option vests and becomes exercisable
after the first year and the remaining 75% of the option vests and becomes
exercisable in equal monthly installments over the 36 months thereafter.
8
Options Exercised During Fiscal Year Ended July 31, 2000
The following table sets forth information concerning options to purchase
NaviSite Common Stock, CMGI Common Stock or NaviPath Common Stock exercised by
the Named Executive Officers during the fiscal year ended July 31, 2000, and
the number and value of unexercised options to purchase NaviSite Common Stock
or CMGI Common Stock held by the Named Executive Officers as of July 31, 2000.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
Number of Value of Unexercised
Securities Underlying In-The-Money
Unexercised Options at Options at
Shares July 31, 2000 July 31, 2000(1)
Acquired on Value ------------------------- -------------------------
Name Company Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- ------------ ----------- ----------- ------------- ----------- -------------
Joel B. Rosen........... NaviSite 30,000 $ 1,209,624 303,852 734,480 $11,200,744 $27,074,769
CMGI -- -- 62,500 137,500 -- --
Robert B. Eisenberg..... NaviSite 494,125 $22,305,869 105,875 -- $ 4,293,496 --
CMGI 50,002 $ 4,871,509 28,001 -- $ 920,524 --
NaviPath 174,999 $ 251,999 -- -- -- --
Kenneth W. Hale......... NaviSite 30,000 $ 1,210,629 120,000 50,000 $ 4,866,300 --
CMGI 7,000 $ 570,480 7,667 17,333 $ 252,042 $ 569,833
NaviPath 43,749 $ 71,311 -- -- -- --
Peter C. Kirwan, Jr..... NaviSite 41,248 $ 564,289 8,752 106,000 $ 352,202 $ 2,012,125
CMGI 10,499 $ 683,106 501 13,000 $ 16,470 $ 427,375
Jay S. Seaton........... NaviSite 30,000 $ 1,273,326 99,166 100,834 $ 4,013,992 $ 2,867,183
CMGI 4,500 $ 387,183 2,833 8,667 $ 93,146 $ 284,917
J. Andrew Sherman....... NaviSite 40,000 $ 1,799,600 110,000 120,000 $ 4,460,775 $ 2,027,625
CMGI 13,000 $ 1,095,965 1,667 17,333 $ 54,792 $ 569,833
NaviPath 31,249 $ 46,874 -- -- -- --
- --------
(1) The value of the unexercised in-the-money NaviSite options is calculated
by multiplying the number of shares of NaviSite Common Stock underlying
the options by the difference between $40.563, which was the closing price
per share of NaviSite Common Stock on the Nasdaq National Market on July
31, 2000 and the applicable per share exercise price of the option. The
value of the unexercised in-the-money CMGI options is calculated by
multiplying the number of shares of CMGI Common Stock underlying the
options by the difference between $37.875, which was the closing price per
share of CMGI Common Stock on the Nasdaq National Market on July 31, 2000
and the applicable per share exercise price of the option.
9
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended July 31, 2000, the members of the Compensation
Committee were Messrs. Goldman, S. Moore and Wetherell. Prior to the
appointment of the Compensation Committee in October 1999, the functions of
the Compensation Committee were performed by NaviSite's full Board of
Directors which then consisted of Messrs. Rosen, Eisenberg, Wetherell,
Goldman, and Hajducky. Mr. Goldman is a director, and Mr. Hajducky and Mr.
Wetherell are executive officers, of CMGI, with whom NaviSite has a
significant relationship. That relationship and certain transactions between
NaviSite and CMGI and its affiliates are more fully discussed below in the
section of this Proxy Statement entitled "Certain Relationships and Related
Party Transactions." Other than the service of Messrs. Rosen and Eisenberg
prior to October 1999, as described above, no member of the Compensation
Committee is currently nor has been at any time an officer or employee of
NaviSite or any subsidiary of NaviSite.
Report of the Audit Committee
The Audit Committee currently consists of Messrs. Goldman, J. Moore and S.
Moore, each of whom is independent, as defined by the applicable listing
standards of the National Association of Securities Dealers, and Mr. Hajducky.
The Audit Committee reviews the professional services provided by NaviSite's
independent accountants, the independence of such accountants from NaviSite's
management, NaviSite's annual and quarterly financial statements and
NaviSite's system of internal accounting controls. The Audit Committee also
reviews other matters with respect to its accounting, auditing and financial
reporting practices and procedures as it may find appropriate or may be
brought to its attention. The Board of Directors adopted a written charter for
the Audit Committee, a copy of which is attached as Appendix B to this Proxy
Statement.
In connection with the preparation and filing of NaviSite's Annual Report on
Form 10-K for the year ended July 31, 2000, the Audit Committee (i) reviewed
and discussed the audited financial statements with NaviSite's management,
(ii) discussed with KPMG LLP, NaviSite's independent auditors, the matters
required to be discussed by Statement of Auditing Standards 61 (as modified or
supplemented) and (iii) discussed the independence of KPMG LLP with KPMG LLP.
Based on the review and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in NaviSite's Annual Report on Form 10-K for the year ended July 31,
2000. In addition, the Audit Committee has received the written disclosures
and the letter from KPMG LLP required by Independence Standards Board Standard
No. 1 (as modified or supplemented).
AUDIT COMMITTEE
Craig D. Goldman
Andrew J. Hajducky III
James F. Moore, Ph.D.
Stephen D.R. Moore
10
Report of the Compensation Committee
This report discusses the Compensation Committee's compensation objectives
and policies with respect to NaviSite's executive officers. The report reviews
the compensation of senior executive officers as a group for fiscal year 2000
and, specifically, the compensation of Mr. Rosen, NaviSite's Chief Executive
Officer and President.
Compensation Philosophy
NaviSite's executive compensation program has three objectives: (i) to align
the interests of its executive officers with the interests of NaviSite's
stockholders by basing a significant portion of an executive's compensation on
NaviSite's performance, (ii) to attract and retain highly talented and
productive executives, and (iii) to provide incentives for superior
performance by NaviSite's executives. To achieve these objectives, the
Compensation Committee has crafted a program that consists of base salary,
short-term incentive compensation in the form of a bonus, and long-term
incentive compensation in the form of stock options. These compensation
elements are in addition to the general benefit programs that are offered to
all of NaviSite's employees.
The Compensation Committee reviews NaviSite's executive compensation program
annually. In its review, the Compensation Committee assesses the
competitiveness of NaviSite's executive compensation program and reviews
NaviSite's performance for the previous fiscal year. In future years, the
Compensation Committee will gauge the success of the compensation program in
achieving its objectives in the previous year and will consider NaviSite's
overall performance objectives. Each element of NaviSite's executive
compensation program is discussed below.
Benefits
The Compensation Committee believes that NaviSite must offer a competitive
benefits program to attract and retain key executives. NaviSite provides the
same medical and other benefits to its executive officers that are generally
available to its other employees. Senior executives, along with all eligible
employees of NaviSite, may also choose to participate in NaviSite's 401(k)
plan.
Long-Term Incentive Compensation
NaviSite's long-term incentive compensation plan for its executive officers
is based upon NaviSite's Amended and Restated 1998 Equity Incentive Plan. The
Compensation Committee believes that placing a portion of an executive's total
compensation in the form of stock options achieves three objectives. It aligns
the interest of NaviSite's executives directly with those of NaviSite's
stockholders, gives executives a significant long-term interest in NaviSite's
success and helps NaviSite retain key executives. In determining the number
and terms of options to grant an executive, the Compensation Committee will
primarily consider subjectively the executive's past performance and the
degree to which an incentive for long-term performance would benefit NaviSite.
Executives are also eligible to participate in NaviSite's 1999 Employee Stock
Purchase Plan, under which all eligible employees may purchase NaviSite Common
Stock, as well as NaviSite's Deferred Compensation Plan, under which employees
who are selected by the Board of Directors may elect to defer a portion of
their compensation for the following calendar year.
Compensation of the Chief Executive Officer
The Compensation Committee believes that the compensation of the Chief
Executive Officer is consistent with NaviSite's general policies concerning
executive compensation and is appropriate in light of NaviSite's financial
objectives and performance. Awards of intermediate and long-term incentive
compensation to the Chief Executive Officer are considered concurrently with
awards to other executive officers and follow the same general policies as
such other intermediate and long-term incentive awards.
Mr. Rosen joined NaviSite as its Chief Executive Officer in April 1999. Mr.
Rosen's base salary for fiscal 1999 and fiscal 2000 was $200,000. At the time
of his hiring, Mr. Rosen also received an option to acquire 1,068,332 shares
of NaviSite Common Stock at an exercise price of $3.70 per share. In fiscal
2000, Mr. Rosen received quarterly incentive bonuses of $25,000 per quarter
based upon objectives determined by the Board of Directors. Mr. Rosen's
compensation was designed to align his interests with those of NaviSite's
stockholders by tying the value of the stock option award and his eligibility
for periodic cash bonuses to the success of his efforts
11
toward building NaviSite's management, business and infrastructure and
promoting the operating and financial performance of NaviSite. The
Compensation Committee believes that Mr. Rosen's compensation has been
consistent with the Compensation Committee's compensation philosophy.
During fiscal 2000, NaviSite, under the leadership of Mr. Rosen as Chief
Executive Officer, completed its successful initial public offering in October
1999, made a strategic acquisition of a streaming media technology company,
hired key operations and executive personnel and grew its core business
significantly. Revenue increased 373% from $10.5 million in fiscal 1999 to
$49.8 million in fiscal 2000. The number of NaviSite's customers increased
from 126 at the end of fiscal 1999 to 362 at the end of fiscal 2000 and
quarterly revenue per customer increased from $29,000 at the end of fiscal
1999 to $57,000 at the end of fiscal 2000.
Policy on Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally disallows a federal income tax deduction to public
companies for certain compensation over $1,000,000 paid to a company's chief
executive officer and four other most highly compensated executive officers.
Qualifying performance-based compensation will not be subject to the deduction
limit if certain requirements are met. The Compensation Committee intends to
review the potential effects of Section 162(m) periodically and intends to
structure NaviSite's stock option grants and certain other equity-based awards
in a manner that is intended to avoid disallowances under Section 162(m) of
the Code unless the Compensation Committee believes that such compliance would
not be in the best interest of NaviSite or its stockholders.
COMPENSATION COMMITTEE
Craig D. Goldman, Chairman
David S. Wetherell
James F. Moore, Ph.D.
Stephen D.R. Moore
Certain Relationships and Related Party Transactions
Relationships and Transactions between NaviSite and CMGI
NaviSite's predecessor was incorporated in February 1997 as a wholly-owned
subsidiary of CMGI and was merged with and into CMGI in October 1999. As of
July 31, 2000, CMGI owned approximately 40,115,979 shares of NaviSite Common
Stock.
CMGI has the power to elect NaviSite's entire Board of Directors and to
approve or disapprove any corporate transactions or other matters submitted to
NaviSite's stockholders for approval, including the approval of mergers or
other significant corporate transactions. CMGI may exercise its voting power
by written consent, without convening a meeting of the stockholders, meaning
that CMGI will be able to effect a sale or merger of NaviSite without prior
notice to, or the consent of, NaviSite's other stockholders. CMGI also holds a
majority equity ownership position in several of NaviSite's customers.
Mr. Goldman serves as a director of CMGI. Mr. Hajducky serves as the Chief
Financial Officer and Treasurer of CMGI. Mr. Wetherell serves as Chairman of
the Board, Chief Executive Officer, President and Secretary of CMGI.
NaviSite and CMGI have entered into the arrangements and transactions
described below. These agreements were negotiated between CMGI, as a corporate
parent, and NaviSite, its subsidiary, and therefore are not the result of
negotiations between independent parties. NaviSite and CMGI intend that these
agreements, and the
12
transactions provided for in these agreements, taken as a whole, accommodate
their respective interests in a manner that is fair to both NaviSite and CMGI.
NaviSite and CMGI or CMGI's affiliates may enter into additional or modified
arrangements and transactions in the future. NaviSite, CMGI or CMGI's
affiliates, as the case may be, will negotiate the terms of such arrangements
and transactions. However, because of the complex nature of the various
relationships among NaviSite, CMGI and various CMGI affiliates, NaviSite
cannot assure you that each of the agreements described below or the
transactions provided for in these agreements, or any future agreements or
transactions, were or will be effected on terms at least as favorable to
NaviSite as it could have obtained from unaffiliated third parties.
The following is a summary of the material arrangements and transactions
between NaviSite and CMGI or CMGI's affiliates.
Leases, Construction Contracts and CMGI Guarantees
In connection with NaviSite's execution of four of its real property leases,
CMGI provided NaviSite's landlords with guarantees of all of NaviSite's
obligations under the leases. In connection with the execution of the leases
for NaviSite's Scotts Valley, California and Federal Street, Andover,
Massachusetts facilities, CMGI guaranteed the full performance of all of
NaviSite's obligations through the expiration of the lease term. In connection
with the execution of the lease for NaviSite's facility at 400 Minuteman Road,
Andover, Massachusetts, CMGI executed an unconditional guaranty of the lease
and an accompanying letter of credit to ensure the full and punctual payment,
as well as performance of all of NaviSite's obligations, under the lease. CMGI
was released from this guaranty upon the closing of NaviSite's initial public
offering in October 1999. CMGI also executed an unconditional and irrevocable
guaranty in connection with the execution of the lease for NaviSite's new
facility in San Jose, California. CMGI was released from the San Jose lease
guaranty upon the closing of NaviSite's initial public offering in October
1999.
Certain of the equipment that NaviSite uses or provides to its customers for
their use in connection with NaviSite's services is provided under leases
executed or guaranteed by CMGI. Since NaviSite's initial public offering in
October 1999, CMGI has ceased to guarantee new leases, and accordingly,
NaviSite or NaviSite's customers must obtain this equipment from third parties
without a CMGI guarantee.
Debt Conversion and Capital Commitments
Prior to the completion of NaviSite's initial public offering in October
1999, CMGI funded NaviSite's operations as needed, increasing NaviSite's
obligations to CMGI and allowing NaviSite to maintain a zero-balance cash
account. Customer and other receipts were remitted to CMGI and applied to
reduce NaviSite's obligations to CMGI. NaviSite issued a secured convertible
demand note to CMGI to evidence NaviSite's obligations to CMGI. From inception
through NaviSite's initial public offering, the aggregate amount of the note
issued to CMGI, including both principal and accrued interest, was $42.7
million. Upon the initial public offering, this note and an additional
3,819,172 shares of NaviSite's Series B preferred stock owned by CMGI were
converted into an aggregate of 39,067,200 shares of NaviSite Common Stock.
CMGI has committed to advance NaviSite, if needed by July 31, 2001, $50.0
million for working capital and an additional $30.0 million to pay amounts
that may come due, if any, under certain capital lease arrangements, subject
to negotiation of a mutually acceptable vehicle and related terms and
conditions and approval of each company's respective board of directors.
Recent Sale of Unregistered Securities
On June 8, 2000, NaviSite sold 980,873 shares of NaviSite Common Stock to
CMGI for an aggregate offering price of $50,000,000. These shares were issued
on June 13, 2000, representing the number of shares of NaviSite Common Stock
equal to $50,000,000 divided by the average of the closing prices per share of
NaviSite Common Stock as reported on the Nasdaq National Market on June 6, 7,
8, 9 and 12, 2000, rounded up to the nearest whole share. The NaviSite Common
Stock was issued in reliance upon the exemptions from registration under
Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"),
and Regulation D promulgated thereunder, relative to sales by an issuer not
involving a public offering. No underwriters were involved in the sale of
these securities.
13
Facilities and Administrative Support Agreement
Upon completion of NaviSite's initial public offering, NaviSite entered into
a facilities and administrative support agreement with CMGI under which CMGI
provides various services to NaviSite, including employee benefit
administration, health and dental insurance, Internet marketing and business
development.
