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:
[X] Preliminary Proxy Statement [_]Confidential, for Use of the
Commission Only (as permitted [ ]
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 28, 2001
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 19, 2001 at 2:30 p.m., local
time, at the Andover Country Club, 60 Canterbury Street, Andover, MA 01810.
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, 2001. 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,
Patricia Gilligan
President and Chief Executive
Officer
NAVISITE, INC.
----------------
Notice of Annual Meeting of Stockholders
----------------
The Annual Meeting of Stockholders of NaviSite, Inc., a Delaware
corporation ("NaviSite" or the "Company"), will be held on Wednesday, December
19, 2001 at 2:30 p.m., local time, at the Andover Country Club, 60 Canterbury
Street, Andover, MA 01810, to consider and act upon the following matters:
(1) To elect two members of the board of directors of NaviSite (the "Board
of Directors") to serve for one-year terms;
(2) To approve the issuance of NaviSite Common Stock, par value $0.01 per
share (the "NaviSite Common Stock"), upon conversion of NaviSite's debt
obligations held by Compaq Financial Services Corporation and CMGI,
Inc. ("CMGI"), and to approve an amendment to NaviSite's Amended and
Restated Certificate of Incorporation increasing the authorized number
of shares of Common Stock of the Corporation from 150,000,000 to
395,000,000;
(3) To authorize the Board of Directors, in its discretion, to perform any
action it deems necessary, including, without limitation, amendment of
NaviSite's Amended and Restated Certificate of Incorporation, to effect
a reverse stock split of NaviSite's issued and outstanding shares of
Common Stock, in a range from 5-to-1 to 15-to-1, without further
approval or authorization of the Company's stockholders;
(4) 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,
2002; and
(5) To transact such other business as may properly come before the meeting
or any adjournment thereof.
Admission to the Annual Meeting will be on a first-come, first-served
basis, and an admission ticket and picture identification will be required to
enter the Annual Meeting. Each stockholder will be entitled to bring a guest
to the Annual Meeting. For stockholders of record, an admission ticket is
attached to the proxy card sent with this Notice and Proxy Statement.
Stockholders holding stock in bank or brokerage accounts can obtain an
admission ticket in advance by sending a written request, along with proof of
ownership of shares (such as a brokerage statement), to the Company's Director
of Investor Relations at NaviSite, Inc., 400 Minuteman Road, Andover,
Massachusetts 01810. An individual arriving without an admission ticket will
not be admitted unless it can be verified that the individual is a NaviSite
stockholder. Cameras, cellular phones, recording equipment and other
electronic devices will not be permitted at the Annual Meeting.
Only stockholders of record as of the close of business on November 8, 2001
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,
Joe K. Suyemoto
Secretary
Andover, Massachusetts
November 28, 2001
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 19, 2001
----------------
General
This Proxy Statement is furnished in connection with the solicitation of
proxies by the board of directors (the "Board of Directors") of NaviSite,
Inc., a Delaware corporation ("NaviSite"), for use at NaviSite's 2001 Annual
Meeting of Stockholders to be held on Wednesday, December 19, 2001 (the
"Annual Meeting") at the Andover Country Club, 60 Canterbury Street, Andover,
MA 01810, 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, 2001 (the "2001 Annual Report") are being mailed to stockholders on
or about November 28, 2001.
Voting Securities and Votes Required
Only holders of record of Common Stock, par value $0.01 per share, of
NaviSite (the "NaviSite Common Stock") as of the close of business on November
8, 2001 (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 86,966,463 shares of NaviSite Common Stock issued and
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 shares of NaviSite Common Stock issued and
outstanding and entitled to vote at the Annual Meeting are represented in
person or by proxy. For purposes of determining the presence or absence of a
quorum, votes withheld, 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 outstanding shares of NaviSite Common Stock is required to
approve the issuance of NaviSite's Common Stock upon conversion of debt
obligations held by Compaq Financial Services Corporation and CMGI and to
approve the related amendment of NaviSite's Amended and Restated Certificate
of Incorporation to increase the number of authorized shares of Common Stock
from 150,000,000 to 395,000,000 (Proposal No. 2); and to approve the
authorization of any action that the Board of Directors, in its discretion,
deems necessary, including amendment of NaviSite's Amended and Restated
Certificate of Incorporation, to effect a reverse stock split of NaviSite's
issued and outstanding stock in a range from 5-to-1 to 15-to-1 (Proposal
No. 3). The affirmative vote of the holders of a majority of the shares of
NaviSite Common Stock present or represented by proxy and voting on the matter
is required to ratify the appointment of KPMG LLP as NaviSite's independent
auditors for the fiscal year ending July 31, 2002 (Proposal No. 4).
Shares which abstain from voting on a particular matter and shares held in
"street name" by brokers or nominees who indicate on their proxies that they
do not have discretionary authority to vote such shares as to a particular
matter (broker non-votes) will not be counted as votes in favor of such matter
and will also not be counted as votes cast or shares voting on such matter.
Accordingly, neither abstentions nor broker non-votes
1
will have any effect upon the outcome of voting with respect to the election
of directors (Proposal No. 1), which requires a plurality of the shares of
NaviSite Common Stock cast, or the ratification of the appointment of
NaviSite's independent auditors (Proposal No. 4), which requires an
affirmative vote of a majority of the shares of NaviSite Common Stock present
or represented by proxy and voting on the matter. Abstentions, however, will
have the effect of a negative vote with respect to Proposal Nos. 2 and 3
because approval of each of these proposals requires the affirmative vote of a
majority of all outstanding shares of NaviSite Common Stock. Broker non-votes
will also have the effect of a negative vote with respect to Proposal Nos. 2
and 3 because approval of these proposals requires the affirmative vote of the
holders of a majority of all outstanding shares of NaviSite Common Stock.
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 change
your vote at the Annual Meeting.
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, 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 stockholders.
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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, with four active members and two
vacancies on the Board of Directors. Immediately following the Annual Meeting,
should you elect the two nominees named below for director, the Company will
have four vacancies on the Board of Directors. The Board of Directors has
initiated a search for up to four independent directors to fill these
vacancies. Messrs. Craig D. Goldman and Stephen D.R. Moore, current directors
of the Company, are not standing for reelection to the Board of Directors.
The Board of Directors recommends that the two nominees named below be
elected as directors of NaviSite. The persons named as proxies will vote to
elect the two 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 September 30, 2001, appears below in the section
entitled "Security Ownership of Certain Beneficial Owners and Management."
Nominees for Election to the Board of Directors
David S. Wetherell, age 47, 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. From 1986 to July 2001, Mr. Wetherell also served as
President of CMGI. Mr. Wetherell also serves as the Chairman of the Board of
Directors of Engage, Inc.
George A. McMillan, age 47, has served as a director of NaviSite since July
11, 2001. Since July 2001, Mr. McMillan has served as Chief Financial Officer
and Treasurer of CMGI. Mr. McMillan served as President and Chief Operating
Officer of BMG Direct, a unit of Bertelsmann AG consisting of BMG Music
Service and CDNOW from 1997 to July 2001. From 1993 to 1997, Mr. McMillan
served as Chief Operating Officer and Chief Financial Officer of Renaissance
Solutions, an IT and management consulting firm.
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 twenty-two (22) meetings during the fiscal year
ended July 31, 2001. 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, with the exception of Andrew J. Hajducky,
who resigned from the Board of Directors effective in July 2001, and Mr.
Wetherell.
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 three non-employee directors,
Messrs. Craig D. Goldman, George A. McMillan and Stephen D.R. 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, James F. Moore and S. Moore
and held three meetings.
The Compensation Committee currently consists of three non-employee
directors, Messrs. Goldman, 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, J.
Moore and Wetherell and held three meetings.
The Board of Directors appointed a Special Committee in September 2000,
consisting of Messrs. James F. Moore and Stephen D.R. Moore, both independent
directors, to consider and act on matters related to potential strategic
transactions and to assist in the independent negotiation and valuation of any
proposed investment by CMGI in NaviSite. Members of the Special Committee each
received option grants of 7,500 shares of NaviSite Common Stock, fully vested
with an exercise price of $3.5625 per share, on November 28, 2000 and option
grants of 10,000 shares of NaviSite Common Stock, fully vested with an
exercise price of $1.875 per share, on February 23, 2001, respectively. Mr.
James F. Moore resigned as a director of NaviSite effective August 20, 2001,
and Mr. Stephen D.R. Moore has served as the sole member of the Special
Committee since that date.
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, 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 September 30,
2001, 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.