The initial term of this agreement was one year from the date of NaviSite's
initial public offering, with automatic renewals at the end of the initial
term and each renewal term for successive one-year periods. Either party is
permitted to terminate the facilities and administrative support agreement
upon prior written notice. The facilities and administrative support agreement
automatically terminates upon the date CMGI owns less than 50% of the
outstanding shares of NaviSite Common Stock.
The fees payable by NaviSite for the availability of services are typically
determined through an allocation of CMGI's costs based upon the proportion of
NaviSite's employee headcount to the total headcount of CMGI and other CMGI
affiliates using the same services. Under the facilities and administrative
support agreement, NaviSite will pay CMGI a monthly fee reflecting the cost of
the services provided by CMGI based on the total number of NaviSite's
employees and consultants on the last day of that month.
In fiscal 1998, fiscal 1999 and fiscal 2000, NaviSite incurred expenses to
CMGI of $289,000, $1,346,000 and $2,655,000, respectively, for services
provided under the facilities and administrative support agreement.
Tax Allocation Agreement
Upon completion of NaviSite's initial public offering, NaviSite entered into
a tax allocation agreement with CMGI to allocate responsibilities, liabilities
and benefits relating to taxes. NaviSite is required to pay its share of
income taxes shown as due on any consolidated, combined or unitary tax returns
filed by CMGI for tax periods ending on or before or including the date as of
which NaviSite will no longer be a member of CMGI's group for federal, state
or local tax purposes, as the case may be. CMGI indemnifies NaviSite against
liability for all taxes in respect of consolidated, combined or unitary tax
returns for periods as to which CMGI is filing group returns which include
NaviSite. Accordingly, any redetermined tax liabilities for those periods will
be the responsibility of CMGI, and any refunds or credits of taxes
attributable to NaviSite or NaviSite's subsidiaries in respect of
consolidated, combined or unitary tax returns for those periods will be for
the account of CMGI. NaviSite is responsible for filing any separate tax
returns for any taxable period and is responsible for any tax liabilities, and
entitled to any refunds or credits of taxes, with respect to separately filed
tax returns. NaviSite is required to indemnify CMGI against any tax liability
with respect to separately filed tax returns.
Neither CMGI nor NaviSite has any obligation to make any payment to the
other party for the use of the other party's tax attributes, such as net
operating losses. However, if one party realizes a windfall tax benefit
because of an adjustment to items on the other party's tax return, the party
that realizes the windfall tax benefit is required to pay to the other party
the actual incremental tax savings it has realized. For example, if an expense
deducted by CMGI for a period prior to the closing date were disallowed and
required to be capitalized by NaviSite for a period after the closing date,
thereby generating future depreciation deductions to NaviSite, NaviSite would
be required to pay to CMGI any incremental tax savings as a result of the
depreciation deductions when those tax savings are actually realized by
NaviSite.
Each of NaviSite and CMGI has control of any audit, appeal, litigation or
settlement of any issue raised with respect to a tax return for which it has
filing responsibility. Payments of claims under the agreement must be made
within 30 days of the date that a written demand for the claim is delivered.
Interest accrues on payments that are not made within 10 days of the final due
date at the rate applicable to underpayments of the applicable tax. Any
dispute concerning the calculation or basis of determination of any payment
provided under the tax allocation agreement will be resolved by a law firm or
"big five" accounting firm selected and paid for jointly by the parties.
14
Investor Rights Agreement
Upon completion of NaviSite's initial public offering, NaviSite entered into
an investor rights agreement with CMGI under which NaviSite granted CMGI
registration rights and rights to purchase shares of NaviSite Common Stock to
maintain CMGI's majority ownership. Under this agreement, CMGI and its
assignees have the right to demand, on up to two occasions, that NaviSite
register the sale of all or part of their shares of NaviSite Common Stock
having an aggregate value of at least $10.0 million under the Securities Act.
In addition, at any time after NaviSite becomes eligible to file a
registration statement on Form S-3 under the Securities Act, CMGI and its
assignees have the right to request, on up to five occasions, that NaviSite
effect a registration of their shares of NaviSite Common Stock having an
aggregate value of at least $2.5 million on Form S-3. CMGI and its assignees
also are entitled to include shares of NaviSite Common Stock in a registered
offering by NaviSite of NaviSite's securities for NaviSite's own account,
subject to the underwriters' right to reduce the number of included shares.
NaviSite will pay all costs associated with its registration of shares
pursuant to this agreement, other than underwriting discounts and commissions
and various other expenses.
The investor rights agreement was amended in June 2000 to include those
unregistered shares of NaviSite Common Stock sold to CMGI on June 8, 2000, as
described above, as registerable shares under the agreement.
Also under this agreement, until such time as CMGI, or any permitted
transferee, owns less than a majority of voting power of the outstanding
shares of NaviSite's capital stock, NaviSite will permit CMGI, or the
transferee, to purchase a portion of any shares that NaviSite may in the
future issue so that CMGI or the transferee will maintain its majority
ownership position. Any such purchases will be at the same price as is paid by
third parties for the shares. This right is transferable by CMGI to any party
that acquires directly from CMGI shares of NaviSite Common Stock representing
at least a majority of the outstanding shares of NaviSite Common Stock.
ClickHear, Inc. Acquisition
On February 22, 2000, NaviSite acquired ClickHear, Inc. ("ClickHear") for
consideration valued at approximately $4,693,000, including approximately
$50,000 of direct costs of the acquisition. The consideration for the
acquisition consisted of 41,968 shares of CMGI Common Stock valued at the
closing price of CMGI Common Stock on February 22, 2000, resulting in
consideration value of approximately $4,643,000. On February 22, 2000, CMGI
contributed their ClickHear common stock to NaviSite in exchange for 67,906
shares of NaviSite Common Stock. The shares of CMGI Common Stock issued are
subject to forfeiture by the ClickHear stockholders based on employment
criteria as well as performance goals. As CMGI and NaviSite are entities under
common control, upon settlement of the employment and performance
contingencies, NaviSite will record the difference in fair market value
between the value of NaviSite Common Stock issued to CMGI and the value of the
CMGI Common Stock issued to the ClickHear shareholders as an equity
transaction.
Other Transactions with CMGI and its Affiliates
NaviSite has agreements with numerous CMGI affiliates under which NaviSite
provides these affiliates with Web site and Internet application hosting
services, together with enhanced server management for both Web sites and
Internet applications and specialized application management services.
NaviSite also rents sophisticated software applications to a number of these
affiliates and provides consulting services to each of these affiliates on an
as-needed basis.
NaviSite's existing service agreements with CMGI affiliates are routine
commercial transactions entered into in the ordinary course of NaviSite's
business. NaviSite anticipates that it will continue to enter into routine
commercial transactions with CMGI and its affiliates in the future. Currently,
however, NaviSite has no right-of-first-refusal arrangements, business
opportunity allocation agreements or other material contractual arrangements
or understandings with CMGI or any of its affiliates regarding the continued
sale of NaviSite's services to CMGI or its affiliates.
15
In general, in pricing the services provided to CMGI and its affiliates,
NaviSite has: negotiated the services and levels of service to be provided;
calculated the price of the services at those service levels based on
NaviSite's then-current, standard prices; and discounted these prices by 10%.
This pricing policy is not dictated by or provided for in any contractual
arrangement. The discounts NaviSite provides to CMGI and its affiliates, which
also are available to industry partners and other parties engaged in co-
marketing or referral arrangements with NaviSite, are afforded to CMGI and, at
CMGI's direction, its affiliates because of CMGI's customer referral
relationship with NaviSite. Although there are no agreements to this effect
between NaviSite and CMGI, NaviSite expects both its customer referral
relationship with CMGI and the discounted pricing for services provided to
CMGI and its affiliates will continue.
NaviSite derived revenue in excess of $60,000 in the last three fiscal years
from 24 subsidiaries and affiliates of CMGI. The total revenue attributable to
all CMGI subsidiaries and affiliates for fiscal years 1998, 1999 and 2000, was
approximately $3,871,000, $7,058,000 and $24,893,000, respectively.
Servercast Communications, L.L.C. Acquisition
Term Notes
In connection with NaviSite's acquisition in July 1998 of Servercast
Communications, LLC ("Servercast"), NaviSite issued four term notes to the
members of Servercast in the aggregate principal amount of $1.0 million,
payable on or before January 2, 2000, in exchange for all of the membership
interests in Servercast. CMGI guaranteed the payment of each of these term
notes. CMGI's guarantee terminated upon the closing of NaviSite's public
offering.
One of these term notes, in the principal amount of $279,100, bearing
interest at the rate of 5.5% per year, was issued to Peter C. Kirwan, Jr.,
NaviSite's Chief Technology Officer, in exchange for his 27.91% membership
interest in Servercast. The scheduled payments of accrued interest of
$7,675.25 each were made in full on January 2, 1999, July 2, 1999 and January
2, 2000, respectively. The term notes were paid in full in January 2000 and
the $55,820 held in escrow for the purpose of funding Mr. Kirwan's
indemnification obligations to NaviSite was released on July 2, 2000.
Bonus Agreement
In connection with NaviSite's acquisition of Servercast, NaviSite also
entered into a bonus agreement dated as of July 1, 1998 with Mr. Kirwan. The
bonus agreement provides that Mr. Kirwan will receive an incentive bonus
payment if established targets were met relating to the revenues and operating
losses of Servercast for the one-year period ended July 1, 1999. The maximum
amount which Mr. Kirwan could receive pursuant to the bonus agreement was
$231,187. Pursuant to the terms of the bonus agreement and the related
purchase agreement, 20% of any bonus amount due to Mr. Kirwan as of July 1,
1999 was to be delivered into the escrow fund described above. Mr. Kirwan
remains an employee of NaviSite, and NaviSite has made all bonus payments due
to Mr. Kirwan and released all amounts held in escrow on July 2, 2000.
Pursuant to the bonus agreement, NaviSite also granted Mr. Kirwan non-
statutory stock options to purchase 100,000 shares of NaviSite Common Stock at
an exercise price of $0.47 per share. Options for one-fourth, or 25,000, of
these shares vested and became fully exercisable on July 1, 1999, and the
remainder vest ratably at the end of each month for 36 months thereafter,
provided that Mr. Kirwan continues to be employed by NaviSite. Mr. Kirwan has
exercised options for the purchase of 41,248 of these shares.
16
Comparative Stock Performance
The following graph compares the cumulative total return to stockholders of
NaviSite Common Stock for the period from October 22, 1999, the date NaviSite
Common Stock was first traded on the Nasdaq National Market, through July 31,
2000 with the cumulative total return over the same period of (i) the Nasdaq
Market Index (ii) the Goldman Sachs Internet Index and (iii) the NASDAQ
Composite Index. The graph assumes the investment of $100 in NaviSite Common
Stock (at the closing price on the date of the initial public offering) and in
each of such indices (and the reinvestment of all dividends, if any) on
October 22, 1999. The performance shown is not necessarily indicative of
future performance.
[Graph appears here]
NaviSite Goldman NASDAQ Composite
Sachs
Internet
Index
10/22/99 100.00 100.00 100.00
1/31/00 297.1 135.1 139.9
4/30/00 268.2 109.3 137.1
7/31/00 234.3 88.8 133.7
Notwithstanding anything to the contrary set forth in any of NaviSite's
filings under the Securities Act or the Exchange Act that might incorporate
other filings with the SEC, including this Proxy Statement, in whole or in
part, the Report of the Compensation Committee and the Comparative Stock
Performance Graph shall not be deemed incorporated by reference into any such
filings.
17
PROPOSAL NO. 2
APPROVAL OF AMENDMENT TO NAVISITE'S
AMENDED AND RESTATED 1998 EQUITY INCENTIVE PLAN
Overview
In the opinion of the Board of Directors, the future success of NaviSite
depends, in large part, on its ability to attract, retain and motivate its
employees. The Board of Directors believes that encouraging ownership in
NaviSite through stock options has been and will continue to be an important
element in attracting, retaining and motivating employees. Under NaviSite's
Amended and Restated 1998 Equity Incentive Plan (the "1998 Equity Plan"),
NaviSite is authorized to grant awards to its employees and consultants with
respect to up to an aggregate of 11,124,424 shares of NaviSite Common Stock,
as adjusted. As of July 31, 2000, there were only 1,752,412 shares available
for future awards under the 1998 Equity Plan. Accordingly, on October 1, 2000,
the Board of Directors adopted, subject to stockholder approval, an amendment
to the 1998 Equity Plan that increased the number of shares subject to awards
made under the 1998 Equity Plan from 11,124,424 shares, as adjusted, to
15,000,000 shares (subject to adjustment for certain changes in NaviSite's
capitalization).
Summary of the 1998 Equity Plan
The following summary of the 1998 Equity Plan is qualified in its entirety
by reference to the full text of the 1998 Equity Plan, a copy of which is
attached as Appendix C to the electronic copy of this Proxy Statement filed
with the SEC and may be accessed from the SEC's home page (www.sec.gov). In
addition, a copy of the 1998 Equity Plan may be obtained by making a written
request to the general counsel of NaviSite.
The 1998 Equity Plan was originally adopted by the Board of Directors and
approved by NaviSite's stockholders in December 1998. The 1998 Equity Plan was
amended and restated by the Board of Directors, and approved by NaviSite's
stockholders, as amended and restated, as of October 8, 1999.
Eligibility to Receive Awards
All employees and consultants of NaviSite capable of contributing
significantly to the success of NaviSite, other than a person who has
irrevocably elected not be eligible, are eligible to receive awards under the
1998 Equity Plan. As of October 31, 2000, approximately 547 employees were
eligible to receive awards under the 1998 Equity Plan. On October 31, 2000 the
last reported sale price of NaviSite Common Stock on the Nasdaq National
Market was $10.1875.
Description of Awards
The 1998 Equity Plan provides for the grant of both incentive stock options,
or "ISOs", and nonstatutory stock options (collectively, "Options"); stock
appreciation rights; and shares of restricted stock. Since grants made under
the 1998 Equity Plan are made at the discretion of the Committee (as defined
below), grants to be made to plan participants in the future are not
determinable.
Options
A committee appointed by the Board of Directors subject to the terms
described in the 1998 Equity Plan (the "Committee") determines the number of
shares of NaviSite Common Stock subject to each Option it grants under the
1998 Equity Plan and the exercise price therefor, which shall not be less than
the closing price per share of NaviSite Common Stock on the date immediately
preceeding the date of the grant. No ISO may be granted after December 28,
2008. Each Option is exercisable at such times and subject to such terms and
conditions as the Committee specifies in the applicable grant or thereafter.
The Committee may impose such conditions with respect to exercise of the
Options, including conditions relating to applicable securities laws, as it
considers necessary or advisable.
18
Stock Appreciation Rights
The Committee may grant rights to receive any excess in value of shares of
NaviSite Common Stock over the exercise price ("stock appreciation rights" or
"SARs") in tandem with an Option (at or after the grant of the Option), or
alone and unrelated to the Option. SARs in tandem with an Option will
terminate if and when that Option is exercised and the Option will terminate
if and when the SAR is exercised. The Committee shall determine whether SARs
are settled in cash, NaviSite Common Stock, other securities or other property
and may define the manner of determining the excess in value of the shares of
NaviSite Common Stock.
The Committee shall fix the exercise price of each SAR or specify the manner
in which the exercise price may be determined. An SAR granted in tandem with
an Option shall have an exercise price not less than the exercise price of the
related Option. An SAR granted alone and unrelated to an Option may not have
an exercise price less than 100% of the fair market value of the NaviSite
Common Stock on the date of the grant.