4
NaviSite Common Stock
The percentage ownership of NaviSite Common Stock of each person or entity
named in the following table is based on 62,059,063 shares of NaviSite Common
Stock outstanding as of September 30, 2001. Shares of NaviSite Common Stock
issuable under options that are currently exercisable or exercisable within 60
days after September 30, 2001 ("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. 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(1)
------------------------------
Number of Shares Percentage of
Beneficially Common Stock
Name and Address of Beneficial Owner Owned Outstanding
- ------------------------------------ ---------------- -------------
CMGI, Inc.(2). ................................ 57,359,163 74.7%
100 Brickstone Square
Andover, Massachusetts 01810
Patricia Gilligan(3)........................... 128,332 *
Joel B. Rosen(4)............................... 7,964 *
Kenneth W. Hale(5)............................. 167,642 *
John Muleta(6)................................. 12,500 *
J. Andrew Sherman(7)........................... 64,453 *
Peter C. Kirwan, Jr.(8)........................ 66,896 *
Jay S. Seaton(9)............................... 175,008 *
Kevin Lo(10)................................... 37,187 *
David S. Wetherell(11)......................... -- --
Craig D. Goldman(12)........................... 84,062 *
Stephen D.R. Moore (13)........................ 59,375 *
George A. McMillan............................. -- --
All executive officers and directors as a group
(12 persons).................................. 803,419 1.29%
- --------
*Percentage is less than 1% of the total number of outstanding shares of
NaviSite Common Stock.
(1) On November 8, 2001, NaviSite issued convertible notes to Compaq
Financial Services Corporation ("CFS") and CMGI in the principal amount
of approximately $55 million and $10 million, respectively. See
"Proposal 2" for a more detailed description of these transactions. These
ownership interests are not reflected in the above table.
(2) Includes 14,724,481 shares of NaviSite Common Stock that were issuable
upon conversion of $80 million of convertible subordinated notes, plus
accrued interest, as of September 30, 2001. These notes were converted
into NaviSite Common Stock on November 8, 2001.
(3) Includes 128,332 shares issuable upon the exercise of Presently
Exercisable Options.
(4) Mr. Rosen resigned as NaviSite's Chief Executive Officer and President
effective July 31, 2001.
(5) Includes 165,833 shares issuable upon the exercise of Presently
Exercisable Options and 1,200 shares owned by Mr. Hale's wife. Mr. Hale
left the employ of NaviSite on September 30, 2001.
(6) Includes 12,500 shares issuable upon the exercise of Presently
Exercisable Options. Mr. Muleta left the employ of NaviSite on July 31,
2001.
(7) Mr. Sherman left the employ of NaviSite on July 31, 2001.
(8) Mr. Kirwan left the employ of NaviSite on July 31, 2001.
5
(9) Includes 173,125 shares issuable upon the exercise of Presently
Exercisable Options. Mr. Seaton left the employ of NaviSite on September
25, 2001.
(10) Includes 37,187 shares issuable upon the exercise of Presently
Exercisable Options.
(11) Excludes 57,359,163 shares owned by CMGI, with respect to which Mr.
Wetherell disclaims beneficial ownership.
(12) Includes 84,062 shares issuable upon the exercise of Presently
Exercisable Options.
(13) Includes 59,375 shares issuable upon the exercise of Presently
Exercisable Options.
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 352,467,538 shares of CMGI Common
Stock outstanding as of September 30, 2001. 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. Unless otherwise
indicated, the address of each person named in the table is c/o NaviSite,
Inc., 400 Minuteman Road, Andover, Massachusetts 01810.
CMGI Common Stock
------------------------------
Number of Shares Percentage of
Beneficially Common Stock
Name and Address of Beneficial Owner Owned Outstanding
- ------------------------------------ ---------------- -------------
Compaq Computer Corporation.................... 47,108,731 13.4%
20555 State Highway 249
Houston, TX 77070
Patricia Gilligan.............................. -- --
Joel B. Rosen.................................. -- --
Kenneth W. Hale(1)............................. 17,000 *
John Muleta.................................... -- --
J. Andrew Sherman.............................. 921 *
Peter C. Kirwin, Jr............................ -- --
Kevin Lo....................................... -- --
Jay S. Seaton(2)............................... 7,500 *
David S. Wetherell(3).......................... 38,126,154 10.7
Craig D. Goldman............................... -- --
Stephen D.R. Moore............................. -- --
George A. McMillan(4).......................... 125,200 *
All executive officers and directors as a group
(12 persons).................................. 38,276,775 10.9
- --------
* Percentage is less than 1% of the total number of outstanding shares of
Common Stock of CMGI.
(1) Consists of 17,000 shares issuable upon the exercise of Presently
Exercisable Options.
(2) Consists of 7,500 shares issuable upon the exercise of Presently
Exercisable Options.
(3) Includes 5,014,274 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) 388,244 shares held by Mr. Wetherell and
his wife as trustees for the David S. Wetherell Charitable Trust, for a
total of 17,320,916 shares with respect to which Mr. Wetherell disclaims
beneficial ownership. Mr. Wetherell's address is c/o CMGI, Inc., 100
Brickstone Square, Andover, MA 01810. Mr. Wetherell also owns 46,000
shares of common stock of Engage, Inc. ("Engage"), a subsidiary of the
Company, which shares represent less than 1% of the voting power of the
outstanding capital stock of Engage.
(4) Includes 125,000 shares issuable upon the exercise of Presently
Exercisable Options.
6
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, 2001, all Reporting Persons
complied with all applicable requirements of Section 16(a) of the Exchange
Act.
7
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, 2001 and the
fiscal years ended July 31, 2000 and July 31, 1999 to (i) NaviSite's chief
executive officer and former chief executive officer, (ii) each of the other
four most highly compensated executive officers whose total annual salary and
bonuses for fiscal year 2001 exceeded $100,000 and (iii) two former executive
officers of NaviSite who would have otherwise qualified as one of the four
most highly compensated officers under (ii) if such officers had continued to
be NaviSite executive officers as of July 31, 2001 (collectively, the "Named
Executive Officers"). The 1999 grants of options to purchase NaviPath, Inc.
("NaviPath") common stock 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
- ------------------ -------- -------- -------- ------------ ------------
Patricia Gilligan(1).... 2001 $215,909 $180,713(2) 297,500(3) $ 3,501(4)
Chief Executive Officer
and President 2000 17,898 -- 155,000 --
Joel B. Rosen(5)........ 2001 284,254 65,152 700,000(6) --
Former Chief Executive
Officer 2000 200,000 75,000 -- --
and President 1999 56,061 25,000 1,268,332(7) --
Kenneth W. Hale......... 2001 150,000 20,982 125,000(3) 2,993(4)
Chief Financial Officer
and Treasurer 2000 138,040 15,000 50,000 2,734(4)
1999 118,976 8,500 225,749(8) 2,550(4)
John Muleta............. 2001 133,534 19,791 275,000(3) 126,459(9)
Executive Vice President
J. Andrew Sherman....... 2001 147,231 -- 135,000(3) 152,491(10)
Vice President, Sales 2000 143,750 -- 70,000 208,990(11)
1999 137,500 -- 263,249(12) 140,520(13)
Peter C. Kirwan, Jr..... 2001 134,455 23,951 53,000 1,839(4)
Vice President, Strategy
(formerly 2000 113,542 175,804 56,000 1,791(4)
Chief Technology
Officer) 1999 104,095 -- 124,000(14) 1,500(4)
Jay S. Seaton........... 2001 139,100 10,252 40,000 1,429(4)
Vice President,
Marketing 2000 137,215 12,500 30,000 1,432(4)
1999 130,668 10,000 216,000(15) 1,754(4)
Kevin Lo................ 2001 100,660 8,274 185,000(3) --
Vice President, Business
Development, Marketing
and Services
- --------
(1) Ms. Gilligan was appointed NaviSite's Chief Executive Officer in July
2001. Prior to this appointment, Ms. Gilligan served as Chief Operating
Officer of NaviSite since June 2000.
8
(2) Includes $125,000 retention bonus paid July 31, 2001.
(3) Includes 100,000 options granted as part of retention package with
accelerated vesting over a two-year period on a quarterly basis.
(4) Represents the amount of matching contributions made by NaviSite under
CMGI's 401(k) plan.
(5) Mr. Rosen resigned as President and Chief Executive Officer effective
July 31, 2001. He was appointed NaviSite's Chief Executive Officer in
April 1999 and President in May 2000.
(6) Includes 200,000 options granted as part of retention package, with
accelerated vesting over a two-year period on a quarterly basis.