Restricted Stock
The Committee may grant shares of NaviSite Common Stock subject to
forfeiture ("Restricted Stock") and determine the period during which, and the
conditions under which, the shares may be forfeited to NaviSite and the other
terms and conditions of such awards. Shares of Restricted Stock may be issued
for no cash consideration, such minimum consideration as may be required by
applicable law or such other consideration as the Committee may determine.
Shares of Restricted Stock may not be sold, assigned, transferred, pledged or
otherwise encumbered, except as permitted by the Committee, during the period
of restriction.
Administration
The 1998 Equity Plan is administered by the Committee by delegation of
authority from the Board of Directors. The Committee shall select the
participants to receive awards and shall determine the terms and conditions of
such awards. The Committee has the authority to interpret the provisions of
the 1998 Equity Plan, and the Committee's interpretation is final and binding.
In the event of a change of control of NaviSite, the Committee may take one
or more of the following actions: (i) provide for acceleration of any time
period relating to the exercise or payment of an award; (ii) provide for
payment to a participant of cash or other property equal to the amount that
would have been received upon exercise or payment, as if it occurred at the
change of control; (iii) adjust the terms to reflect the change of control;
(iv) cause the award to be assumed, or new rights be substituted therefore, by
another entity; or (v) make such other provision as the Committee considers
equitable to participants and in the best interests of NaviSite.
Amendment or Termination
The Board of Directors may suspend or terminate the 1998 Equity Plan or
amend it in any respect whatsoever, subject to such stockholder approval as
the Board of Directors determines to be necessary or advisable to comply with
any tax or regulatory requirement.
Federal Income Tax Consequences
The following discussion of certain relevant federal income tax effects
applicable to Options granted under the 1998 Equity Plan is a summary only,
and reference is made to the Code for a complete statement of all relevant
federal tax provisions. It is recommended that holders of Options consult
their tax advisers before exercising any such Option and before disposing of
any shares of NaviSite Common Stock acquired upon the exercise thereof.
19
Nonstatutory Stock Options ("NQSOs")
An optionholder generally will not be taxed upon the grant of an NQSO.
Rather, at the time of exercise of such NQSO, the optionholder will recognize
ordinary income for federal income tax purposes in an amount equal to the
excess of the fair market value of the shares purchased over the option's
exercise price. NaviSite will generally be entitled to a tax deduction at such
time and in the same amount that the optionholder recognizes ordinary income.
If shares acquired upon exercise of an NQSO are later sold or exchanged,
then the difference between the sales price and the fair market value of such
shares on the date that ordinary income was recognized with respect thereto
will generally be taxable as long-term or short-term capital gain or loss.
Incentive Stock Options (ISOs)
An optionholder will not be taxed upon the grant or timely exercise of an
ISO. Exercise of an ISO will be timely if made during its term and if the
optionholder remains an employee of NaviSite or a subsidiary of NaviSite at
all times during the period beginning on the date of grant of the ISO and
ending on the date three months before the date of exercise (or one year
before the date of exercise in the case of a disabled optionholder). Exercise
of an ISO will generally also be timely if made by the legal representative of
an optionholder who dies (i) while in the employ of NaviSite or a subsidiary
of NaviSite or (ii) within three months after termination of employment. The
tax consequences of an untimely exercise of an ISO will be determined in
accordance with the rules applicable to NQSOs. See "Certain Federal Income Tax
Consequences--Nonstatutory Stock Options."
If shares acquired pursuant to the timely exercise of an ISO are later
disposed of, the optionholder will, except as noted below, recognize long-term
capital gain or loss equal to the difference between the amount realized upon
such sale and the option price. NaviSite, under these circumstances, will not
be entitled to any federal income tax deduction in connection with either the
exercise of the ISO or the sale of such shares by the optionholder.
If, however, shares acquired pursuant to the exercise of an ISO are disposed
of by the optionholder prior to the expiration of two years from the date of
grant of the ISO or within one year from the date such shares are transferred
to him upon exercise (a "disqualifying disposition"), any gain realized by the
optionholder generally will be taxable at the time of such disqualifying
disposition as follows: (i) at ordinary income rates to the extent of the
difference between the option price and the lesser of the fair market value of
the shares on the date the ISO is exercised or the amount realized on such
disqualifying disposition and (ii) if the shares are a capital asset of the
optionholder, as short-term or long-term capital gain to the extent of any
excess of the amount realized on such disqualifying disposition over the fair
market value of the shares on the date which governs the determi-nation of his
ordinary income. In such case, NaviSite may claim a federal income tax
deduction at the time of such disqualifying disposition for the amount taxable
to the optionholder as ordinary income.
The amount by which the fair market value of the shares on the exercise date
of an ISO exceeds the option price will be an item of adjustment for purposes
of the "alternative minimum tax" imposed by Section 55 of the Code.
Proposal and Reasons for the Amendment
NaviSite's Board of Directors believes that it is in NaviSite's best
interest to amend the 1998 Equity Plan to increase the number of shares
subject to awards made thereunder from 11,124,424 shares, as adjusted, to
15,000,000 shares.
The Board of Directors recommends that the stockholders vote FOR approval of
the amendment to NaviSite's Amended and Restated 1998 Equity Incentive Plan.
20
PROPOSAL NO. 3
APPROVAL OF AMENDMENT TO
NAVISITE'S AMENDED AND RESTATED 1998 DIRECTOR STOCK OPTION PLAN
Overview
On October 1, 2000, the Board of Directors adopted resolutions, subject to
stockholder approval, to approve an amendment to NaviSite's Amended and
Restated 1998 Director Stock Option Plan (the "1998 Director Plan") to provide
that all options previously granted thereunder will, after December 20, 2000,
become exercisable in equal monthly installments (in contrast to the current
vesting schedule, which consists of five annual installments).
Summary of the 1998 Director Plan
The following summary of the 1998 Director Plan is qualified in its entirety
by reference to the full text of the 1998 Director Plan, a copy of which is
attached as Appendix D to the electronic copy of this Proxy Statement filed
with the SEC and may be accessed from the SEC's home page (www.sec.gov). In
addition, a copy of the 1998 Director Plan may be obtained by making a written
request to the General Counsel of NaviSite.
The Board of Directors originally adopted, and the stockholders approved,
the 1998 Director Stock Option Plan in December 1998. The 1998 Director Stock
Option Plan was amended and restated by the Board of Directors, and was
approved by NaviSite's stockholders, as amended and restated, in October 1999.
Under the 1998 Director Plan, NaviSite is currently authorized to grant
options to purchase up to an aggregate of 250,000 shares of NaviSite Common
Stock, as adjusted.
Eligibility to Receive Awards
Upon the adoption of NaviSite's 1999 Stock Option Plan for Non-Employee
Directors, no additional awards can be made under the 1998 Director Plan. Only
non-employee directors who were also not officers or employees of NaviSite or
an affiliate of NaviSite were eligible to participate in the 1998 Director
Plan. From the initial adoption of the 1998 Director Plan through October 8,
1999, when NaviSite's 1999 Stock Option Plan for Non-Employee Directors was
adopted by the Board of Directors, options to purchase 100,000 and 50,000
shares of NaviSite Common Stock, as adjusted, had been granted under the plan
to Messrs. Goldman and S. Moore, respectively, at exercise prices ranging from
$0.17 to $7.00.
As of October 31, 2000, options to purchase up to 150,000 shares, as
adjusted, of NaviSite Common Stock were outstanding under the 1998 Director
Plan and 100,000 shares were available for future issuance thereunder. On
October 31, 2000, the last reported sale price of the NaviSite Common Stock on
the Nasdaq National Market was $10.1875.
Description of Awards
Under the 1998 Director Plan, each non-employee director is automatically
granted a nonstatutory stock option to purchase 25,000 shares of NaviSite
Common Stock (with the exception of Mr. Goldman, who was granted an option to
purchase 50,000 shares on December 28, 1998), with one-fifth vesting annually
over a five-year period. Under the proposed amendment, options granted under
the 1998 Director Plan will, after December 20, 2000, become exercisable in
equal monthly installments. The term of each option is ten years from the date
of the grant or, if earlier, seven months from the date on which the optionee
ceases to serve as a director of NaviSite (12 months if such cessation is due
to death of such director). Options granted under the plan have exercise
prices equal to the fair market value of NaviSite Common Stock at the time the
options were granted (subject to adjustment in the event of stock splits and
other similar events).
Administration
While grants of options are automatic under the 1998 Director Plan, all
questions of interpretation of the 1998 Director Plan or of any options
granted thereunder shall be determined by the Board of Directors or a
committee consisting of one or more directors appointed by the Board of
Directors who are not participants under the 1998 Director Plan.
21
Amendment or Termination
The Board of Directors may terminate or amend the 1998 Director Plan,
subject to any shareholder approval that the Board of Directors deems
necessary.
Federal Income Tax Consequences
The federal income tax consequences arising under the 1998 Director Plan are
substantially similar to the nonstatutory stock option tax consequences
described in "Proposal No. 2: Approval of Amendment to NaviSite's Amended and
Restated 1998 Equity Incentive Plan."
Proposed Amendment to the 1998 Director Plan
The following is the text of the proposed amendment to the 1998 Director
Plan:
The Amended and Restated 1998 Director Stock Option Plan of NaviSite, Inc.
is hereby amended as follows:
Section 8.B is hereby amended by inserting the following sentence
immediately after the first sentence of the section:
"Notwithstanding the preceding sentence, as of December 20, 2000, all
options granted under this plan shall be treated as having become
exercisable with respect to one-sixtieth ( 1/60th) of the shares
underlying such options on the first monthly anniversary of the Date of
Grant, and as to an additional one-sixtieth ( 1/60th) of the shares
each monthly anniversary thereafter, but in all cases if, and only if,
the option holder continues to be a member of the Board at the opening
of the next business day following such monthly anniversary."
Proposal and Reasons for the Amendment
NaviSite's Board of Directors believes that it is in NaviSite's best
interest to amend the 1998 Director Plan to provide that all options
previously granted thereunder will, after December 20, 2000, become
exercisable in equal monthly installments (in contrast to the current vesting
schedule, which consists of five annual installments). This amendment will
result in a monthly vesting schedule for all non-employee director options.
The Board of Directors recommends that the stockholders vote FOR approval of
the amendment to NaviSite's Amended and Restated 1998 Director Stock Option
Plan.
22
PROPOSAL NO. 4
APPROVAL OF AMENDMENT AND RESTATEMENT OF NAVISITE'S
1999 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
On October 1, 2000, the Board of Directors adopted resolutions, subject to
stockholder approval, to amend and restate NaviSite's 1999 Stock Option Plan
for Non-Employee Directors (as amended and restated, the "1999 Director Plan")
to (i) permit the grant of annual options to all non-employee directors and
(ii) provide for the monthly vesting of such annual options.
Summary of the NaviSite's 1999 Director Plan
The following summary of the 1999 Director Plan is qualified in its entirety
by reference to the 1999 Director Plan, a copy of which is attached as
Appendix E to the electronic copy of this Proxy Statement filed with the SEC
and may be accessed from the SEC's home page (www.sec.gov). In addition, a
copy of the 1999 Director Plan may be obtained by making a written request to
the general counsel of NaviSite.
The Board of Directors originally adopted, and the stockholders approved,
the 1999 Director Plan on October 8, 1999. Under the 1999 Director Plan,
NaviSite is currently authorized to grant options to purchase up to an
aggregate of 500,000 shares of NaviSite Common Stock, as adjusted.
Eligibility to Receive Options
Any director of NaviSite is eligible to receive options under the 1999
Director Plan as long as that director: (i) is not an employee of NaviSite or
any of NaviSite's subsidiaries or affiliates, (ii) unless otherwise determined
by the board, is not an affiliate (as such term is defined in Rule 144(a)(1)
promulgated under the Securities Act of 1933, as amended), employee or
designee of an institutional or corporate investor that owns, at the time of
his or her initial election as a director of NaviSite, more than 5% of the
outstanding shares of NaviSite Common Stock, which NaviSite refers to as an
affiliated director.
As of October 31, 2000, three persons were eligible to receive options under
the 1999 Director Plan. As of October 31, 2000, there were 470,000 shares
available for future awards under the 1999 Director Plan. On October 31, 2000
the last reported sale price of NaviSite Common Stock on the Nasdaq National
Market was $10.1875.
Descriptions of Awards
The 1999 Director Plan provides for the grant of nonstatutory options to
purchase shares of NaviSite Common Stock. Each eligible director who is
elected for the first time to the Board of Directors of NaviSite is granted,
upon the date of such initial election, an option to acquire 25,000 shares of
NaviSite Common Stock (referred to as the "Initial Option"). Each affiliated
director who ceases to be an affiliated director and is not otherwise an
employee of NaviSite or any of NaviSite's subsidiaries or affiliates shall be
granted on the date such director ceases to be affiliated director, but
remains as a member of the Board of Directors, an Initial Option to acquire
25,000 shares of NaviSite Common Stock under the 1999 Director Plan.
Each Initial Option granted under the 1999 Director Plan vests and becomes
exercisable as to 1/48th of the number of shares originally subject to the
option on each monthly anniversary date of the date of the grant, provided
that the optionee serves as a director on such monthly anniversary date.
On the first anniversary of the grant of an Initial Option and on each
subsequent anniversary thereof, NaviSite shall grant to such eligible director
an option to purchase 6,250 shares of NaviSite Common Stock (referred to as an
"Annual Option"), provided that such eligible director serves as a member of
the Board of
23
Directors on the anniversary date. Annual Options granted to those directors
receiving Initial Options presently vest and become exercisable as to 1/12th
of the number of shares originally subject to that Annual Option, on a monthly
basis commencing on the 37th monthly anniversary date of the date of the grant
of such Annual Option, provided that such director serves as a member of the
Board of Directors on such date.
Under the proposed amendment, each eligible director who did not receive an
Initial Option shall be granted an Annual Option on the anniversary of their
election, provided that such director serves as a member of the Board of
Directors on the anniversary date. The proposed amendment also provides that
the first Annual Option granted to a director who did not receive an Initial
Option shall vest and become exercisable as to 1/12th of the number of shares
originally subject to that Annual Option, on a monthly basis commencing on the
first monthly anniversary of the date of the grant following the date that the
option granted to such director under the 1998 plan becomes fully exercisable,
provided that the optionee serves as director on the applicable anniversary
date. Each subsequent Annual Option granted to a director who did not receive
an Initial Option shall vest on a monthly basis, and become exercisable as to
1/12th of the number of shares originally subject to that Annual Option,
commencing the first month following the date that the immediately preceding
Annual Option becomes fully exercisable; provided that the optionee serves as
director on the applicable anniversary date.
The Board of Directors may, in its discretion, increase the number of shares
subject to an Initial Option up to 100,000 and may increase the number of
shares subject to an Annual Option, provided that Annual Options may not be
granted for more than 100,000 shares in the aggregate in any 48 consecutive
month period.
Administration
The 1999 Director Plan is administered by the Board of Directors. The Board
of Directors has the authority to interpret the provisions of the 1999
Director Plan, and its interpretation is final and binding. The Board of
Directors may delegate any or all of its powers under the 1999 Director Plan
to a committee appointed by the board.
In the event of a merger, consolidation, reorganization, stock divided,
stock split, reverse stock split, or other similar transaction, the Board of
Directors is required to make appropriate adjustments in connection with the
1999 Director Plan and any outstanding options to the end that each option
shall be exercisable, for the same aggregate exercise price, for such
securities as such optionholder would have held immediately following such
event if he had exercised such option immediately prior to such event. In the
event of a change in control, all outstanding options under the 1999 Director
Plan are immediately exercisable in full.
Amendment or Termination
The Board of Directors may suspend or terminate the 1999 Director Plan or
amend it in any respect whatsoever. In addition, the Board of Directors may,
in its discretion, accelerate the vesting of any option or options granted
under the 1999 Director Plan.
Federal Income Tax Consequences
The federal income tax consequences arising under the 1999 Director Plan are
substantially similar to the nonstatutory stock option tax consequences
described in "Proposal No. 2: Approval of Amendment to NaviSite's Amended and
Restated 1998 Equity Incentive Plan."
Proposal and Reasons for Amendment and Restatement
NaviSite's Board of Directors believes that it is in the best interests of
NaviSite to amend and restate the 1999 Director Plan to (i) amend the 1999
Director Plan to permit the grant of annual options to all non-employee
directors and (ii) provide for the monthly vesting of such annual options.
The Board of Directors recommends that the stockholders vote FOR approval of
the amendment and restatement of NaviSite's 1999 Stock Option Plan for Non-
Employee Directors
24
PROPOSAL NO. 5
AMENDMENT TO NAVISITE'S 1999 EMPLOYEE STOCK PURCHASE PLAN TO INCREASE THE
NUMBER OF SHARES RESERVED FOR ISSUANCE THEREUNDER
General
NaviSite's 1999 Employee Stock Purchase Plan (the "ESPP") was adopted by the
Board of Directors and approved by the stockholders in October 1999. A total
of 100,000 shares of NaviSite Common Stock, as adjusted, were initially
reserved for issuance thereunder. As of July 31, 2000, 62,671 of the shares
reserved for issuance under the ESPP (without giving effect to the proposed
amendment) had been issued. NaviSite estimates that it will have utilized a
substantial portion of the 37,329 remaining available shares by the end of the
exercise period ending February 28, 2001, potentially leaving an inadequate
number of shares available for issuance thereafter.
The Board of Directors believes that it is in the best interest of NaviSite
to provide employees with an opportunity to purchase NaviSite Common Stock
through payroll deductions. Accordingly, on October 1, 2000, the Board of
Directors approved, subject to stockholder approval, an amendment to increase
the number of shares reserved for issuance under the ESPP from 100,000 shares,
as adjusted, to 250,000 shares (subject to adjustment for certain changes in
NaviSite's capitalization).
Summary of the ESPP
The following summary of the ESPP is qualified in its entirety by reference
to the full text of the ESPP, a copy of which is attached as Appendix F to the
electronic copy of this Proxy Statement filed with the SEC and may be accessed
from the SEC's home page (www.sec.gov). In addition, a copy of the ESPP may be
obtained by making a written request to the General Counsel of NaviSite.
Purpose
The purpose of the ESPP is to provide employees of NaviSite, and of any
majority-owned subsidiaries designated by the Board of Directors, who
participate in the ESPP with an opportunity to purchase NaviSite Common Stock
through payroll deductions.
Administration
The ESPP is currently being administered by the Board of Directors, although
that body may appoint a committee to perform that function. All questions of
interpretation or application of the ESPP are determined in the sole
discretion of the Board of Directors or its committee, and its decisions are
final and binding upon all participants. Members of the Board of Directors who
are eligible employees are permitted to participate in the ESPP, but may not
vote on any matter affecting the administration of the ESPP or the grant of
any option pursuant to the ESPP. No member of the Board of Directors who is
eligible to participate in the ESPP may be a member of the committee appointed
to administer the ESPP. No charges for administrative or other costs may be
made against the payroll deductions of a participant in the ESPP. Members of
the Board of Directors receive no additional compensation for their services
in connection with the administration of the ESPP.
Eligibility; Participation
Any person who is employed by NaviSite (or by any subsidiary designated by
the Board of Directors) (a) for at least 20 hours per week and (b) on the
first day of a Plan Period (as defined below) is eligible to participate in
the ESPP. As of July 31, 2000, approximately 473 employees were eligible to
participate in the ESPP.
25
Eligible employees become participants in the ESPP by completing and
delivering a payroll deduction authorization. An employee who becomes eligible
to participate in the ESPP after the commencement of an offering period may
not participate in the ESPP until the commencement of the next offering
period.
Offerings
The ESPP is currently implemented by consecutive three-month offering
periods. The initial offering period began on October 22, 1999 and ended on
February 29, 2000. Each subsequent offering period commences on the date
immediately following the end of the preceding offering period and ends on the
last day of the third full month thereafter. Each such period is referred to
as a "Plan Period." The Board of Directors has the power to alter the duration
of a Plan Period without stockholder approval if such change is announced
prior to the scheduled beginning of the first offering period to be affected.
Purchase Price
The purchase price per share at which shares are purchased under the ESPP is
the lower of 85% of the fair market value of a share of NaviSite Common Stock
on (a) the first day of business of a Plan Period or (b) the last business day
of the Plan Period. The fair market value of NaviSite Common Stock on a given
date is equal to its closing price on the Nasdaq National Market on such date.
Payment of Purchase Price; Payroll Deductions
ESPP shares are purchased with funds that are accumulated through payroll
deductions during the offering period. The deductions may not exceed 10% of a
participant's eligible compensation, as that term is defined in the ESPP. A
participant may increase, decrease or discontinue payroll deductions once
during a Plan Period.
All payroll deductions are credited to the participant's account under the
ESPP; no interest accrues on the payroll deductions. All payroll deductions
received or held by NaviSite may be used by NaviSite for any corporate purpose
and such payroll deductions need not be segregated.
Purchase of Stock; Exercise of Option
At the beginning of each Plan Period, each participating employee is in
effect granted an option to purchase shares of common stock. The maximum
number of shares placed under option to a participant in an offering period is
determined by multiplying $1,667 by the number of full months in the Plan
Period and dividing the result by the closing price of NaviSite Common Stock
on the first day of such Plan Period.
Withdrawal
A participant may terminate his or her participation in the ESPP at any time
prior to the end of a Plan Period. All of the participant's accumulated
payroll deductions will be paid to the participant promptly after receipt of
his or her notice of withdrawal and his or her participation in the current
offering period will be automatically terminated. No resumption of payroll
deductions will occur on behalf of such participant unless such participant
re-enrolls in the ESPP during the applicable open enrollment period preceding
the commencement of a subsequent offering period. A participant's withdrawal
from the ESPP during an offering period does not have any effect upon such
participant's eligibility to participate in subsequent offering periods under
the ESPP.
Termination of Employment
Termination of a participant's employment for any reason, including
retirement or death, cancels his or her participation in the ESPP immediately.
In such event, the payroll deductions credited to the participant's account
will be returned to such participant or, in the case of death, to the person
or persons designated in the subscription agreement.
26
Capital Changes
If any change is made in the capitalization of NaviSite, such as stock
splits or stock dividends, which results in an increase or decrease in the
number of shares of NaviSite Common Stock outstanding without receipt of
consideration by NaviSite, appropriate adjustments will be made in the number
of shares subject to purchase and in the purchase price per share, subject to
any required action by the stockholders of NaviSite. In the event of the
proposed sale of all or substantially all of the assets of NaviSite or the
merger of NaviSite with or into another entity, (a) each holder of outstanding
options shall be entitled to, upon exercise of the option, receive in lieu of
shares of NaviSite Common Stock, rights to the consideration received by
holders of NaviSite Common Stock pursuant to the terms of such transaction;
(b) all outstanding options may be cancelled and all payroll deductions shall
be paid out to participating employees; or (c) all outstanding options may be
cancelled by the Board of Directors or its committee as of the effective date
of any such transaction, provided that notice of such cancellation shall be
given to each holder of an option, and each holder of an Option shall have the
right to exercise such option in full based on payroll deductions then
credited to his account as of a date determined by the Board of Directors or
its committee, which date shall not be less than ten (10) days preceding the
effective date of such transaction.
Amendment and Termination of the ESPP
The Board of Directors may at any time amend or terminate the ESPP. An
offering period may be terminated by the Board of Directors on any purchase
date if it determines that the termination of the offering period or the ESPP
is in the best interests of NaviSite and its stockholders. No amendment may be
made to the ESPP without prior approval of the stockholders of NaviSite where
such approval is necessary to comply with Section 423 of the Code (i.e., if
such amendment would increase the number of shares reserved under the ESPP or
modify the eligibility requirements) and in no event may any amendment be made
which would cause the ESPP to fail to comply with Section 423 of the Code.
Certain Federal Income Tax Information
The ESPP, and the right of participants to make purchases thereunder, is
intended to qualify under the provisions of Sections 421 and 423 of the Code.
Under these provisions, no income will be taxable to a participant at the time
of grant of the option or purchase of shares. Upon disposition of the shares,
the participant will generally be subject to tax and the amount of the tax
will depend upon the holding period. If the shares have been held by the
participant for more than two years after the offering date and more than one
year after the purchase date, the excess of the fair market value of the
shares at the time of such disposition over the purchase price will be treated
as capital gain. If the shares are disposed of before the expiration of these
holding periods, the excess of the fair market value of the shares on the
purchase date over the purchase price will be treated as ordinary income, and
any further gain or any loss on such disposition will be long-term or short-
term capital gain or loss, depending on the holding period. NaviSite is not
entitled to a deduction for amounts taxed as ordinary income or capital gain
to a participant, except to the extent of ordinary income reported by
participants upon disposition of shares prior to the expiration of the two
holding periods described above.
The foregoing is only a summary of the effect of federal income taxation
upon the participant and NaviSite with respect to the purchase of shares under
the ESPP, is not intended to be complete, and does not discuss the income tax
laws of any municipality, state or foreign country.
Participation in the ESPP
Participation in the ESPP is voluntary and dependent on each eligible
employee's election to participate and his or her determination as to the
level of payroll deductions. Accordingly, future purchases under the ESPP are
not determinable. Non-employee directors are not eligible to participate in
the ESPP.
The Board of Directors recommends a vote FOR the approval of the amendment
to Navisite's 1999 Employee Stock Purchase Plan.
27
PROPOSAL NO. 6
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG LLP to audit NaviSite's financial
statements for the fiscal year ending July 31, 2001. KPMG LLP has audited the
financial statements of NaviSite for each fiscal year since NaviSite's
inception. If the stockholders do not ratify the selection of KPMG LLP as
NaviSite's independent auditors, the Board of Directors will reconsider its
selection. Representatives of KPMG LLP are expected to be present at the
Annual Meeting to make a statement if they desire to do so, and to be
available to respond to appropriate questions from stockholders.
The Board of Directors recommends a vote FOR ratification of the selection
of KPMG LLP as NaviSite's independent auditors for the fiscal year ending July
31, 2001.
OTHER MATTERS
The Board of Directors does not know of any other matters which may come
before the meeting. However, if any other matters are properly presented to
the meeting, it is the intention of the persons named in the accompanying
proxy to vote, or otherwise act, in accordance with their judgment on such
matters. Discretionary authority for them to do so is contained in the
enclosed proxy card.
Adjournments of the Annual Meeting may be made for the purpose of, among
other things, soliciting additional proxies. An adjournment may be made from
time to time by the chairman of the annual meeting or by approval of the
holders of shares representing a majority of the votes present in person or by
proxy at the annual meeting, whether or not a quorum exists. In their
discretion, the proxies named in the proxy card are authorized to vote upon
any adjournment of the annual meeting, including for the purpose of soliciting
additional proxies. However, no proxies voted against Proposal Nos. 2, 3, 4, 5
or 6 will be voted in favor of adjournment of the Annual Meeting for the
purpose of soliciting additional proxies with respect to either such proposal.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented in NaviSite's proxy
statement and form of proxy for the 2001 Annual Meeting of Stockholders in
accordance with Rule 14a-8 under the Exchange Act ("Rule 14a-8"), must be
received by NaviSite no later than July 19, 2001 in order to be included in
NaviSite's proxy statement and form of proxy relating to that meeting.
Proposals of stockholders intended to be submitted for a formal vote at
NaviSite's 2001 annual meeting of stockholders (other than proposals intended
to be included in NaviSite's proxy statement and form of proxy in accordance
with Rule 14a-8) may be made only by a stockholder of record who has given
notice of the proposal to the Secretary of NaviSite at its principal executive
offices no earlier than September 17, 2000 and no later than October 2, 2001.
ANNUAL REPORT AND FORM 10-K
Concurrently with this Proxy Statement, NaviSite is sending a copy of its
2000 Annual Report to all of its stockholders of record as of October 25,
2000. The 2000 Annual Report contains NaviSite's audited consolidated
financial statements for the fiscal year ended July 31, 2000.
A copy of NaviSite's Annual Report on Form 10-K for the fiscal year ended
July 31, 2000 filed with the SEC may be accessed from the SEC's homepage
(www.sec.gov) or may be obtained without charge upon written request to
NaviSite, Inc., 400 Minuteman Road, Andover, Massachusetts 01810, Attention:
Investor Relations.
By order of the Board of Directors,
/s/ Scott N. Semel
Scott N. Semel
Secretary
November 16, 2000
28
Appendix A--Proxy Card
Appendix B--Charter of Audit Committee
Appendix C--Amended and Restated 1998 Equity Incentive Plan
Appendix D--Amended and Restated 1998 Director Stock Option Plan
Appendix E--Amended and Restated 1999 Stock Option Plan for Non-Employee
Directors
Appendix F--1999 Employee Stock Purchase Plan
29
NAVISITE, INC.
400 Minuteman Road
Andover, Massachusetts 01810
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoint(s) Joel B. Rosen, Kenneth W. Hale and Scott
N. Semel each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated on the reverse side, all shares of
common stock of NaviSite, Inc. ("NaviSite") held of record by the undersigned on
October 25, 2000 at the Annual Meeting of Stockholders to be held on December
20, 2000 and any adjournments thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS GIVEN WITH RESPECT TO A PARTICULAR PROPOSAL, THIS PROXY WILL BE
VOTED FOR SUCH PROPOSAL
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
Dear Stockholder:
Please take note of the important information enclosed with this Proxy. There
are a number of issues related to the operation of NaviSite that require your
immediate attention.
Your vote counts, and you are strongly encouraged to exercise your right to vote
your shares.
Please mark the boxes on the proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy in the enclosed
postage paid envelope.
Thank you in advance for your prompt consideration of these matters.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
[X] Please mark
votes as in
this example.
A vote FOR the director nominees (Proposal No. 1) and FOR proposal numbers 2, 3,
4, 5 and 6 is recommended by the Board of Directors.
1. Election of Directors Nominees:
Craig D. Goldman
Andrew J. Hajducky III
James F. Moore, Ph.D.
Stephen D.R. Moore
Joel B. Rosen
David S. Wetherell
FOR all WITHHELD 2. Approval of the FOR AGAINST ABSTAIN
nominees from all amendment to the
(except as nominees Amended and [ ] [ ] [ ]
indicated to Restated 1998
the contrary) Equity Incentive
Plan.
[ ] [ ]
3. Approval of the FOR AGAINST ABSTAIN
amendment to the
Amended and [ ] [ ] [ ]
Restated 1998
Director Stock
Option Plan.
4. Approval of the FOR AGAINST ABSTAIN
amendment and
restatement of [ ] [ ] [ ]
the 1999 Stock
Option Plan
for Non-Employee
Directors.
5. Approval of the FOR AGAINST ABSTAIN
selection of
KPMG LLP as [ ] [ ] [ ]
independent
auditors for the
fiscal year
ending July 31,
2001.
6. Approval of the FOR AGAINST ABSTAIN
amendment to the
1999 Employee Stock [ ] [ ] [ ]
Purchase Plan.
7. In their FOR AGAINST ABSTAIN
discretion, the
proxies are [ ] [ ] [ ]
authorized to
vote upon any
other business
that may
properly come
before the
meeting.
INSTRUCTIONS: To withhold authority to vote for
individual nominee(s) strike a line through each such
nominee's name. Your shares will be voted for the
remaining nominee(s).