(7) Includes 1,068,332 shares of NaviSite Common Stock and 200,000 shares of
CMGI Common Stock.
(8) Includes 150,000 shares of NaviSite Common Stock and 32,000 shares of
CMGI Common Stock and 43,749 shares of NaviPath.
(9) Includes $125,000 as severance paid July 31, 20001 and $1,459 of matching
contributions made by NaviSite under CMGI's 401(k) plan.
(10) Consists of $149,710 in commission payments and $2,781 of matching
contributions made by NaviSite under CMGI's 401(k) plan.
(11) Consists of $205,121 in commission payments and $3,869 of matching
contributions made by NaviSite under CMGI's 401(k) plan.
(12) Includes 200,000 shares of NaviSite Common Stock and 32,000 shares of
CMGI Common Stock and 31,429 shares of NaviPath.
(13) Consists of $137,186 in commission payments and $3,334 of matching
contributions made by NaviSite under CMGI's 401(k) plan.
(14) Consists of 100,000 shares of NaviSite Common Stock and 24,000 shares of
CMGI Common Stock.
(15) Consists of 200,000 shares of NaviSite Common Stock and 16,000 shares of
CMGI Common Stock.
Option Grants During the Fiscal Year Ended July 31, 2001
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, 2001. 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 optionholder'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.
9
STOCK OPTION GRANTS IN THE FISCAL YEAR ENDED JULY 31, 2001
Individual Grants Potential Realizable
---------------------------------------------------- Value At Assumed
Number Of Percent Of Annual Rates Of Stock
Securities Total Options Price Appreciation
Underlying Granted To For Option Term
Options Employees In Exercise Price Expiration ---------------------
Name Granted Fiscal Year (Per Share) Date 5% 10%
---- ---------- ------------- -------------- ---------- ---------- ----------
Patricia Gilligan....... 38,750(1) .54% $8.5625 11/9/05 $ 91,613 $ 202,426
38,750(2) .54 8.5625 11/9/05 91,613 202,426
120,000(1) 1.66 2.625 1/4/06 19,979 107,649
100,000(3) 1.39 1.70 4/12/06 46,939 103,715
Joel B. Rosen........... 500,000(1) 6.93 9.125 10/30/05 1,937,690 3,638,893
200,000(3) 2.77 1.70 4/12/06 93,878 207430
Kenneth W. Hale......... 12,500(1) .17 8.5625 11/9/05 29,553 65,299
12,500(2) .17 8.5625 11/9/05 29,553 65,299
100,000(3) 1.39 1.70 4/12/06 46,939 103,715
John Muleta............. 175,000(1) 2.43 4.0625 1/18/06 196,298 433,736
100,000(3) 1.39 1.70 4/12/06 46,939 103,715
J. Andrew Sherman....... 17,500(1) .24 8.5625 11/9/05 41,374 91,418
17,500(2) .24 8.5625 11/9/05 41,374 91,418
100,000(3) 1.39 1.70 4/12/06 46,939 103,715
Peter C. Kirwan, Jr..... 14,000(1) .19 8.5625 11/09/05 33,099 73,134
14,000(2) .19 8.5625 11/09/05 33,099 73,134
25,000(3) .35 1.70 4/12/06 11,735 25,929
Jay S. Seaton........... 7,500(1) .10 8.5625 11/09/05 17,732 39,179
7,500(2) .10 8.5625 11/09/05 17,732 39,179
25,000(3) .35 1.70 4/12/06 11,735 25,929
Kevin Lo................ 45,000(1) .62 8.75 10/22/05 135,649 274,189
40,000(2) .55 8.1625 3/11/06 11,567 31,605
100,000(3) 1.39 1.70 4/12/06 46,939 103,715
- --------
(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.
(2) The term of each option is five years from the date of grant. With respect
to each option grant, 100% of the option vests and becomes exercisable
after the first year or in the event of a change in control.
(3) The term of each option is five years from the date of grant. With respect
to each option grant, 12.5% of the option vests and becomes exercisable in
equal quarterly installments over a 24-month period.
10
Options Exercised During Fiscal Year Ended July 31, 2001
The following table sets forth information concerning options to purchase
NaviSite Common Stock and CMGI Common Stock exercised by the Named Executive
Officers during the fiscal year ended July 31, 2001, 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, 2001.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
Number Of Securities Value Of Unexercised In-
Underlying Unexercised The-Money Options At
Shares Options At July 31, 2001 July 31, 2001(1)
Acquired On Value ------------------------- -------------------------
Name Company Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- ------------ -------- ----------- ------------- ----------- -------------
Patricia Gilligan....... NaviSite -- -- 54,479 398,021 -- --
Joel B. Rosen........... NaviSite -- -- 595,936 -- -- --
Kenneth W. Hale......... NaviSite -- -- 151,250 143,750 $ 88,800 --
CMGI -- -- 15,666 9,334 -- --
J. Andrew Sherman....... NaviSite -- -- 198,750 -- 118,400 --
CMGI -- -- 9,666 -- -- --
John Muleta............. NaviSite -- -- 12,500 -- -- --
Peter C. Kirwan, Jr..... NaviSite 17,085 $82,093 40,792 -- 7,167 --
CMGI 750 15,047 5,750 -- -- --
Jay S. Seaton........... NaviSite -- -- 163,541 76,459 99,195 $13,854
CMGI -- -- 6,833 4,667 --
Kevin Lo................ NaviSite -- -- 12,500 172,500 -- --
- --------
(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 $.75, which was the closing price
per share of NaviSite Common Stock on the Nasdaq National Market on July
31, 2001 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 $2.02, which was the closing price per
share of CMGI Common Stock on the Nasdaq National Market on July 31, 2001
and the applicable per share exercise price of the option.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended July 31, 2001, the members of the Compensation
Committee were Messrs. Goldman, S. Moore, J. Moore and Wetherell. Mr.
Wetherell is the Chief Executive Officer 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." 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.
11
Report of the Audit Committee
The Audit Committee currently consists of Messrs. Goldman, S. Moore and Mr.
McMillan. Messrs. Goldman and Moore are independent, as defined by the
applicable listing standards of the MarketPlace Rules of The Nasdaq Stock
Market. Although Mr. McMillan is not independent, the Board of Directors
determined, after having reviewed his educational and employment background,
that it was in the best interests of NaviSite and its stockholders to allow
Mr. McMillan to serve on the Audit Committee. 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 first adopted and approved a written charter for the Audit
Committee in June 2000.
In connection with the preparation and filing of NaviSite's Annual Report
on Form 10-K for the year ended July 31, 2001, 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, 2001. 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
Stephen D.R. Moore, Chairman
Craig D. Goldman
George A. McMillan
Independent Auditors Fees and Other Matters
Audit Fees. KPMG LLP billed the Company an aggregate of $268,170 in fees
for professional services rendered in connection with the audit of the
Company's financial statements for the most recent fiscal year and the reviews
of the financial statements included in each of the Company's Quarterly
Reports on Form 10-Q during the fiscal year ended July 31, 2001. These fees
include $61,205 in accounting consultation and advice.
Financial Information Systems Design and Implementation Fees. KPMG LLP did
not bill the Company for any professional services rendered to the Company and
its affiliates for the fiscal year ended July 31, 2001 in connection with
financial information systems design or implementation, the operation of the
Company's information system or the management of its local area network.
All Other Fees. KPMG LLP billed the Company an aggregate of $41,305 in fees
for other services, primarily related to registration statements and other
services, rendered to the Company and its affiliates for the fiscal year ended
July 31, 2001.
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 2001
and, specifically, the compensation of Patricia Gilligan, NaviSite's Chief
Executive Officer and President and Joel Rosen, NaviSite's former 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
12
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.
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 2001 was $275,000. Mr. Rosen also received an
option to acquire 500,000 shares of NaviSite Common Stock at an exercise price
of $9.125 per share. In fiscal 2001, Mr. Rosen received an incentive bonus of
$150,000 payable quarterly, based upon performance objectives determined by
the Board of Directors. Mr. Rosen resigned as Chief Executive Officer and
President of NaviSite effective July 31, 2001.
Ms. Gilligan joined NaviSite as its Chief Operating Officer in July 2000
and has served as its Chief Executive Officer and President since July 2001.
Ms. Gilligan's base salary for fiscal 2001 was $250,000. Ms. Gilligan also
received an option to acquire 120,000 shares of NaviSite Common Stock at an
exercise price of $2.625 per share. In fiscal 2001, Ms. Gilligan received an
annual incentive bonus of $75,000 payable quarterly based upon her achievement
of performance objectives determined by the Board of Directors and a retention
payment of $125,000 upon her election to the position of Chief Executive
Officer in July 2001. Ms. Gilligan's compensation was designed to align her
interests with those of NaviSite's stockholders by tying the value of the
stock option award and her eligibility for periodic cash bonuses to the
success of her efforts toward building NaviSite's management, business and
infrastructure and promoting the operating and financial performance of
NaviSite. The Compensation Committee believes that Ms. Gilligan's compensation
has been consistent with the Compensation Committee's compensation philosophy.
13
During fiscal year 2001, under the leadership of Mr. Rosen as the Chief
Executive Officer, NaviSite doubled its annual revenues from $49.8 million in
fiscal 2000 to $102.7 million in fiscal 2001. In that time period, the Company
also increased its service offerings, dramatically improved its operating
efficiencies and increased its profile within the Internet infrastructure
space. In addition, Mr. Rosen was instrumental in implementing cost-reduction
measures, which have placed the Company on a path to profitability. Moreover,
he continued his emphasis on managing NaviSite's expense structure while
delivering high quality service offerings and industry-leading performance
metrics. Through Mr. Rosen's automation and process improvement initiatives,
NaviSite was able to lower the labor costs required to provide managed
services by more than 84 percent in fiscal 2001. Ms. Gilligan has continued
these cost reduction measures and initiatives during her term as Chief
Executive Officer.
Since February 2001, NaviSite has pursued various programs to reduce
operating costs. The Compensation Committee has reviewed policies and
practices to support NaviSite with its program to reduce costs. On July 31,
2001, NaviSite initiated a reduction in force and eliminated 126 full and
part-time employees, representing approximately 25 percent of NaviSite's total
staff. NaviSite also announced the departure of 7 of 13 vice presidents in the
areas of sales, human resources, international, strategic planning, managed
services, marketing and technology planning.
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
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, 2001, CMGI owned approximately 42,905,685 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. McMillan serves as Chief Financial Officer and Treasurer of CMGI. Mr.
Wetherell serves as Chairman of the Board, Chief Executive Officer 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 or CMGI's
affiliates may enter into
14
additional or modified arrangements and transactions in the future. 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.
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.
See "Compaq Financial Services Corporation" below for discussion of the
debt obligations of the Company to Compaq Financial Services Corporation and
CMGI.
Recent Sale of Unregistered Securities
On June 11, 2001, we issued 158,956 shares of our Common Stock to CMGI for
payment of interest in an amount of $586,155 related to the $80 million
convertible notes payable to CMGI. These shares were issued on June 11, 2001,
representing the number of shares of NaviSite Common Stock equal to $586,155
divided by the average closing prices per share of NaviSite Common Stock as
reported on the Nasdaq National Market on January 24, 25, 26, 29 and 30, 2001,
rounded to the nearest whole share. On June 11, 2001, we issued 801,675 shares
of our Common Stock to CMGI for payment of interest in an amount of $1,518,375
related to the notes. These shares were issued on June 11, 2001, representing
the number of shares of NaviSite Common Stock equal to $1,518,375 divided by
the average of the closing prices per share of NaviSite Common Stock as
reported on the Nasdaq National Market on April 23, 24, 25, 26 and 27, 2001,
rounded up to the nearest whole share. On July 31, 2001, we issued 1,829,075
shares of NaviSite Common Stock to CMGI for payment of interest in an amount
of $1,503,500 related to the notes. These shares were issued on July 31, 2001,
representing the number of shares of NaviSite Common Stock equal to $1,503,500
divided by the average of the closing prices per share of NaviSite Common
Stock as reported on the Nasdaq National market on July 24, 25, 26, 27 and 30,
2001,
15
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 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.
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 1999, fiscal 2000 and fiscal 2001, NaviSite incurred expenses to
CMGI of $1,346,000, $2,655,000 and $5,098,000, 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
16
the tax allocation agreement will be resolved by a law firm or "big five"
accounting firm selected and paid for jointly by the parties.
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. This agreement was amended and restated on
November 8, 2001 in connection with the Compaq Financial Services Corporation
("CFS") and CMGI financing. Under the amended and restated agreement, CMGI and
CFS have the right to demand that NaviSite register on a Form S-1 or Form S-3
(or any successor forms) the sale under the Securities Act of all or part of
their shares of NaviSite Common Stock having an aggregate value of at least
$2.5 million. NaviSite is not required to effect more than five registrations
initiated by CMGI or more than ten registrations initiated by CFS. CMGI and
CFS 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. Under the amended and restated agreement, CMGI no
longer has rights to purchase shares of NaviSite Common Stock to maintain its
majority ownership.
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.
Compaq Financial Services Corporation
NaviSite has entered into a Master Lease and Financing Agreement with CFS,
pursuant to which CFS may lease equipment and computer software programs to
NaviSite and provide financing for license fees related to computer software
programs and other services. As of October 31, 2001, NaviSite's outstanding
balance under the agreement was approximately $27 million. On November 8,
2001, NaviSite purchased certain equipment previously leased from CFS, by
issuing a note payable in the face amount of approximately $35 million. CFS
and CMGI also loaned NaviSite $20 million and $10 million, respectively, in
cash. In exchange for the cash infusion, NaviSite issued notes payable in the
face amounts of $20 million and $10 million to CFS and CMGI, respectively,
making the total notes payable issued by NaviSite to CFS and CMGI,
approximately $55 million and $10 million, respectively. The notes require
payment of interest only, at 12% per annum, for the first three years from the
date of issuance and then repayment of interest and principal, on a straight-
line basis, over the next three years until maturity on the sixth anniversary
of the date of issuance. At NaviSite's option, it may make interest payments
(i) 100% in shares of NaviSite Common Stock, in the case of amounts owed to
CMGI through December 2007 and (ii) approximately 16.67% in shares of NaviSite
Common Stock through December 2003,
17
in the case of amounts owed to CFS. Subject to NaviSite stockholder approval,
the principal balance will be convertible into NaviSite Common Stock at the
option of the holders at any time prior to or at maturity at a rate of $0.26
per share. If this conversion feature is exercised by CFS, CMGI's ownership in
NaviSite would drop below 50% and CMGI would no longer consolidate NaviSite's
financial results. CMGI also converted its $80 million in aggregate principal
amount of notes receivable from NaviSite, plus the accrued interest thereon,
into approximately 14.8 million shares of NaviSite Common Stock. CMGI also
converted approximately $16.2 million in other amounts receivable from
NaviSite into approximately 9.9 million shares of NaviSite Common Stock.
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.
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 $68 million in the last three fiscal
years from the subsidiaries and affiliates of CMGI. The total revenue
attributable to all CMGI subsidiaries and affiliates for fiscal years 1999,
2000 and 2001, was approximately $7,058,000, $24,893,000 and $36,368,000,
respectively.
18
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,
2001, with the cumulative total return over the same period of (i) NaviSite
Common Stock, (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]
Goldman Sachs
Measurement Period Internet Nasdaq
(Fiscal Year Covered) NaviSite, Inc. Index Composite
--------------------- -------------- ------------- ---------
10/22/99.............................. $100.00 $100.00 $100.00
7/31/00............................... $243.30 $ 88.80 $133.70
7/31/01............................... $ 4.30 $ 25.40 $ 71.90
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.
19
PROPOSAL NO. 2
APPROVAL OF ISSUANCE OF COMMON STOCK UPON CONVERSION
OF DEBT OBLIGATIONS TO CMGI AND COMPAQ FINANCIAL SERVICES
CORPORATION AND RELATED AMENDMENT TO CHARTER TO INCREASE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
Overview
On October 29, 2001, NaviSite entered into an agreement with CMGI, Compaq
Financial Services Corporation ("CFS"), a wholly-owned subsidiary of Compaq
Computer Corporation (a shareholder of CMGI), and certain affiliates of CFS
pursuant to which NaviSite received a total of approximately $65 million in
financing from CFS and CMGI. Under the terms of the agreement and this
financing, the parties thereto agreed to the following:
(A) The Company purchased equipment from CFS leased by the Company under
operating lease agreements expiring through 2003 in exchange for a note
payable in the amount of approximately $35 million. This note also allows
the Company to finance past due lease payments, the sales tax on the
equipment purchase and the outright purchase of the equipment.