MARK HERE
FOR ADDRESS CHANGE [ ]
OR COMMENTS AND
NOTE ON REVERSE
Please sign this
proxy exactly as
your name appears
hereon. Joint owners
should each sign
personally. Trustees
and other
fiduciaries should
indicate the
capacity in which
they sign. If a
corporation or
partnership, this
signature should be
that of an
authorized officer
who should state his
or her title.
Signature: Date:
---------------------------------- -----------
Signature: Date:
---------------------------------- -----------
APPENDIX B
NAVISITE, INC.
AUDIT COMMITTEE CHARTER
I. Membership
A. Number. The Audit Committee shall consist of at least three independent,
financially literate members of the board of directors meeting the
requirements set forth in Sections I.B and I.C below.
B. Independence. A director is independent if he or she is not an officer or
employee of the Company or its subsidiaries, if he or she has no relationship
which, in the opinion of the Company's board of directors, would interfere
with his or her exercise of independent judgment in carrying out the
responsibilities of a director, and if he or she:
1. Has not been an employee of the Company or any affiliate of the Company
in the current year or in any of the past three years;
2. Has no immediate family member who has been employed by the Company or
an affiliate of the Company in any of the past three years (an immediate
family member includes a person's spouse, parents, children, siblings,
mother-in-law, father-in-law, brother-in-law, son-in-law, daughter-in-
law, and anyone who resides in a person's home);
3. Is not employed as an executive of an entity other than the Company
having a compensation committee which includes any of the Company's
executives;
4. Did not within the last fiscal year receive from the Company or any
affiliate of the Company compensation--other than benefits under at tax
qualified retirement plan, compensation for director service or
nondiscretionary compensation--greater than $60,000; and
5. Has not in the any of the past three years been a partner in, or
controlling shareholder or executive of, a for profit business
organization to which the Company made or from which the Company
received payment (other than payment arising solely from investments in
the Company's securities) that exceeds the greater of: (i) $200,000; or
(ii) more than 5% of the Company's or business organization's
consolidated gross revenues.
Under the exceptional and limited circumstances, one director who has a
relationship making him or her not independent, and who is not a Company
employee or an immediate family member of a Company employee, may serve on the
Audit Committee if the board of directors determines that the director's
membership on the Audit Committee is required by the best interests of the
Company and its shareholders, and discloses in the next annual proxy statement
after such determination the nature of the relationship and the reasons for
the determination.
C. Financial Literacy. Each member of the Audit Committee must be able to
read and understand fundamental financial statements, including the Company's
balance sheet, income statement, and cash flow statement, or must become able
to do so within a reasonable time after his or her appointment to the Audit
Committee. At least one member of the Audit Committee must have past
employment experience in finance or accounting, professional certification in
accounting, or other comparable experience or background which result in the
member having financial sophistication (such as being or having been a chief
executive officer, chief financial officer or other senior officer with
financial oversight responsibilities).
D. Chairman. Unless a Chairman is elected by the board of directors, the
Audit Committee shall elect a Chairman by majority vote.
B-1
II. Responsibilities of the Audit Committee
The Audit Committee shall assist the board of directors in fulfilling their
responsibilities to shareholders concerning the Company's accounting and
reporting practices, and shall facilitate open communication between the Audit
Committee, board of directors, outside auditors, and management. The Audit
Committee shall discharge its responsibilities, and shall assess the
information provided by the Company's management and the outside auditor, in
accordance with its business judgment. The responsibilities set forth herein
do not reflect or create any duty or obligation of the Audit Committee to
plan, conduct, oversee or determine the appropriate scope of any audit, or to
determine that the Company's financial statements are complete, accurate,
fairly presented, or in accordance with Generally Accepted Accounting
Principles or applicable law. In exercising its business judgment, the Audit
Committee shall rely on the information and advice provided by the Company's
management and/or its outside auditor.
A. The Audit Committee shall review and reassess the adequacy of this
charter at least annually.
B. The outside auditor shall be accountable to the Audit Committee and the
board of directors, which together shall have the ultimate authority and
responsibility to nominate the outside auditor to be proposed for shareholder
approval in any proxy statement, and to select, evaluate, and (where
appropriate) replace the outside auditor.
C. The Audit Committee shall ensure that they receive from the outside
auditor the written disclosures and letter from the outside auditor required
by Independence Standards Board Standard No. 1.
D. The Audit Committee shall discuss with the outside auditor its
independence, and shall actively engage in a dialogue with the outside auditor
regarding any disclosed relationships or services that might impact the
objectivity and independence of the auditor. The Audit Committee shall take,
or recommend that the full board of directors take, appropriate action to
oversee the independence of the outside auditor.
E. The Audit Committee shall review and discuss with the Company's
management the Company's audited financial statements.
F. The Audit Committee shall discuss with the outside auditor the matters
about which Statement on Auditing Standards No. 61 requires discussion.
G. Based upon its discharge of its responsibilities pursuant to Sections
II.C through II.F and any other information, discussion or communication that
the Audit Committee in its business judgement deems relevant, the Audit
Committee shall consider whether they will recommend to the board of directors
that the Company's audited financial statements be included in the Company's
annual reports on Forms 10-K.
H. The Audit Committee shall prepare for inclusion where necessary in a
proxy or information statement of the Company relating to an annual meeting of
security holders at which directors are to be elected (or special meeting or
written consents in lieu of such meeting), the report described in Item 306 of
Regulation S-K.
I. The Audit Committee shall annually inform the outside auditor, the Chief
Financial Officer, the Controller, and the most senior other person, if any,
responsible for the internal audit activities, that they should promptly
contact the Audit Committee or its Chairman about any significant issue or
disagreement concerning the Company's accounting practices or financial
statements that is not resolved to their satisfaction. Where such
communications are made to the Chairman, he or she shall confer with the
outside auditor concerning any such communications which the outside auditor
or the Chairman in the exercise of his or her business judgment believes
should be considered by the Audit Committee prior to its next scheduled
meeting.
J. The Audit Committee shall direct the outside auditor to use its best
efforts to perform all reviews of interim financial information prior to
disclosure by the Company of such information, and to discuss promptly
B-2
with the Chairman of the Audit Committee and the Chief Financial Officer any
matters identified in connection with the auditor's review of interim
financial information which are required to be discussed by Statement on
Auditing Standards No. 61. The Chairman of the Audit Committee shall discuss
any such matters with the outside auditor, and shall notify the other members
of the Audit Committee of any discussions which the outside auditor or the
Chairman in the exercise of his or her business judgment believes should be
considered by the Audit Committee prior to disclosure or filing of the interim
financial information, or the Audit Committee's next scheduled meeting.
K. The Audit Committee shall direct management to advise the Audit Committee
in the event that the Company proposes to disclose or file interim financial
information prior to completion of review by the outside auditor.
L. Audit Committee shall meet privately at least once per year with: (i) the
outside auditor; (ii) the Chief Financial Officer; (iii) the Controller; and
(iv) the most senior person (if any) responsible for the internal audit
activities of the Company.
III. Effective Date for Compliance
The composition of the Audit Committee shall comply with Section I(A) of
this Audit Committee Charter on or before June 14, 2001.
B-3
APPENDIX C
----------------------------------------
NAVISITE, INC.
AMENDED AND RESTATED
1998 EQUITY INCENTIVE PLAN
----------------------------------------
1. Purpose.
-------
The purpose of this NaviSite, Inc. Amended and Restated 1998 Equity
Incentive Plan (the "Plan") is to attract and retain key employees and
----
consultants of the Company and its Affiliates, to provide an incentive for them
to achieve long-range performance goals, and to enable them to participate in
the long-term growth of the Company by granting Awards with respect to the
Company's Common Stock. Certain capitalized terms used herein are defined in
Section 9 below.
2. Administration.
--------------
The Plan shall be administered by the Committee. The Committee shall select
the Participants to receive Awards and shall determine the terms and conditions
of such Awards. The Committee shall have authority to adopt, alter and repeal
such administrative rules, guidelines and practices governing the operation of
the Plan as it shall from time to time consider advisable, and to interpret the
provisions of the Plan. The Committee's decisions shall be final and binding. To
the extent permitted by applicable law, the Committee may delegate to one or
more executive officers of the Company the power to make Awards to Participants
who are not Reporting Persons or Covered Employees and to make all
determinations under the Plan with respect thereto, provided that, subject to
Sections 4(a) and 4(c) hereof, the Committee shall fix the maximum amount of
such Awards for all such Participants and a maximum for any one Participant.
3. Eligibility.
-----------
All employees and consultants of the Company or any Affiliate capable of
contributing significantly to the successful performance of the Company, other
than a person who has irrevocably elected not to be eligible, are eligible to be
Participants in the Plan. With respect to Awards issued in connection with the
reorganization of NaviSite Internet Services Corporation into the Company and
NaviNet, Inc., a Delaware corporation ("NaviNet"), employees and consultants of
-------
NaviNet shall also be eligible to be Participants in the Plan and NaviNet shall
be deemed to be an Affiliate of the Company for purposes of interpreting the
provisions of the Plan
applicable to such Awards. Incentive Stock Options (as defined in Section 5(a)
hereof) may be granted under the Plan only to persons eligible to receive such
options under the Code.
4. Stock Available for Awards.
--------------------------
a. Amount. Subject to adjustment under Section 4(b) hereof, Awards may be
made under the Plan with respect to a maximum of 5,562,212 shares of Common
Stock. If any Award expires or is terminated unexercised or is forfeited or
settled without the issuance of shares of Common Stock, the shares subject to
such Award, to the extent of such expiration, termination, forfeiture or
settlement shall again be available under the Plan. Common Stock issued through
the assumption or substitution of outstanding grants from an acquired company
shall not reduce the shares available for Awards under the Plan. Shares issued
under the Plan may consist in whole or in part of authorized but unissued shares
or treasury shares.
b. Adjustment. In the event that the Committee determines that any stock
dividend, extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination, exchange of shares or other
transaction affects the Common Stock such that an adjustment is required in
order to preserve the benefits intended to be provided by the Plan, then the
Committee (subject in the case of Incentive Stock Options to any limitation
imposed by the Code) may in its sole discretion equitably adjust any or all of
(i) the number and kind of shares in respect of which Awards may be made under
the Plan, (ii) the number and kind of shares or other consideration subject to
outstanding Awards and (iii) the exercise price with respect to any of the
foregoing, provided that the number of shares or other consideration subject to
any Award shall always be a whole number, and if considered appropriate, the
Committee may make provision for a cash payment with respect to an outstanding
Award.
c. Limit on Individual Grants. The maximum number of shares of Common Stock
subject to Options and Stock Appreciation Rights that may be granted to any
Participant in the aggregate in any calendar year shall not exceed 300,000
shares, subject to adjustment under Section 4(b) hereof.
5. Stock Options.
-------------
a. Grant of Options. Subject to the provisions of the Plan, the Committee
may grant options ("Options") to purchase shares of Common Stock (i) intended to
-------
comply with the requirements of Section 422 of the Code or any successor
provision and any regulations thereunder ("Incentive Stock Options") and (ii)
-----------------------
not intended to comply with such requirements ("Non-statutory Stock Options").
---------------------------
The Committee shall determine the number of shares subject to each Option and
the exercise price therefor, which shall not be less than 100% of the Fair
Market Value of the Common Stock on the date of grant. No Incentive Stock Option
may be granted hereunder more than ten years after the effective date of the
Plan.
b. Terms and Conditions. Each Option shall be exercisable at such times and
subject to such terms and conditions as the Committee may specify in the
applicable grant or thereafter. The Committee may impose such conditions with
respect to the exercise of Options, including conditions relating to applicable
federal or state securities laws, as it considers necessary or advisable.
c. Payment. No shares shall be delivered pursuant to any exercise of an
Option until payment in full of the exercise price therefor is received by the
Company. Such payment may be made in whole or in part in cash or, to the extent
permitted by the Committee at or after the grant of the Option, by delivery of a
note or other commitment satisfactory to the Committee or shares of Common Stock
owned by the optionee, including Restricted Stock, or by retaining shares
otherwise issuable pursuant to the Option, in each case valued at their Fair
Market Value on the date of delivery or retention, or such other lawful
consideration, including a payment commitment of a financial or brokerage
institution, as the Committee may determine. If the exercise price of an option
is paid by delivery of Restricted Stock (as defined below) owned by the
optionee, shares so acquired will be subject to the same restrictions as were
applicable to such Restricted Stock.
6. Stock Appreciation Rights.
-------------------------
a. Grant of SARs. Subject to the provisions of the Plan, the Committee may
grant rights to receive any excess in value of shares of Common Stock over the
exercise price ("Stock Appreciation Rights" or "SARs") in tandem with an Option
------------------------- ----
(at or after the award of the Option), or alone and unrelated to an Option. SARs
in tandem with an Option shall terminate to the extent that the related Option
is exercised, and the related Option shall terminate to the extent that the
tandem SARs are exercised. The Committee shall determine at the time of grant or
thereafter whether SARs are settled in cash, Common Stock or other securities of
the Company, Awards or other property, and may define the manner of determining
the excess in value of the shares of Common Stock.
b. Exercise Price. The Committee shall fix the exercise price of each SAR
or specify the manner in which the price shall be determined. An SAR granted in
tandem with an Option shall have an exercise price not less than the exercise
price of the related Option. An SAR granted alone and unrelated to an Option may
not have an exercise price less than 100% of the Fair Market Value of the Common
Stock on the date of grant.
c. Limited SARs. An SAR related to an Option, which SAR can only be
exercised upon or during limited periods following a change in control of the
Company, may entitle the Participant to receive an amount based upon the highest
price paid or offered for Common Stock in any transaction relating to the change
in control or paid during a specified period immediately preceding the
occurrence of the change in control in any transaction reported in the stock
market in which the Common Stock is normally traded.
7. Restricted Stock.
----------------
a. Grant of Restricted Stock. Subject to the provisions of the Plan, the
Committee may grant shares of Common Stock subject to forfeiture ("Restricted
----------
Stock") and determine the duration of the period (the "Restricted Period")
- ----- -----------------
during which, and the conditions under which, the shares may be forfeited to the
Company and the other terms and conditions of such Awards. Shares of Restricted
Stock may be issued for no cash consideration, such minimum consideration as may
be required by applicable law or such other consideration as the Committee may
determine.
b. Restrictions. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered, except as permitted by the
Committee, during the Restricted Period. Shares of Restricted Stock shall be
evidenced in such manner as the Committee may determine. Any certificates issued
in respect of shares of Restricted Stock shall be registered in the name of the
Participant and unless otherwise determined by the Committee, deposited by the
Participant, together with a stock power endorsed in blank, with the Company. At
the expiration of the Restricted Period, the Company shall deliver such
certificates to the Participant or if the Participant has died, to the
Participant's Designated Beneficiary.