(B) The Company received $20 million and $10 million in cash from CFS
and CMGI, respectively, in exchange for the Company's 12% convertible
senior secured notes due December 31, 2007. The notes bear interest at 12%
and require payment of interest only for the first three years from the
date of issuance. At NaviSite's option, NaviSite may make interest payments
(i) 100% in shares of its Common Stock through December 2007, in the case
of CMGI and (ii) approximately 16.67% in shares of its Common Stock,
through December 2003, in the case of CFS. Principal and interest payments
are due on a straight line basis commencing in year four until maturity on
December 31, 2007. The convertible notes are secured by substantially all
assets of the Company and cannot be prepaid. Subject to stockholder
approval, the principal balances may be converted into NaviSite Common
Stock at the option of the holders at any time prior to maturity at a
conversion rate of $0.26 per share.
(C) CMGI also agreed to convert its $80 million in aggregate principal
amount, plus accrued interest, outstanding under the Company's existing
7.5% convertible subordinated notes due on December 12, 2003 into
approximately 14.8 million shares of NaviSite Common Stock. In addition,
CMGI agreed to convert approximately $16.2 million in other intercompany
indebtedness due by NaviSite to CMGI into approximately 9.9 million shares
of NaviSite Common Stock. These notes were converted on November 8, 2001.
For purposes of this Proxy Statement, the transactions described above in
A, B and C shall be defined herein collectively as the "Transactions."
Holders of the convertible notes are entitled to both demand and
"piggyback" registration rights, and to anti-dilution protection under certain
circumstances. The agreement with CFS and CMGI also contains certain
restrictive covenants, including, but not limited to, limitations on the
issuance of additional debt, the sale of equity securities to affiliates and
certain acquisitions and dispositions of assets.
The Special Committee of the Board of Directors, consisting solely of
Stephen D.R. Moore, an independent director who is not participating in any
way in the Transactions, considered and acted on the proposed financing with
CFS and CMGI. The Special Committee engaged Choate, Hall & Stewart as its
legal counsel and CIBC World Markets Corp. ("CIBC World Markets") as its
financial advisor to assist in evaluating the proposed Transactions. The
Special Committee met formally and informally on several occasions with one or
both of its advisors to review the proposed terms of the Transactions with CFS
and CMGI, and to consider any feasible alternatives available to the Company.
On October 28, 2001, the Special Committee met with its legal and financial
advisors and reviewed, among other things, the final terms of the
Transactions, the business, financial
20
condition and market value of the Company and other companies in the Company's
industry and the Company's financial forecasts. At this meeting, CIBC World
Markets delivered to the Special Committee its oral opinion as to the
fairness, from a financial point of view, to the Company of the aggregate
consideration to be received by the Company in the Transactions. See "Opinion
of CIBC World Markets" below.
At the conclusion of the meeting, the Special Committee approved the
Transactions and recommended that it be approved by the Board of Directors and
the stockholders of the Company.
Opinion of CIBC World Markets
NaviSite engaged CIBC World Markets to evaluate, for the Special Committee,
the fairness, from a financial point of view, to NaviSite of the aggregate
consideration to be received by NaviSite in the Transactions. On October 28,
2001, at a meeting of the Special Committee held to evaluate the Transactions,
CIBC World Markets rendered an oral opinion, which opinion was confirmed by
delivery of a written opinion dated October 29, 2001, the date of the
agreements for the Transactions, to the effect that, as of the date of the
opinion and based on and subject to the matters described in the opinion, the
aggregate consideration to be received by NaviSite in the Transactions was
fair, from a financial point of view, to NaviSite.
The full text of the written opinion of CIBC World Markets, dated October
29, 2001, which sets forth the assumptions made, matters considered and
limitations on the review undertaken, is attached hereto as Annex B and is
incorporated herein by reference. We encourage you to read this opinion
carefully in its entirety for a description of the assumptions made, matters
considered and limitation on the review undertaken by CIBC World Markets. The
opinion of CIBC World Markets is addressed to the Special Committee and
relates only to the fairness, from a financial point of view, to NaviSite of
the aggregate consideration to be received by NaviSite in the Transactions.
The opinion does not address any other aspect of the Transactions and does not
constitute a recommendation to any stockholder as to any matters relating to
the proposed Transactions or related transactions.
CIBC World Markets' opinion was only one of many factors considered by the
Special Committee in its evaluation of the Transactions and should not be
viewed as determinative of the views of the Special Committee, Board of
Directors or management of NaviSite with respect to the Transactions or the
aggregate consideration provided for in the Transactions.
The Special Committee selected CIBC World Markets based, in part, on CIBC
World Markets' reputation and expertise. CIBC World Markets is an
internationally recognized investment banking firm and, as a customary part of
its investment banking business, is regularly engaged in valuations of
businesses and securities in connection with acquisitions and mergers,
underwritings, secondary distributions of securities, private placements and
valuations for other purposes. In the ordinary course of business, CIBC World
Markets and its affiliates may actively trade securities of NaviSite, Compaq
Computer Corporation, CMGI and their respective affiliates for CIBC World
Markets' and its affiliates' own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in those
securities.
NaviSite has agreed to pay CIBC World Markets customary fees for its
services in connection with its opinion to the Special Committee. In addition,
NaviSite has agreed to reimburse CIBC World Markets for its reasonable out-of-
pocket expenses, including the reasonable fees and expenses of its legal
counsel, and to indemnify CIBC World Markets and related parties against
liabilities, including liabilities under the federal securities laws, relating
to, or arising out of, its engagement.
Stockholder Approval Requirement
Under the terms of the agreement with CMGI and CFS, NaviSite must cause a
meeting of NaviSite's stockholders to be called and held as soon as reasonably
practical and must use its best efforts to cause such stockholder approval to
be raised at a meeting to be held no later than December 31, 2001 for the
purpose of
21
approving the authorization and issuance of shares of NaviSite Common Stock
upon conversion of the convertible notes held by CMGI and CFS. If the
convertible notes held by CMGI and CFS were fully converted, NaviSite would
issue approximately 250 million shares of Common Stock.
We are asking our stockholders to approve the issuance of the shares of
NaviSite Common Stock upon conversion of the convertible notes in accordance
with the MarketPlace Rules of The Nasdaq Stock Market. These rules are
applicable to the Company because our Common Stock is listed on The Nasdaq
Stock Market, and include the following:
. Rule 4350(i)(1)(D), which requires stockholder approval of certain
transactions involving the issuance of common stock, or securities
convertible into or exercisable for common stock, equal to 20% or more
of the common stock, or 20% or more of the voting power of securities,
outstanding before the issuance at a price (or in the case of
convertible securities, a conversion price) less than the greater of the
book or market value of the common stock; and
. Rule 4350(i)(1)(B), which requires stockholder approval of the issuance
of securities that would result in a change in control of the Company.
Rule 4350(i)(1)(B) does not define when a change of control of an issuer
may be deemed to have occurred. Although the Company does not believe that the
issuance of shares upon conversion of the convertible notes will necessarily
constitute a change in control of the Company, in the event CFS were to
convert its convertible notes in full, it would own greater than 50% of the
issued and outstanding shares of NaviSite. Accordingly, the Company is seeking
stockholder approval to ensure compliance with that rule as well as with the
other rules for which stockholder approval is or may be required in connection
with the issuance of the shares upon conversion of the convertible notes. We
also require stockholder approval to amend our Certificate of Incorporation in
order to increase the number of authorized shares of our Common Stock so that
NaviSite will have a sufficient number of shares in the event of the
conversion of the convertible notes held by CMGI and CFS. To amend our
Certificate of Incorporation, a majority of the issued and outstanding shares
entitled to vote thereon must approve the amendment.
Current Capitalization
The Company's Amended and Restated Certificate of Incorporation, as amended
(the "Certificate of Incorporation"), currently authorizes the issuance of
155,000,000 shares of capital stock, 150,000,000 of which are Common Stock,
$.01 par value, 5 million of which are Preferred Stock, $0.01 par value per
share. As of September 30, 2001, of these 155 million shares, 62,059,063
shares of NaviSite Common Stock were issued and outstanding and no shares of
Preferred Stock were issued and outstanding. Further, as of September 30,
2001, the Company had reserved 15 million shares of NaviSite Common Stock for
issuance to officers, directors, employees, consultants and affiliates under
the Company's 1998 Equity Incentive Plan, of which 6,337,667 shares were
subject to outstanding options. As of that date, there were also 250,000
shares of NaviSite Common Stock reserved for issuance to non-employee
directors of the Company under the Company's 1998 Director Stock Option Plan,
of which 150,000 shares were subject to outstanding options, and 500,000
shares of NaviSite Common Stock were reserved for issuance to non-employee
directors of the Company under the Company's 1999 Stock Option Plan for Non-
Employee Directors, of which 31,770 shares were subject to outstanding
options. The Company had also reserved 1 million shares of NaviSite Common
Stock for issuance under the Company's 2000 Stock Option Plan, of which
469,630 shares were subject to outstanding options, and 250,000 shares of
NaviSite Common Stock were reserved for issuance under the Company's Employee
Stock Purchase Plan, of which 249,860 shares had been issued. The Company had
also reserved 14,453,478 shares in connection with its $80 million 7.5%
convertible notes due December 12, 2003 held by CMGI. Accordingly, as of
September 30, 2001, the Company had approximately 62,059,063 shares of
NaviSite Common Stock outstanding, approximately 7,684,845 shares of NaviSite
Common Stock reserved for future issuance under the Company's stock benefit
plans, 40,000 reserved for Special Committee options, 29,833,152 shares
reserved for debt conversion, and approximately 50,382,940 shares of NaviSite
Common Stock remaining available for other purposes.
22
In the event the entire $65 million in senior secured convertible notes is
converted into shares of NaviSite Common Stock, approximately 250 million
shares of Common Stock would be issued. Should CFS elect to convert its $55
million in convertible notes into NaviSite Common Stock and CMGI elect not to
convert, CFS would own approximately 211,897,436 shares of our Common Stock,
which would be approximately 77% of our then outstanding shares of Common
Stock. In the event both CFS and CMGI elect to convert their notes into
NaviSite Common Stock, CFS would own approximately 63% of our Common Stock and
CMGI would own approximately 11% of our Common Stock. Accordingly, CFS would
have the power, acting alone, in each event, to elect a majority of NaviSite's
Board of Directors and to determine the outcome of any corporate actions
requiring stockholder approval, regardless of how our other stockholders may
vote.
Amendment to Certificate of Incorporation
On November 16, 2001, the Board of Directors adopted resolutions by written
action, subject to stockholder approval, proposing that Article FOURTH of the
Amended and Restated Certificate of Incorporation be amended to increase the
authorized number of shares to 400,000,000 shares, of which 395,000,000 would
be Common Stock and 5,000,000 would continue to be Preferred Stock. This
amendment would provide sufficient additional shares of Common Stock in the
event the convertible notes held by CMGI and CFS are converted in full. The
amendment is attached as Annex A to this Proxy Statement.
The Board of Directors believes that the amendment to the Certificate of
Incorporation is required in order to provide for an adequate number of shares
upon the conversion of the convertible notes held by CFS and CMGI.
Recommendation of the Board of Directors
The Board of Directors has approved, and recommends that the stockholders
authorize and ratify, the issuance of shares of the Company's Common Stock
upon conversion of the senior secured convertible notes held by CMGI and CFS,
and the amendment to the Company's Certificate of Incorporation increasing the
number of authorized shares from 155,000,000 to 400,000,000. CMGI, the holder
of approximately 78% of our outstanding shares of Common Stock as of November
8, 2001, has agreed with CFS to vote "FOR" Proposal No. 2. Accordingly,
Proposal No. 2 will be approved at the Annual Meeting, regardless of whether
any other stockholders vote their shares in favor of Proposal No. 2.
The Board of Directors recommends a vote FOR Proposal No. 2.
23
PROPOSAL NO. 3
TO AUTHORIZE THE BOARD OF DIRECTORS, IN ITS DISCRETION, TO PERFORM ANY ACTION
IT DEEMS NECESSARY INCLUDING, WITHOUT LIMITATION, AMENDMENT OF THE COMPANY'S
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION, TO EFFECT A REVERSE STOCK
SPLIT OF NAVISITE'S ISSUED AND OUTSTANDING SHARES OF COMMON STOCK, IN A RANGE
FROM 5-TO-1 TO 15-TO-1, WITHOUT FURTHER APPROVAL OR AUTHORIZATION OF THE
COMPANY'S STOCKHOLDERS
General
The Board of Directors has adopted a resolution seeking approval by
NaviSite's stockholders of a proposal to authorize the Board of Directors, in
its discretion, to perform any action it deems necessary to effect a range
from 5-to-1 to 15-to-1 reverse split of the outstanding shares of NaviSite
Common Stock (the "Reverse Split") at any time prior to December 19, 2002,
without further approval or authorization of the Company's stockholders. Among
the actions to be taken if the Company's stockholders approve the proposed
Reverse Split and the Board of Directors effects the proposed Reverse Split
prior to December 19, 2002 would be the amendment of the Company's Amended and
Restated Certificate of Incorporation (the "Amendment") to reflect the outcome
of such a range of a Reverse Split. If this proposal is approved by the
Company's stockholders at the Annual Meeting and the Board of Directors elects
to effect the Reverse Split prior to December 19, 2002, the officers of the
Company will be authorized to promptly execute and file the Amendment with the
Delaware Secretary of State.
Reasons for the Reverse Split
The reason for the Reverse Split is to increase the per share market price
of the Common Stock. In September 2001, the Company was notified by Nasdaq
that, based upon their review of price data for the Company's Common Stock,
the closing bid price for the Company's Common Stock was less than $1.00 per
share during the relevant review period which was a requirement for continued
inclusion of the Company's securities on the Nasdaq Stock Market, Inc. (the
"Nasdaq"). Although Nasdaq has suspended the listing requirement for minimum
closing bid prices until January 2, 2002, the Board of Directors anticipates
that a Reverse Split would have the effect of increasing, proportionately, the
trading prices of the Company's shares, which could result in a share price
high enough to satisfy this Nasdaq listing requirement.
The Board of Directors believes that the current low per share market price
of the NaviSite Common Stock, which it believes is due in part to the overall
weakness in the market for Nasdaq stocks, has had a negative effect on the
marketability of the existing shares, the amount and percentage of transaction
costs paid by individual stockholders and the potential ability of the Company
to raise capital by issuing additional shares of its Common Stock. The Board
believes there are several reasons for these effects: first, certain
institutional investors have internal policies preventing the purchase of low-
priced stocks. Moreover, a variety of policies and practices of broker-dealers
discourage individual brokers within those firms from dealing in low-priced
stocks. Second, because the brokers' commissions on low-priced stocks
generally represent a higher percentage of the stock price than commissions on
higher priced stocks, the current share price of the Company's Common Stock
can result in individual stockholders paying transaction costs (commissions,
markups or markdowns) which are a higher percentage of their total share value
than would be the case if the Company's share price were substantially higher.
This factor is also believed to limit the willingness of institutions to
purchase the NaviSite Common Stock.
The Board of Directors anticipates that the Reverse Split will result in a
bid price for the NaviSite Common Stock in excess of $1.00 per share. The
Board also believes that the decrease in the number of shares of NaviSite
Common Stock outstanding as a consequence of the Reverse Split, and the
anticipated increase in the price of the NaviSite Common Stock, could
encourage interest in the NaviSite Common Stock and possibly promote
24
greater liquidity for the Company's stockholders, although such liquidity
could be adversely affected by the reduced number of shares outstanding after
the Reverse Split. In addition, although any increase in the market price of
the NaviSite Common Stock resulting from the Reverse Split may be
proportionately less than the decrease in the number of outstanding shares,
the Reverse Split could result in a market price for the shares that will be
high enough to overcome the reluctance, policies and practices of brokers and
investors referred to above and to diminish the adverse impact of trading
commissions on the market for the shares.
There can be no assurances, however, that the foregoing events will occur,
or that the market price of the NaviSite Common Stock immediately after the
proposed Reverse Split will be maintained for any period of time. Moreover,
there can be no assurance that the market price of the NaviSite Common Stock
after the proposed Reverse Split will adjust to reflect the conversion ratio
(e.g.-- if the market price is $0.70 before the Reverse Split and the ratio is
one (1) new share for every two (2) shares outstanding there can be no
assurance that the market price immediately after the Reverse Split will be
$1.40 (2 x $0.70)); or that the market price following the Reverse Split will
either exceed or remain in excess of the current market price. There can also
be no assurance that the Company will be able to maintain the listing of the
Common Stock on Nasdaq even if the Reverse Split results in a bid price for
the Common Stock that exceeds $1.00 per share.
Principal Effects of the Proposed Reverse Split
If the proposed range of [5-to-1 to 15-to-1] reverse stock split is
approved at the Annual Meeting and the Board of Directors elects to effect the
proposed Reverse Split. For example, in the event of a 15-to-1 Reverse Split,
each outstanding share of NaviSite Common Stock as of the record date of the
Reverse Split will immediately and automatically be changed, as of the
effective date of the Amendment, into one fifteenth of a share of NaviSite
Common Stock. In addition, the number of shares of NaviSite Common Stock
subject to outstanding options and warrants issued by the Company will be
reduced by a factor of fifteen. No fractional shares of NaviSite Common Stock
will be issued in connection with the proposed Reverse Split. Holders of the
NaviSite Common Stock who would otherwise receive a fractional share of
NaviSite Common Stock pursuant to the Reverse Split will receive cash in lieu
of the fractional share as explained more fully below.