8. General Provisions Applicable to Awards.
---------------------------------------
a. Documentation. Each Award under the Plan shall be evidenced by a writing
delivered to the Participant specifying the terms and conditions thereof and
containing such other terms and conditions not inconsistent with the provisions
of the Plan as the Committee considers necessary or advisable to achieve the
purposes of the Plan or to comply with applicable tax and regulatory laws and
accounting principles.
b. Committee Discretion. Each type of Award may be made alone, in addition
to or in relation to any other Award. The terms of each type of Award need not
be identical, and the Committee need not treat Participants uniformly. Except as
otherwise provided by the Plan or a particular Award, any determination with
respect to an Award may be made by the Committee at the time of grant or at any
time thereafter.
c. Dividends and Cash Awards. In the discretion of the Committee, any Award
under the Plan may provide the Participant with (i) dividends or dividend
equivalents payable (in cash or in the form of Awards under the Plan) currently
or deferred with or without interest and (ii) cash payments in lieu of or in
addition to an Award.
d. Termination of Employment or Service on the Board. The Committee shall
determine the effect on an Award of the disability, death, retirement or other
termination of employment or service on the Board of a Participant and the
extent to which, and the period during which, the Participant's legal
representative, guardian or Designated Beneficiary may receive payment of an
Award or exercise rights thereunder.
e. Change in Control. In order to preserve a Participant's rights under an
Award in the event of a change in control of the Company (as defined by the
Committee), the Committee in its discretion may, at the time an Award is made or
at any time thereafter, take one or more of the following actions: (i) provide
for the acceleration of any time period relating to the exercise or payment of
the Award, (ii) provide for payment to the Participant of cash or other property
with a Fair Market Value equal to the amount that would have been received upon
the exercise or payment of the Award had the Award been exercised or paid upon
the change in control, (iii) adjust the terms of the Award in a manner
determined by the Committee to reflect the change in control, (iv) cause the
Award to be assumed, or new rights substituted therefor, by another entity, or
(v) make such other provision as the Committee may consider equitable to
Participants and in the best interests of the Company.
f. Transferability. In the discretion of the Committee, any Award may be
made transferable upon such terms and conditions and to such extent as the
Committee determines, provided that Incentive Stock Options may be transferable
only to the extent permitted by the Code. The Committee may in its discretion
waive any restriction on transferability. Any exercise by a transferee shall
also be governed by the Plan. Under certain circumstances, the Company may or
may not permit the transfer of an Award, and such transferred Award, or
securities purchasable upon exercise of such transferred Award, may or may not
be registered under the Securities Act of 1933, as amended.
g. Loans. The Committee may authorize the making of loans or cash payments
to Participants in connection with the grant or exercise of any Award under the
Plan, which loans may be secured by any security, including Common Stock,
underlying or related to such Award (provided that the loan shall not exceed the
Fair Market Value of the security subject to such Award at the time such loan is
made), and which may be forgiven upon such terms and conditions as the Committee
may establish at the time of such loan or at any time thereafter.
h. Withholding Taxes. The Participant shall pay to the Company, or make
provision satisfactory to the Committee for payment of, any taxes required by
law to be withheld in respect of Awards under the Plan no later than the date of
the event creating the tax liability. The Company and its Affiliates may, to the
extent permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to the Participant. In the Committee's discretion, such tax
obligations may be paid in whole or in part in shares of Common Stock, including
shares retained from the Award creating the tax obligation, valued at their Fair
Market Value on the date of delivery.
i. Foreign Nationals. Awards may be made to Participants who are foreign
nationals or employed outside the United States on such terms and conditions
different from those specified in the Plan as the Committee considers necessary
or advisable to achieve the purposes of the Plan or to comply with applicable
laws.
j. Amendment of Award. The Committee may amend, modify or terminate any
outstanding Award, including substituting therefor another Award of the same or
a different type, changing the date of exercise or realization and converting an
Incentive Stock Option to a Non-statutory Stock Option, provided that the
Participant's consent to such action shall be required unless the Committee
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.
9. Certain Definitions.
-------------------
"Affiliate" means any business entity in which the Company owns directly or
---------
indirectly 50% or more of the total voting power or has a significant financial
interest as determined by the Committee.
"Award" means any Option, Stock Appreciation Right or Restricted Stock
-----
granted under the Plan.
"Board" means the Board of Directors of the Company.
-----
"Code" means the Internal Revenue Code of 1986, as amended from time to
----
time, or any successor law.
"Committee" means one or more committees each comprised of not less than
---------
two members of the Board appointed by the Board to administer the Plan or a
specified portion thereof. Unless otherwise determined by the Board, if a
Committee is authorized to grant Awards to a Reporting Person or a Covered
Employee, each member shall be a "non-employee director" within the meaning of
applicable Rule 16b-3 under the Exchange Act or an "outside director" within the
meaning of Section 162(m) of the Code, respectively. In the event that the Board
does not appoint a Committee, references in the Plan to the Committee shall mean
the Board.
"Common Stock" or "Stock" means the Common Stock, $0.01 par value, of the
------------ -----
Company.
"Company" means NaviSite, Inc., a Delaware corporation.
-------
"Covered Employee" means a "covered employee" within the meaning of Section
----------------
162(m) of the Code.
"Designated Beneficiary" means the beneficiary designated by a Participant,
----------------------
in a manner determined by the Committee, to receive amounts due or exercise
rights of the Participant in the event of the Participant's death. In the
absence of an effective designation by a Participant, "Designated Beneficiary"
means the Participant's estate.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
------------
time to time, or any successor law.
"Fair Market Value" means, (i) with respect to property other than Common
-----------------
Stock, the fair market value of such property as determined by the Committee in
good faith or in the manner established by the Committee from time to time and
(ii) with respect to Common Stock, the value determined by the Board in good
faith, provided that if the Common Stock is then quoted on the Nasdaq National
Market ("Nasdaq") or traded on any national securities exchange or other
interdealer quotation system, then the Fair Market Value of a share of Common
Stock shall be the closing price for the Common Stock as reported by Nasdaq, or
the principal exchange on which the Common Stock is then traded, on the last
preceding trading day.
"Participant" means a person selected by the Committee to receive an Award
-----------
under the Plan.
"Reporting Person" means a person subject to Section 16 of the Exchange
----------------
Act.
10. Miscellaneous.
-------------
a. No Right To Employment or Service on the Board. No person shall have any
claim or right to be granted an Award. Neither the Plan nor any Award hereunder
shall be deemed to give any employee the right to continued employment or to
limit the right of the Company to discharge any employee at any time.
b. No Rights As Stockholder. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed under
the Plan until he or she becomes the holder thereof. A Participant to whom
Common Stock is awarded shall be considered the holder of the Stock at the time
of the Award except as otherwise provided in the applicable Award.
c. Effective Date. Subject to the approval of the stockholders of the
Company, the Plan shall be effective on December 28, 1998.
d. Amendment of Plan. The Board may amend, suspend or terminate the Plan or
any portion thereof at any time, subject to such stockholder approval as the
Board determines to be necessary or advisable to comply with any tax or
regulatory requirement.
e. Governing Law. The provisions of the Plan shall be governed by and
interpreted in accordance with the laws of the State of Delaware.
-----------------------------------------
This Plan was originally approved by the Board on December 28, 1998.
This Plan was originally approved by the stockholders on December 28, 1998.
This Plan was amended and restated by the Board as of October 8, 1999.
This Plan, as amended and restated by the Board, was approved by the
stockholders as of October 8, 1999.
NaviSite, Inc.
Amendment No. 1 to Amended and
Restated 1998 Equity Incentive Plan
The Amended and Restated 1998 Equity Incentive Plan is hereby amended as
follows:
Section 4.a is hereby amended to replace the number 5,562,212 in the first
sentence with 15,000,000.
APPENDIX D
NAVISITE, INC.
Amended and Restated
1998 Director Stock Option Plan
1. Purpose.
-------
This Amended and Restated 1998 Director Stock Option Plan (the "Plan")
governs options to purchase Common Stock, $.01 par value per share (the "Common
Stock"), of NaviSite, Inc. (the "Company") granted by the Company to members of
the Board of Directors of the Company (the "Board") who are not also officers or
employees of the Company or any affiliate of the Company. The purpose of the
Plan is to attract and retain qualified persons to serve as Directors of the
Company and to encourage ownership of the Common Stock of the Company by such
Directors.
2. Administration.
--------------
Grants of stock options under the Plan shall be automatic as provided in
Section 8. All questions of interpretation of the Plan or of any options granted
hereunder shall be determined by the Board. Any and all powers of the Board
under the Plan may be exercised by a committee consisting of one or more
Directors appointed by the Board who are not participants in the Plan.
3. Eligibility.
-----------
Members of the Board who are not also officers or employees of the Company
or any affiliate of the Company shall be eligible to participate in the Plan.
4. Shares Subject to the Plan.
--------------------------
Options may be granted under the Plan in respect of a maximum of 125,000
shares of Common Stock, subject to adjustment as provided in Section 5 below.
Shares to be issued upon the exercise of options granted under the Plan may be
either authorized but unissued shares or shares held by the Company in its
treasury. Whenever options under the Plan lapse, terminate or otherwise become
unexercisable, the shares of Common Stock which were available for such options
shall again be available for the grant of options under the Plan. The Company
shall at all times during the term of the Plan and while options remain
outstanding hereunder reserve such number of shares of Common Stock as will be
sufficient to satisfy the requirements of the Plan.
5. Adjustment of Number of Option Shares.
-------------------------------------
In the event of a stock dividend, split-up, combination or reclassification
of shares, recapitalization or other similar capital change relating to the
Company's Common Stock, the maximum aggregate number and kind of shares or
securities of the Company as to which options may be granted under this Plan and
as to which options then outstanding shall be exercisable, the
option price of such options and the consideration with respect to which the
options are exercisable may be appropriately adjusted (as determined by the
Board in its sole discretion) to reflect such change or distribution.
Except as otherwise provided in the Option Agreement (as defined below) in
the event of any reorganization, consolidation or merger to which the Company is
a party and in which the Company does not survive, or upon the dissolution or
liquidation of the Company, all outstanding options shall terminate; provided,
--------
however, that (i) in the event of the liquidation or dissolution of the Company,
- -------
or in the event of any such reorganization, consolidation or merger in which the
Company does not survive and with respect to which the resulting or surviving
corporation does not assume such outstanding option or issue a substitute option
therefor, such option shall be exercisable in full, without regard to any
installment restrictions on exercise imposed pursuant to this Plan or any Option
Agreement, during such period preceding the effective date of such liquidation,
dissolution, reorganization, consolidation or merger (unless such option is
terminated earlier by its terms) as may be specified by the Board; and (ii) in
the event of any such reorganization, consolidation or merger, the Board may, in
its good faith discretion, arrange to have the resulting or surviving
corporation assume such outstanding option or issue a substitute option
therefor.
No fraction of a share shall be purchasable or deliverable upon exercise of
an option, but, in the event any adjustment hereunder of the number of shares
covered by the option shall cause such number to include a fraction of a share,
such fraction shall be adjusted to the nearest smaller whole number of shares.
6. Non-Statutory Stock Options.
---------------------------
All options granted under the Plan shall be non-statutory options not
entitled to special tax treatment under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code").
7. Form of Option Agreements.
-------------------------
Options shall be granted hereunder pursuant to the terms of written
agreements ("Option Agreements") which shall be substantially in the form of the
attached Exhibit A or in such other form as the Board may from time to time
determine.
8. Grant of Options and Option Terms.
---------------------------------
A. Automatic Grant of Options. Commencing on the date of the adoption of
this Plan by the stockholders, each non-employee director of the Company shall,
upon the date of his or her election (the "Date of Grant"), automatically be
granted an option to purchase 25,000 shares of Common Stock, with the exception
of Craig Goldman, who shall be granted an option to purchase 50,000 shares of
Common Stock on the date this Plan is adopted by the Board of Directors (the
"Craig Goldman option"). No options shall be granted hereunder (i) if, upon the
election of such a non-employee director, there are not sufficient shares
reserved for issuance under the Plan to make such an automatic grant and (ii)
after ten years from the date on which this Plan was initially approved and
adopted by the Board.
B. Exercisability of Options. The options granted under this Plan shall
become exercisable with respect to 5,000 shares on the first anniversary of the
Date of Grant (except in the case of the Craig Goldman option, which option
shall be exercisable as to 10,000 shares on the Date of Grant), and shall become
exercisable as to an additional 5,000 shares (except in the case of the Craig
Goldman option, which option shall be exercisable as to an additional 10,000
shares) on the date of each annual meeting of the stockholders of the Company (a
"Stockholder Meeting") thereafter but in all cases if and only if the option
holder is a member of the Board at the opening of business on the next business
day following the date of such annual meeting. Directors holding exercisable
options under this Plan who cease to serve as members of the Board of the
Company for any reason other than death may, for a period of seven months
following the date of cessation of service, exercise the rights they had under
such options at the time they ceased being a Director. Any options and rights
that have not yet become exercisable shall terminate upon cessation of such
Director's membership on the Board. Upon the death of a Director, those entitled
to do so under the Director's will or the laws of descent and distribution shall
have the right, at any time within twelve months after the date of death, to
exercise in whole or in part any options which were exercisable at the time of
such Director's death. The rights of the option holder may be exercised by the
holder's guardian or legal representative in the case of disability and by the
beneficiary designated by the holder in writing delivered to the Company or, if
none has been designated, by the holder's estate or his or her transferee on
death in accordance with this Plan, in the case of death. Options granted under
the Plan shall terminate, and no rights thereunder may be exercised, after the
expiration of the applicable exercise period. Notwithstanding the foregoing
provisions, no rights under any options may be exercised after the expiration of
ten years from their Date of Grant.
C. Option Price; Fair Market Value. With the exception of the Craig Goldman
option, the per share option price for each option granted under this Plan shall
be the Fair Market Value per share of the Common Stock (as hereinafter defined)
on the Date of Grant. The "Fair Market Value" per share of the Common Stock
shall be the value determined by the Board in good faith, provided that if the
Common Stock is then quoted on the Nasdaq National Market ("Nasdaq") or traded
on any other national securities exchange or other interdealer quotation system,
then the Fair Market Value of a share of Common Stock shall be the closing price
for the Common Stock as reported by Nasdaq, or the principal exchange or
quotation system on which the Common Stock is then traded or quoted, on the last
preceding trading day. The Craig Goldman option shall be exercisable at $0.34
per share.
D. Term of Option. The term of each option granted under the Plan shall be
ten years from the Date of Grant, subject to earlier termination as provided in
Section 5 hereof or in this Section 8 or in the Option Agreement.
E. Method of Exercise and Payment. Each exercise of an option hereunder may
be effected only by giving written notice, in the manner provided in Section 12
hereof, of intent to exercise the option, specifying the number of shares as to
which the option is being exercised, and accompanied by full payment of the
option price for the number of shares then being acquired. Such payment shall be
made (i) in cash, (ii) by certified or bank check payable to the order of the
Company, (iii) credit to the Company's account at a financial or brokerage
institution on the date of exercise or a payment commitment of such an
institution acceptable to the Company, (iv) in shares of Common Stock having an
aggregate Fair Market Value, at the time of such payment, equal to the total
option price for the number of shares of Common Stock for which payment is then
being made, or (v) partly in cash or by certified or bank check payable to the
order of the Company and the balance in shares of Common Stock having an
aggregate Fair Market Value, at the time of such payment, equal to the
difference between the total option price for the number of shares of Common
Stock for which payment is then being made and the amount of the payment in cash
or by certified or bank check. Shares of Common Stock surrendered in payment of
all or part of the option price must have been held by the person exercising the
option free of restrictions imposed by the Company for at least six months
unless otherwise permitted by the Board.
Receipt by the Company of such notice and payment shall, for purposes of
this Plan, constitute exercise of the option or a part thereof. Within twenty
(20) days thereafter, the Company shall deliver or cause to be delivered to the
optionee a certificate or certificates for the number of shares of Common Stock
then being purchased by the optionee. Such shares shall be fully paid and
non-assessable. Notwithstanding the foregoing, if any law or applicable
regulation of the Securities and Exchange Commission or other public regulatory
authority (including, but not limited to, a stock exchange) shall require the
Company or the optionee (i) to register or qualify, under the Securities Act of
1933, as amended (the "Securities Act"), any similar federal statute then in
force or any state law regulating the sale of securities, any shares of Common
Stock covered by an option with respect to which notice of intent to exercise
shall have been delivered to the Company or (ii) to take any other action in
connection with such shares before issuance thereof may be effected, then the
delivery of the certificate or certificates for such shares shall be postponed
until completion of the necessary action. Nothing herein shall be deemed to
require the Company to take such action. Any such action shall be taken by the
Company at its own expense.