If the Reverse Split is approved at the Annual Meeting and effected by the
Board of Directors, the Board of Directors will fix a record date for
determination of shares subject to the Reverse Split. As of the date of this
Proxy Statement, the Board of Directors had not fixed a record date for the
Reverse Split. As of November 8, 2001, the record date for the Annual Meeting,
there were 86,966,463 shares of NaviSite Common Stock issued and outstanding,
and 11,577,606 shares of NaviSite Common Stock subject to warrants and options
granted by the Company. If additional shares of NaviSite Common Stock are
issued or redeemed, the actual number of shares issued and outstanding before
and after the Reverse Split will increase or decrease accordingly.
Because the Reverse Split will apply to all issued and outstanding shares
of NaviSite Common Stock and outstanding rights to purchase NaviSite Common
Stock or to convert other securities into NaviSite Common Stock, the proposed
Reverse Split will not alter the relative rights and preferences of existing
stockholders. The Amendment will, however, effectively increase the number of
shares of NaviSite Common Stock available for future issuances by the Board of
Directors.
If the proposed Reverse Split is approved at the Annual Meeting and
effected by the Board of Directors, some stockholders may consequently own
less than one hundred shares of NaviSite Common Stock. A purchase or sale of
less than one hundred shares (an "odd lot" transaction) may result in
incrementally higher trading costs through certain brokers, particularly "full
service" brokers. Therefore, those stockholders who own less than one hundred
shares following the Reverse Split may be required to pay modestly higher
transaction costs should they then determine to sell their shares in the
Company.
Stockholders have no right under Delaware law or the Company's Amended and
Restated Certificate of Incorporation or By-Laws to dissent from the Reverse
Split or to dissent from the payment of cash in lieu of issuing fractional
shares.
25
Cash Payment in Lieu of Fractional Shares
In lieu of any fractional shares to which a holder of NaviSite Common Stock
would otherwise be entitled as a result of the Reverse Split, the Company
shall pay cash equal to such fraction multiplied by the average of the high
and low trading prices of the Company's Common Stock on the Nasdaq National
Market during regular trading hours for the five trading days immediately
preceding the effective time of the Reverse Split, which amount is hereby
determined to equal the fair market value of the NaviSite Common Stock at the
effective time of the Reverse Split.
Federal Income Tax Consequences
The following description of the material federal income tax consequences
of the Reverse Split is based on the Internal Revenue Code of 1986, as amended
(the "Code"), applicable Treasury Regulations promulgated thereunder, judicial
authority and current administrative rulings and practices as in effect on the
date of this Proxy Statement. Changes to the laws could alter the tax
consequences described below, possibly with retroactive effect. NaviSite has
not sought and will not seek an opinion of counsel or a ruling from the
Internal Revenue Service regarding the federal income tax consequences of the
Reverse Split. This discussion is for general information only and does not
discuss the tax consequences which may apply to special classes of taxpayers
(e.g., non-resident aliens, broker/dealers or insurance companies). The state
and local tax consequences of the Reverse Split may vary significantly as to
each stockholder, depending upon the jurisdiction in which such stockholder
resides. Stockholders are urged to consult their own tax advisors to determine
the particular consequences to them.
In general, the federal income tax consequences of the Reverse Split will
vary among stockholders depending upon whether they receive cash for
fractional shares or solely a reduced number of shares of NaviSite Common
Stock in exchange for their old shares of NaviSite Common Stock. NaviSite
believes that because the Reverse Split is not part of a plan to increase
periodically a stockholder's proportionate interest in NaviSite's assets or
earnings and profits, the Reverse Split will likely have the following federal
income tax effects:
A stockholder who receives solely a reduced number of shares of NaviSite
Common Stock will not recognize gain or loss. In the aggregate, such a
stockholder's basis in the reduced number of shares of NaviSite Common Stock
will equal the stockholder's basis in its old shares of NaviSite Common Stock.
A stockholder who receives cash in lieu of a fractional share as a result
of the Reverse Split will generally be treated as having received the payment
as a distribution in redemption of the fractional share, as provided in
Section 302(a) of the Code, which distribution will be taxed as either a
distribution under Section 301 of the Code or an exchange to such stockholder,
depending on that stockholder's particular facts and circumstances. Generally,
a stockholder receiving such a payment should recognize gain or loss equal to
the difference, if any, between the amount of cash received and the
stockholder's basis in the fractional share. In the aggregate, such a
stockholder's basis in the reduced number of shares of NaviSite Common Stock
will equal the stockholder's basis in its old shares of NaviSite Common Stock
decreased by the basis allocated to the fractional share for which such
stockholder is entitled to receive cash.
NaviSite will not recognize any gain or loss as a result of the Reverse
Split.
Board Discretion to Implement the Reverse Stock Split
If the proposed Reverse Split is approved at the Annual Meeting, the Board
of Directors may, in its sole discretion, at any time prior to December 19,
2002, authorize the Reverse Split and file the Amendment with the Delaware
Secretary of State. The determination by the Board of Directors will be based
on a number of factors, including market conditions, existing and expected
trading prices for the NaviSite Common Stock and the likely
26
effect of business developments on the market price for the NaviSite Common
Stock. Notwithstanding approval of the Reverse Split at the Annual Meeting,
the Board of Directors may, in its sole discretion, determine not to implement
the Reverse Split.
Recommendation
The Board of Directors recommends a vote FOR the proposal to authorize the
Board of Directors to effect a reverse stock split of the Company's Common
Stock with a range from 5-to-1 to 15-to-1 in its discretion, at any time prior
to December 19, 2002.
27
PROPOSAL NO. 4
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, 2002. 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 Audit Committee and the Board of
Directors will reconsider its selection. Representatives of KPMG LLP are
expected to be present at the Annual Meeting and will have the opportunity to
make a statement if they desire to do so and 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, 2002.
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 or
5 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 2002 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 31, 2002 in order to be included in
NaviSite's proxy statement and form of proxy relating to that meeting.
Under NaviSite's By-Laws, proposals of stockholders intended to be
submitted for a formal vote at NaviSite's 2002 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 29, 2002
and no later than October 14, 2002.
28
ANNUAL REPORT AND FORM 10-K
Concurrently with this Proxy Statement, NaviSite is sending a copy of its
2001 Annual Report to all of its stockholders of record as of November 8,
2001. The 2001 Annual Report contains NaviSite's audited consolidated
financial statements for the fiscal year ended July 31, 2001.
A copy of NaviSite's Annual Report on Form 10-K for the fiscal year ended
July 31, 2001 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,
Joe K. Suyemoto
Secretary
November 28, 2001
29
Annex A -- Certificate of Amendment of Amended and Restated Certificate of
Incorporation
Annex B -- Opinion of CIBC World Markets Corp.
30
ANNEX A
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NAVISITE, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
----------------
NaviSite, Inc. (hereinafter called the "Corporation"), organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
The Board of Directors of the Corporation duly adopted a resolution by
Written Action dated November 16, 2001, pursuant to Sections 141 and 242 of
the General Corporation Law of the State of Delaware, setting forth an
amendment to the Amended and Restated Certificate of Incorporation of the
Corporation and declaring said amendment to be advisable and directing that it
be submitted to and considered by the stockholders of the Corporation for
approval. The stockholders of the Corporation duly approved said proposed
amendment at the Annual Meeting of Stockholders held on December 19, 2001 in
accordance with Section 242 of the General Corporation Law of the State of
Delaware. The resolution setting forth the amendment is as follows:
RESOLVED: That the Board of Directors deems it advisable and in the best
interests of the Corporation and its stockholders that the first
paragraph of Article FOURTH of the Amended and Restated
Certificate of Incorporation of the Corporation be, and hereby
is, deleted and is replaced in its entirety by the provisions
attached hereto as Appendix 1 in order to increase the
authorized number of shares of Common Stock of the Corporation
from 150,000,000 to 395,000,000.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its President
this th day of December, 2001.
NaviSite, Inc.
By: _________________________________
Patricia Gilligan
President and Chief Executive
Oficer
A-1
Appendix 1
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 400,000,000 shares,
consisting of (i) 395,000,000 shares of Common Stock, par value
$0.01 per share ("Common Stock"), and (ii) 5,000,000 shares of
Preferred Stock, par value $0.01 per share ("Preferred Stock").