To the extent determined necessary by counsel to the Company to comply with
any applicable law, the Company may require an individual exercising an option
to represent that his purchase of shares of Common Stock pursuant to such
exercise is for his own account, for investment and without a view to resale or
distribution and that he will not sell or otherwise dispose of any such shares
except pursuant to (i) an effective registration statement covering such
transaction filed with the Securities and Exchange Commission and in compliance
with all of the applicable provisions of the Securities Act, and the rules and
regulations thereunder, or (ii) an opinion of Company counsel that such
registration is not required.
F. Non-transferability. Options granted under the Plan shall not be
transferable by the holder thereof otherwise than by will or the laws of descent
and distribution.
9. Limitation of Rights.
--------------------
a. No Right to Continue as a Director. Neither the Plan, nor the granting
of an option or any other action taken pursuant to the Plan, shall constitute an
agreement or understanding, express or implied, that the Company will retain an
optionee as a Director for any period of time or at any particular rate of
compensation.
b. No Stockholders' Rights for Options. Directors shall have no rights as
stockholders with respect to the shares covered by their options until the date
they are issued such shares, and no adjustment will be made for dividends or
other rights for which the record date is prior to the date such option shares
are so issued.
10. Stockholder Approval.
--------------------
The Plan is subject to approval by the stockholders of the Company by the
affirmative vote of the holders of shares of voting capital stock present or
representing a majority of votes entitled to be cast at a meeting of the
Company's stockholders. In the event such approval is not obtained, all options
granted under this Plan shall be void and without effect.
11. Amendment or Termination.
------------------------
The Board may amend or terminate this Plan at any time subject to any
stockholder approval that the Board deems necessary. No such termination or
amendment shall adversely affect the rights of any option holder with respect to
outstanding options under the Plan without the prior written consent of such
option holder.
12. Notices.
-------
Any communication or notice required or permitted to be given under this
Plan shall be in writing and mailed by registered or certified mail or delivered
in hand, if to the Company, to its Chief Financial Officer at NaviSite, Inc.,
100 Brickstone Square, Andover, MA 01810 (or such other address as the Company
may from time to time prescribe) and, if to an optionee, to such address as the
optionee shall last have furnished to the Company.
13. Governing Law.
-------------
The Plan shall be governed by and construed in accordance with the laws of
the State of Delaware.
As adopted by the Board on
December 28, 1998
As approved by the Stockholders on
December 28, 1998
As amended and restated by the Board
as of October 8, 1999
As approved by the Stockholders, as amended and
restated, as of October 8, 1999
EXHIBIT A
---------
1998 DSO - _______ 25,000 Shares
NAVISITE, INC.
Amended and Restated
1998 Director Stock Option Plan
Non-statutory Stock Option Agreement
__________ __, 199_
NaviSite, Inc. (the "Company"), a Delaware corporation, hereby grants to
the person named below (the "Optionee") an option to purchase shares of Common
Stock, $.01 par value per share, of the Company (the "Option") under and subject
to the Company's Amended and Restated 1998 Director Stock Option Plan (the
"Plan"), subject to the following terms and conditions and those set forth in
the Plan:
Name of Optionee:
Address:
Social Security No.
Option Price:
Date of Grant:
Exercisability Schedule:
This option shall become exercisable as provided in Section 8 of the Plan.
By signing this Stock Option Agreement and returning on signed copy of to
the Company, the Optionee accepts the Option described herein on the terms and
conditions set forth herein or in the Plan.
NAVISITE, INC. Accepted
By:
-----------------------------------
-----------------------------------
Title:
Optionee
NaviSite, Inc.
Amendment No. 1
to Amended and Restated
1998 Director Stock Option Plan
-------------------------------
The Amended and Restated 1998 Director Stock Option Plan of NaviSite, Inc.
is hereby amended as follows:
Section 8.b is hereby amended by inserting the following sentence
immediately after the first sentence of the section:
"Notwithstanding the preceding sentence, as of December 20, 2000, all
options granted under this plan shall be treated as having become
exercisable with respect to one-sixtieth (1/60th) of the shares
underlying such options on the first monthly anniversary of the Date
of Grant, and as to an additional one-sixtieth (1/60th) of the shares
each monthly anniversary thereafter, but in all cases if, and only if,
the option holder continues to be a member of the Board at the opening
of the next business day following such monthly anniversary."
APPENDIX E
NAVISITE, INC.
AMENDED AND RESTATED
1999 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
As Amended and Restated by the Board of Directors on October 1, 2000
1. Purpose.
-------
The purpose of this 1999 Stock Option Plan for Non-Employee Directors (the
"Plan") of NaviSite, Inc. (the "Company") is to encourage ownership in the
Company by non-employee directors of the Company whose continued services are
considered essential to the Company's future progress and to provide them with a
further incentive to remain as directors of the Company.
2. Administration.
--------------
The Board of Directors of the Company (the "Board") shall supervise and
administer the Plan. All questions concerning interpretation of the Plan or any
options granted under it shall be resolved by the Board and such resolution
shall be final and binding upon all persons having an interest in the Plan. The
Board may, to the full extent permitted by or consistent with applicable laws or
regulations, delegate any or all of its powers under the Plan to a committee
appointed by the Board, and if a committee is so appointed, all references to
the Board in the Plan shall mean and relate to such committee.
3. Eligibility.
-----------
There shall be eligible to receive options under the Plan each director of
the Company who: (i) is not an employee of the Company or any of its
subsidiaries or affiliates, (ii) unless otherwise determined by the Board, is
not an affiliate (as such term is defined in Rule 144(a)(1) promulgated under
the Securities Act of 1933, as amended), employee or designee of an
institutional or corporate investor that owns, at the time of his or her initial
election as a director of the Company, more than 5% of the outstanding shares of
Common Stock of the Company (an "Affiliated Director").
4. Stock Subject to the Plan.
-------------------------
(a) A total of 250,000 shares of the Company's common stock, par value $.01
per share ("Common Stock") may be issued under the Plan, subject to adjustment
as provided in Section 7.
(b) All options granted under the Plan shall be non-statutory options not
entitled to special tax treatment under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code").
5. Terms, Conditions and Form of Options.
-------------------------------------
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Board of Directors shall from time to time
approve, which agreements shall comply with and be subject to the following
terms and conditions:
(a) (i) Initial Grants. Each eligible director who is elected for the first
--------------
time to the Board after this Plan is adopted by the Board shall be granted, upon
the date of such initial election, an option to acquire 25,000 shares of Common
Stock under the Plan (the "Initial Option"), provided that if such initial
--------
election occurs prior to the approval of the Plan by the stockholders of the
Company, such option may, at the discretion of the Board, be granted on the date
of such approval. Each Affiliated Director who ceases to be an Affiliated
Director and is not otherwise an employee of the Company or any of its
subsidiaries or affiliates shall be granted, on the date such director ceases to
be an Affiliated Director but remains as a member of the Board, an Initial
Option to acquire 25,000 shares of Common Stock under the Plan.
(ii) Annual Grants. On the first anniversary of the grant of the
-------------
Initial Option to an eligible director, and on each subsequent anniversary
thereof, the Company shall grant to such eligible director an option to purchase
6,250 shares of Common Stock (an "Annual Option"), provided that such eligible
--------
director serves as a member of the Board on the applicable anniversary date. In
addition, for any eligible director who has received an option under NaviSite's
1998 Director Stock Option Plan (the "1998 Plan") upon his first becoming
elected to the Board, the Company shall, on the second anniversary of the date
on which the option was granted under the 1998 Plan, and on each subsequent
anniversary date thereof, grant to such eligible director an Annual Option,
provided that such eligible director serves as a member of the Board on the
- --------
applicable anniversary date.
(iii) Additional Shares. The Board may, in its discretion, increase to
-----------------
up to 100,000 the aggregate number of shares of Common Stock that may be subject
to an Initial Option and/or Annual Options covering any vesting period of up to
48 months that may be granted to an eligible director after the date of such
increase.
(b) Option Exercise Price. The option exercise price per share for each
---------------------
option granted under the Plan shall equal (i) the closing price of the Common
Stock on any national securities exchange on which the Common Stock is listed,
(ii) the closing price of the Common Stock on the Nasdaq National Market or
(iii) the average of the closing bid and asked prices of the Common Stock in the
over-the-counter market, whichever is applicable, on the date of grant, or if
none of clauses (i), (ii) or (iii) applies, the fair market value of the Common
Stock, as determined by the Board, on the date of grant. In the case of clauses
(i), (ii) and (iii), if no sales of Common Stock were made on the date of grant,
the price of the Common Stock shall be the reported price for the next preceding
day on which sales were made.
(c) Transferability of Options. Except as the Board may otherwise provide
--------------------------
in an option granted under the Plan, any option granted under the Plan to an
optionee shall not be transferable by the optionee other than (i) by will or the
laws of descent and distribution, (ii) pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act, or the rules thereunder, or (iii) to any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law,
sister-in-law, niece, nephew or other person sharing the director's household
(other than a parent or employee) (a "Family Member"), or any trust in which
Family Members have more than 50% of the beneficial interest, any foundation in
which Family Members (or the optionee) control the management of assets, and any
other entity in which Family Members (or the optionee) have more than a 50%
aggregate voting interest. References to an optionee, to the extent relevant in
the context, shall include references to authorized transferees.
(d) Time and Manner of Exercise.
---------------------------
(i) Vesting.
-------
(a) Each Initial Option granted under the Plan shall vest and
become exercisable as to 1/48th of the number of shares originally subject to
the option on each monthly anniversary date of the date of grant, provided that
--------
the optionee serves as a director on such monthly anniversary date.
(b) Each Annual Option granted under the Plan to a director who
received an Initial Option under the Plan shall vest and become exercisable as
to 1/12th of the number of shares originally subject to that Annual Option on
each monthly anniversary date of the date of grant commencing on the 37th
monthly anniversary date of the date of the grant of such Annual Option,
provided that the optionee serves as a director on such monthly anniversary
- --------
date. The first Annual Option granted under the Plan to a director who
previously received an option under the 1998 Plan shall vest and become
exercisable as to 1/12th of the number of shares originally subject to that
Annual Option on each monthly anniversary date of the date of grant, commencing
the first month following the date the option granted under the 1998 Plan
becomes fully exercisable; provided that the optionee serves as a director on
--------
such monthly anniversary date. Each subsequent Annual Option granted under the
Plan to a director who previously received an option under the 1998 Plan shall
vest and become exercisable as to 1/12th of the number of shares originally
subject to that Annual Option on each monthly anniversary date of the date of
grant, commencing the first month following the date that the Annual Option that
was granted immediately prior to such Annual Option becomes fully exercisable;
provided that the optionee serves as a director on such monthly anniversary
date.
(ii) Termination. Except as otherwise provided in the applicable
-----------
option agreement, each option shall terminate, and may no longer be exercised,
on the earlier of (i) the date ten years after the date of grant of such option
or (ii) six months after the date on which the optionee ceases to serve as a
director of the Company (or 12 months if such cessation is due to the death of
such director). Each option may be exercised during the 6 or 12 month period set
forth in clause (ii) above only to the extent it was exercisable at the time of
the optionee's cessation of service as a director.
(iii) Change in Control. All outstanding options granted under the
-----------------
Plan shall immediately become exercisable in full upon a Change in Control (as
defined in Section 8).
(iv) Exercise Procedure. An option may be exercised in whole or in
------------------
part, to the extent it is then exercisable, only by written notice to the
Company at its principal office accompanied by (i) payment in cash or by check
of the full exercise price for the shares as to which it is exercised, (ii)
delivery of outstanding shares of Common Stock (which have been outstanding for
at least six months) having a fair market value on the last business day
preceding the date of exercise equal to the option exercise price, (iii) an
irrevocable undertaking by a creditworthy broker to deliver promptly to the
Company sufficient funds to pay the exercise price or delivery of irrevocable
instructions to a creditworthy broker to deliver promptly to the Company cash or
a check sufficient to pay the exercise price, (iv) payment by such other means
as may be approved by the Board, or (v) any combination of the foregoing.
(v) Exercise by Representative Following Death of Director. An
------------------------------------------------------
optionee, by written notice to the Company, may designate one or more persons
(and from time to time change such designation), including his or her legal
representative, who, by reason of the optionee's death, shall acquire the right
to exercise all or a portion of the option. If the person or persons so
designated wish to exercise any portion of the option, they must do so within
the term of the option as provided herein. Any exercise by a representative
shall be subject to the provisions of the Plan.
(vi) Withholding Taxes. An optionee shall pay to the Company, or make
-----------------
provisions satisfactory to the Company for payment of, any taxes required by law
to be withheld upon any exercise of an option granted under the Plan, no later
than the date of the event creating such tax liability. In the Board's
discretion, such tax obligation may be paid in whole or in part in shares of
Common Stock, including shares retained from the exercise of the option, valued
at the then fair market value.
(e) Early Exercise Provisions. Notwithstanding anything to the contrary in
-------------------------
the Plan, an optionee may at any time exercise any Initial Option or Additional
Option in its entirety, as to both vested and unvested shares, provided that at
--------
the time of and as a condition to such exercise, such optionee executes and
delivers to the Company a stock restriction agreement, in a form approved by the
Board, pursuant to which the Company (or its designee) shall have the right to
purchase from the optionee within 90 days of his or her termination of service
as a director for any reason (or, if later, within 90 days after his or her
exercise of the option), at the original option exercise price, all shares
acquired upon such exercise that would not, but for the provisions of this
Section 5(e), have otherwise been purchasable by the optionee under the
provisions of Section 5(d)(i) on the date of such termination of service.
6. Limitation of Rights.
--------------------
(a) No Right to Continue as a Director. Neither the Plan, nor the granting
----------------------------------
of an option nor any other action taken pursuant to the Plan, shall constitute
or be evidence of any agreement or understanding, express or implied, that the
Company will retain the optionee as a director for any period of time.
(b) No Stockholders' Rights for Options. An optionee shall have no rights
-----------------------------------
as a stockholder with respect to the shares covered by his or her option until
the date of the issuance to him or her of a stock certificate therefor, and no
adjustment will be made for dividends or other rights (except as provided in
Section 7) for which the record date is prior to the date such certificate is
issued.
(c) Compliance with Securities Laws. Each option shall be subject to the
-------------------------------
requirement that if, at any time, counsel to the Company shall determine that
the listing, registration or qualification of the shares subject to such option
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental or regulatory body, or the disclosure of
non-public information or the satisfaction of any other condition is necessary
as a condition of, or in connection with, the issuance or purchase of shares
thereunder, such option may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval, or satisfaction of
such condition shall have been effected or obtained on conditions acceptable to
the Board. Nothing herein shall be deemed to require the Company to apply for or
to obtain such listing, registration or qualification, or to satisfy such
condition.
7. Adjustment Provisions for Mergers, Recapitalizations and Related
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Transactions.
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If, through or as a result of any merger, consolidation, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split, or other similar transaction, (i) the outstanding shares of Common Stock
are exchanged for a different number or kind of securities of the Company or of
another entity, or (ii) additional shares or new or different shares or other
securities of the Company are distributed with respect to such shares of Common
Stock, the Board shall make an appropriate and proportionate adjustment in (x)
the maximum number and kind of shares reserved for issuance under the Plan, (y)
the number and kind of shares or other securities subject to then outstanding
options under the Plan, and (z) the price for each share subject to any then
outstanding options under the Plan (without changing the aggregate purchase
price for such options), to the end that each option shall be exercisable, for
the same aggregate exercise price, for such securities as such optionholder
would have held immediately following such event if he had exercised such option
immediately prior to such event. No fractional shares will be issued under the
Plan on account of any such adjustments.
8. Change in Control.
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For purposes hereof, "Change in Control" means an event or occurrence set
forth in any one or more of subsections (a) through (d) below (including an
event or occurrence that constitutes a Change in Control under one of such
subsections but is specifically exempted from another such subsection):
(a) the acquisition by an individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership of any
capital stock of the Company if, after such acquisition, such Person
beneficially owns (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) a majority or more of either (i) the then outstanding shares of
common stock of the Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding securities of the Company entitled
to vote generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (a), the
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following acquisitions shall not constitute a Change in Control: (i) any
acquisition directly from the Company (excluding an acquisition pursuant to the
exercise, conversion or exchange of any security exercisable for, convertible
into or exchangeable for common stock or voting securities of the Company,
unless the Person exercising, converting or exchanging such security acquired
such security directly from the Company or an underwriter or agent of the
Company), (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, or (iv) any Business Combination
(as defined below) excepted from subsection (c) of this Section 8 by the proviso
set forth therein; or
(b) such time as the Continuing Directors (as defined below) do not
constitute a majority of the Board (or, if applicable, the Board of Directors of
a successor corporation to the Company), where the term "Continuing Director"
means at any date a member of the Board (i) who was a member of the Board on the
date of adoption of this Plan or (ii) who was nominated or elected subsequent to
such date by at least a majority of the directors who were Continuing Directors
at the time of such nomination or election or whose election to the Board was
recommended or endorsed by at least a majority of the directors who were
Continuing Directors at the time of such nomination or election; provided,
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however, that there shall be excluded from this clause (ii) any individual whose
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initial assumption of office occurred as a result of an actual or threatened
election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents, by or on behalf of a
person other than the Board; or
(c) the consummation of a merger, consolidation, reorganization,
recapitalization or statutory share exchange involving the Company or a sale or
other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), provided, that no such Business Combination shall
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constitute a Change in Control if, immediately following such Business
Combination, all or substantially all of the individuals and entities who were
the beneficial owners of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, at least a majority of the then
outstanding shares of common stock and the combined voting power of the then
outstanding securities entitled to vote generally in the election of directors,
respectively, of the resulting or acquiring corporation in such Business
Combination (which shall include, without limitation, a corporation which as a
result of such transaction owns the Company or substantially all of the
Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to such
Business Combination, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, respectively; or
(d) approval by the stockholders of the Company of a complete liquidation
or dissolution of the Company.
9. Termination and Amendment of the Plan.
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The Board may suspend or terminate the Plan or amend it in any respect
whatsoever. In addition, the Board may, in its discretion, accelerate the
vesting of any option or options granted under the Plan.
Originally Adopted by the Board of Directors on October 8, 1999
Originally Approved by the Stockholders on October 8, 1999
Amended and Restated by the Board of Directors as of October 1,
2000
Approved by the Stockholders as of December 20, 2000
APPENDIX F
NAVISITE, INC. 1999 EMPLOYEE STOCK PURCHASE PLAN
The purpose of this 1999 Employee Stock Purchase Plan (the "Plan") is to provide
eligible employees of NaviSite, Inc. (the "Company") with opportunities to
purchase shares of the Company's common stock, $.01 par value (the "Common
Stock"). Fifty thousand (50,000) shares of Common Stock in the aggregate have
been approved for this purpose. This Plan is intended to qualify as an "employee
stock purchase plan" as defined in Section 423 of the Internal Revenue Code of
1986, as amended (the "Code"), and the regulations promulgated thereunder and
shall be interpreted consistent therewith.
1. Administration.
The Plan will be administered by the Board of Directors of the Company (the
"Board) or by a Committee appointed by the Board (the "Committee"). The
Board or the Committee has authority to make rules and regulations for the
administration of the Plan and its interpretation and decisions with regard
thereto shall be final and conclusive.
2. Eligibility.
All employees of the Company, including Directors who are employees, and all
employees of any subsidiary of the Company (as defined in Section 424(f) of
the Code) designated by the Board or the Committee from time to time (a
"Designated Subsidiary"), are eligible to participate in any one or more of
the offerings of Options (as defined in Section 9) to purchase Common Stock
under the Plan provided that: (a) they are customarily employed by the
Company or a Designated Subsidiary for more than 20 hours a week and for
more than five months in a calendar year; and (b) they have been employed by
the Company or a Designated Subsidiary for at least six months prior to
enrolling in the Plan; and (c) they are employees of the Company or a
Designated Subsidiary on the first day of the applicable Plan Period (as
defined below). No employee may be granted an option hereunder if such
employee, immediately after the option is granted, owns, directly or
indirectly, 5% or more of the total combined voting power or value of the
stock of the Company or any subsidiary. For purposes of the preceding
sentence, the attribution rules of Section 424(d) of the Code shall apply in
determining the stock ownership of an employee, and all stock which the
employee has a contractual right to purchase shall be treated as stock owned
by the employee.
3. Offerings.
The Company will make one or more offerings ("Offerings") to employees to
purchase stock under this Plan. Unless otherwise determined by the Board or
Committee, the first Offering will commence on the effective date (the
"Effective Date") of the Company's initial public offering of Common Stock
(or, if shares of Common Stock are not traded on a national securities
exchange or the Nasdaq National Market on the Effective Date, then on the
next date on which the Common Stock is so traded) and end on February 29,
2000. Unless otherwise determined by the Board or the Committee, subsequent
Offerings will commence on the date after the end of the preceding Offering
and will end on the last day of the third full month thereafter. Each such
period is referred to as a Plan Period (a "Plan Period"). The Board or the
Committee may, at its discretion, choose a different Plan Period for any
Offerings.
4. Participation.
An employee eligible on the first day of any Offering (an "Offering
Commencement Date") may participate in such Offering by completing and
forwarding a payroll deduction authorization form to the employee's
appropriate payroll office prior to the
enrollment deadline established by the Board or Committee. The form will
authorize a regular payroll deduction from the Compensation received by the
employee during the Plan Period. Unless an employee files a new form or
withdraws from the Plan, his or her deductions and purchases will continue
at the same rate for future Offerings under the Plan as long as the Plan
remains in effect. The term "Compensation" means the amount of money
reportable on the employee's Federal Income Tax Withholding Statement,
excluding overtime, shift premium, incentive or bonus awards, allowances and
reimbursements for expenses such as relocation allowances for travel
expenses, income or gains on the exercise of Company stock options or stock
appreciation rights, and similar items, whether or not shown on the
employee's Federal Income Tax Withholding Statement, but including, in the
case of salespersons, sales commissions to the extent determined by the
Board or the Committee.
5. Deductions.
The Company will maintain payroll deduction accounts for all participating
employees. With respect to any Offering made under this Plan, an employee
may authorize a payroll deduction in any whole percentage (not less than 1%
or more than 10%) or dollar amount not less than $10, or such lesser amount
as the Board or Committee shall determine before the start of each Plan
Period, of the Compensation he or she receives during the Plan Period or
such shorter period during which deductions from payroll are made, provided
that such percentage or amount may not result in total deductions of less
than $100 for any Plan Period for any employee. No employee may be granted
an Option which permits his rights to purchase Common Stock under this Plan
and any other employee stock purchase plan (as defined in Section 423(b) of
the Code) of the Company and any subsidiaries, to accrue at a rate which
exceeds $25,000 of fair market value of such Common Stock (determined at the
Offering Commencement Date of the Plan Period) for each calendar year in
which the Option is outstanding at any time.
6. Deduction Changes.
An employee may decrease, increase or discontinue his payroll deduction once
during any Plan Period, by filing a new payroll deduction authorization
form. If an employee elects to discontinue his payroll deductions during a
Plan Period, but does not elect to withdraw his funds pursuant to Section 8
hereof, funds deducted prior to his or her election to discontinue will be
applied to the purchase of Common Stock on the Exercise Date (as defined
below).
7. Interest.
Interest will not be paid on any employee accounts, except to the extent
that the Board or the Committee, in its sole discretion, elects to credit
employee accounts with interest at such per annum rate as it may from time
to time determine.
8. Withdrawal of Funds.
An employee may at any time prior to the close of business on the last
business day in a Plan Period and for any reason permanently draw out the
balance accumulated in the employee's account and thereby withdraw from
participation in an Offering. Partial withdrawals are not permitted. The
employee may not begin participation again during the remainder of the Plan
Period. The employee may participate in any subsequent Offering in
accordance with terms and conditions established by the Board or the
Committee.
9. Purchase of Shares.
On the Offering Commencement Date of each Plan Period, the Company will
grant to each eligible employee who is then a 3 participant in the Plan an
option ("Option") to purchase on the last business day of such Plan Period
(the "Exercise Date"), at the Option Price hereinafter provided for, the
largest number of whole shares of Common Stock of the Company as does not
exceed the number of shares determined by multiplying $1,667 by the number
of full months in the Offering Period and dividing the result by the closing
price (as defined below) on the Offering Commencement Date of such Plan
Period. Except as otherwise provided herein, the purchase price for each
share purchased will be 85% of the closing price of the Common Stock on (i)
the first business day of such Plan Period or (ii) the Exercise Date,
whichever closing price shall be less. Such closing price shall be (a) the
closing price on any national securities exchange on which the Common Stock
is listed, (b) the closing price on the Nasdaq National Market or (c) the
average of the closing bid and asked prices in the over-the-counter-market,
whichever is applicable, as published in The Wall Street Journal. If no
sales of Common Stock were made on such a day, the price of the Common Stock
for purposes of clauses (a) and (b) above shall be the reported price for
the next preceding day on which sales were made. Notwithstanding the
foregoing, for purposes of the initial Plan Period, the purchase price for
each share will be (i) 85% of the price at which the Common Stock is
initially offered to the public or (ii) 85% of the closing price of the
Common Stock on the Exercise Date, whichever price shall be less. Each
employee who continues to be a participant in the Plan on the Exercise Date
shall be deemed to have exercised his or her Option at the Option Price on
such date and shall be deemed to have purchased from the Company the number
of full shares of Common Stock reserved for the purpose of the Plan that his
accumulated payroll deductions on such date will pay for, but not in excess
of the maximum number determined in the manner set forth above. Any balance
remaining in an employee's payroll deduction account at the end of a Plan
Period, other than amounts that would have otherwise been applied for the
payment of fractional shares, will be automatically refunded to the
employee.
10. Issuance of Certificates.
Certificates representing shares of Common Stock purchased under the Plan
may be issued only in the name of the employee, in the name of the employee
and another person of legal age as joint tenants with rights of survivorship
or (in the Company's sole discretion) in the name of a brokerage firm, bank
or other nominee holder designated by the employee. The Company may, in its
sole discretion and in compliance with applicable laws, authorize the use of
book entry registration of shares in lieu of issuing stock certificates.
11. Rights on Retirement, Death or Termination of Employment.
In the event of a participating employee's termination of employment prior
to the last business day of a Plan Period, no payroll deduction shall be
taken from any pay 4 due and owing to an employee and the balance in the
employee's account shall be paid to the employee or, in the event of the
employee's death, (a) to a beneficiary previously designated in a revocable
notice signed by the employee (with any spousal consent required under state
law) or (b) in the absence of such a designated beneficiary, to the executor
or administrator of the employee's estate or (c) if no such executor or
administrator has been appointed to the knowledge of the Company, to such
other person(s) as the Company may, in its discretion, designate. If, prior
to the last business day of the Plan Period, the Designated Subsidiary by
which an employee is
employed shall cease to be a subsidiary of the Company, or if the employee
is transferred to a subsidiary of the Company that is not a Designated
Subsidiary, the employee shall be deemed to have terminated employment for
the purposes of this Plan.
12. Optionees Not Stockholders.
Neither the granting of an Option to an employee nor the deductions from his
pay shall constitute such employee a stockholder of the shares of Common
Stock covered by an Option under this Plan until such shares have been
purchased by and issued to him or her.
13. Rights Not Transferable.
Rights under this Plan are not transferable by a participating employee
other than by will or the laws of descent and distribution and are
exercisable during the employee's lifetime only by the employee.
14. Application of Funds.
All funds received or held by the Company under this Plan may be combined
with other corporate funds and may be used for any corporate purpose.
15. Adjustment in Case of Changes Affecting Common Stock.
In the event of a subdivision of outstanding shares of Common Stock, or the
payment of a dividend in Common Stock, the number of shares approved for
this Plan, and the share limitation set forth in Section 9, shall be
increased proportionately, and such other adjustment shall be made as may be
deemed equitable by the Board or the Committee. In the event of any other
change affecting the Common Stock, such adjustment shall be made as may be
deemed equitable by the Board or the Committee to give proper effect to such
event.
16. Merger.
In the event of a merger or consolidation of the Company with or into
another corporation, or of a sale of all or substantially all of the assets
of the Company, while unexercised Options remain outstanding under the Plan,
(a) subject to the provisions of clauses (b) and (c), after the effective
date of such 5 transaction, each holder of an outstanding Option shall be
entitled, upon exercise of such Option, to receive in lieu of shares of
Common Stock, shares of such stock or other securities as the holders of
shares of Common Stock received pursuant to the terms of such transaction;
or (b) all outstanding Options may be cancelled by the Board or the
Committee as of a date prior to the effective date of any such transaction
and all payroll deductions shall be paid out to the participating employees;
or (c) all outstanding Options may be cancelled by the Board or the
Committee as of the effective date of any such transaction, provided that
notice of such cancellation shall be given to each holder of an Option, and
each holder of an Option shall have the right to exercise such Option in
full based on payroll deductions then credited to his account as of a date
determined by the Board or the Committee, which date shall not be less than
ten (10) days preceding the effective date of such transaction.
17. Amendment of the Plan.
The Board may at any time, and from time to time, amend this Plan in any
respect, except that (a) if the approval of any such amendment by the
stockholders of the Company is required by Section 423 of the Code, such
amendment shall not be effected without such approval, and (b) in no event
may any amendment be made which would cause the Plan to fail to comply with
Section 423 of the Code.
18. Insufficient Shares.
In the event that the total number of shares of Common Stock specified in
elections to be purchased under any Offering plus the number of shares
purchased under previous Offerings under this Plan exceeds the maximum
number of shares issuable under this Plan, the Board or the Committee will
allot the shares then available on a pro rata basis.
19. Termination of the Plan.
This Plan may be terminated at any time by the Board. Upon termination of
this Plan all amounts in the accounts of participating employees shall be
promptly refunded.
20. Governmental Regulations.
The Company's obligation to sell and deliver Common Stock under this Plan is
subject to listing on a national stock exchange or quotation on the Nasdaq
National Market (to the extent the Common Stock is then so listed or quoted)
and the approval of all governmental authorities required in connection with
the authorization, issuance or sale of such stock.
21. Governing Law.
The Plan shall be governed by Delaware law except to the extent that such
law is preempted by federal law.
22. Issuance of Shares.
Shares may be issued upon exercise of an Option from authorized but unissued
Common Stock, from shares held in the treasury of the Company or from any
other proper source.
23. Notification upon Sale of Shares.
Each employee agrees, by entering the Plan, to promptly give the Company
notice of any disposition of shares purchased under the Plan where such
disposition occurs within two years after the date of grant of the Option
pursuant to which such shares were purchased.
24. Effective Date and Approval of Stockholders.
The Plan shall take effect on October 27, 1999 subject to approval by the
stockholders of the Company as required by Section 423 of the Code, which
approval must occur within twelve months of the adoption of the Plan by the
Board.
Adopted by the Board of Directors as of October 8, 1999
Approved by the Stockholders as of October 8, 1999
NaviSite, Inc.
Amendment to
Employee Stock Purchase Plan
The Employee Stock Purchase Plan is here by amended as follows:
The words "Fifty thousand (50,000)" are deleted from the second sentence of the
preamble and replaced with the words "Two hundred and fifty thousand (250,000)."