A-2
ANNEX B
[LETTERHEAD OF CIBC WORLD MARKETS CORP.]
October 29, 2001
The Special Committee of the Board of Directors
NaviSite, Inc.
400 Minuteman Road
Andover, Massachusetts 01810
Members of the Special Committee:
You have asked CIBC World Markets Corp. ("CIBC World Markets") to render a
written opinion ("Opinion") to the Special Committee of the Board of Directors
as to the fairness, from a financial point of view, to NaviSite, Inc.
("NaviSite") of the Aggregate Consideration (defined below) to be received
pursuant to (i) the Transaction Agreement, dated as of October 29, 2001, among
NaviSite, CMGI, Inc. ("CMGI"), AltaVista Company, an affiliate of CMGI
("AltaVista"), Compaq Computer Corporation ("Compaq") and Compaq Financial
Services Corporation (U.S.) ("CFS"), Compaq Financial Services Company
("CFSUK") and Compaq Financial Services Canada Corporation ("CFSCAD"), each an
affiliate of Compaq (the "Transaction Agreement"), and (ii) the Note Purchase
Agreement, dated as of October 29, 2001, among NaviSite, CFS and CMGI (the
"Note Purchase Agreement" and, together with the Transaction Agreement, the
"Agreements"). The Agreements provide for, among other things, (i) the
termination of certain equipment leases (the "Equipment Leases") between
NaviSite, as lessee, and CFS, CFSUK and CFSCAD, as lessor, further described
in the Transaction Agreement, pursuant to which (A) NaviSite will have no
further payment or other obligations under the Equipment Leases, subject to
certain exceptions more fully described in the Transaction Agreement (the
"Lease Termination"), and (B) CFS, CFSUK or CFSCAD, as lessors, will transfer
ownership to NaviSite of the equipment subject to the Equipment Leases (the
"Equipment Transfer" and, the transactions described in this clause (i), the
"Equipment Transaction"); (ii) the issuance by NaviSite to CFS of a 12%
Convertible, Senior, Secured Note due December 31, 2007 in an aggregate
principal amount equal to the sum of $55,000,000 plus an additional amount
equal to the interest that would have accrued on $35,000,000 of such note from
November 1, 2001 up to and including the consummation date of the transactions
contemplated by the Transaction Agreement (the "CFS Note"), in exchange for
$20,000,000 in cash (the "CFS Note Consideration" and, such transaction, the
"CFS Note Transaction"); (iii) the issuance by NaviSite to CMGI of a 12%
Convertible, Senior, Secured Note due December 31, 2007 in the aggregate
principal amount of $10,000,000 (the "CMGI Note"), in exchange for $10,000,000
in cash (the "CMGI Note Consideration" and, such transaction, the "CMGI Note
Transaction") and (iv) the issuance by NaviSite to CMGI of an aggregate of
24,358,897 shares of the common stock, par value $0.01 per share, of NaviSite
("NaviSite Common Stock"), in exchange for the cancellation of (A) the 7.5%
Convertible Subordinated Notes of NaviSite due December 12, 2003 in the
principal amounts of $50,000,000 and $30,000,000 (collectively, the "NaviSite
Notes") issued to CMGI and (B) all other intercompany indebtedness owed by
NaviSite to CMGI (together with the NaviSite Notes, the "Cancelled Debt" and,
such transaction, the "NaviSite Indebtedness Transaction"). For purposes of
this Opinion, the Lease Termination, the Equipment Transfer, the CFS Note
Consideration, the CMGI Note Consideration and the Cancelled Debt are
collectively referred to as the "Aggregate Consideration," and the Equipment
Transaction, the CFS Note Transaction, the CMGI Note Transaction and the
NaviSite Indebtedness Transaction are collectively referred to as the
"Transaction").
B-1
The Special Committee of the Board of Directors
NaviSite, Inc.
October 29, 2001
Page 2
In arriving at our Opinion, we:
(a) reviewed the Agreements, a form of the CFS Note and CMGI Note and certain
related documents;
(b) reviewed audited financial statements of NaviSite for the fiscal years
ended July 31, 1999 and July 31, 2000;
(c) reviewed unaudited financial statements for the nine months ended April
30, 2001, financial data for the fiscal year ended July 31, 2001 and
unaudited balance sheet as of September 30, 2001, of NaviSite;
(d) reviewed financial projections of NaviSite prepared by the management of
NaviSite;
(e) reviewed historical market prices for NaviSite Common Stock;
(f) held discussions with the senior management of NaviSite with respect to
the liquidity needs of, and capital resources available to, NaviSite and
the business and prospects for future growth of NaviSite;
(g) reviewed and analyzed certain publicly available financial data for
certain companies we deemed comparable to NaviSite;
(h) reviewed and analyzed certain publicly available information for
transactions that we deemed comparable to the Transaction;
(i) performed a discounted cash flow analysis of NaviSite using certain
assumptions of future performance provided to or discussed with us by the
management of NaviSite;
(j) reviewed public information concerning NaviSite; and
(k) performed such other analyses, reviewed such other information and
considered such other factors, as we deemed appropriate.
In rendering our Opinion, we relied upon and assumed, without independent
verification or investigation, the accuracy and completeness of all of the
financial and other information provided to or discussed with us by NaviSite
and its employees, representatives and affiliates. With respect to forecasts
of the future financial condition and operating results of NaviSite provided
to or discussed with us by the management of NaviSite, we assumed, at the
direction of the management of NaviSite, without independent verification or
investigation, that such forecasts were reasonably prepared on bases
reflecting the best available information, estimates and judgments of the
management of NaviSite. We have assumed, with the consent of NaviSite, that in
the course of obtaining the necessary regulatory or third party approvals and
consents for the Transaction and related transactions, no delay, limitation,
restriction or condition will be imposed that would have a material adverse
effect on NaviSite or the contemplated benefits to NaviSite of the
Transaction. We also have assumed, with the consent of NaviSite, that the
Transaction and related transactions will be consummated in accordance with
their terms, without waiver, modification or amendment of any material term,
condition or agreement, and in compliance with all applicable laws. We have
neither made nor obtained any independent evaluations or appraisals of the
assets or liabilities (contingent or otherwise) of NaviSite or its affiliated
entities. We are not expressing any opinion as to the underlying valuation,
future performance or long-term viability of NaviSite or the price at which
NaviSite Common Stock will trade at any time in the future. In connection with
our engagement, we were not requested to, and we did not, solicit third party
indications of interest in the possible acquisition of all or a part of
NaviSite, nor did we participate in the negotiation or structuring of the
Transaction. Our Opinion is necessarily based on the information available to
us and general economic, financial and stock market conditions and
circumstances as they exist and can be evaluated by us on the date hereof. It
should be understood that, although subsequent developments may affect this
Opinion, we do not have any obligation to update, revise or reaffirm the
Opinion.
B-2
The Special Committee of the Board of Directors
NaviSite, Inc.
October 29, 2001
Page 3
As part of our investment banking business, we are regularly engaged in
valuations of businesses and securities in connection with acquisitions and
mergers, underwritings, secondary distributions of securities, private
placements and valuations for other purposes.
We have acted as financial advisor to the Special Committee of the Board of
Directors of NaviSite in connection with this Opinion and will receive a fee
for our services, a portion of which is contingent upon the consummation of
the Transaction and a portion of which is payable upon delivery of this
Opinion. In the ordinary course of business, CIBC World Markets and its
affiliates may actively trade securities of NaviSite, Compaq and CMGI and
their respective affiliates for our and our affiliates' own accounts and for
the accounts of customers and, accordingly, may at any time hold a long or
short position in such securities.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Aggregate Consideration is fair, from a financial point of
view, to NaviSite. This Opinion is for the use of the Special Committee of the
Board of Directors of NaviSite in its evaluation of the Transaction, does not
address any other aspect of the Transaction and does not constitute a
recommendation to any stockholder as to how such stockholder should vote or as
to any other action to be taken with respect to any matters relating to the
Transaction or related transactions.
Very truly yours,
CIBC World Markets Corp.
CIBC WORLD MARKETS CORP.
B-3
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) Patricia Gilligan and Joe K. Suyemoto each
with the power to appoint his or her 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
November 8, 2001 at the Annual Meeting of Stockholders to be held on December
19, 2001 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?
____________________________
______________________________
____________________________
______________________________
____________________________
______________________________
PLEASE MARK VOTES AS IN THIS EXAMPLE [X]
A vote FOR the director nominees (Proposal No. 1) and FOR proposal numbers 2,
3, 4 and 5 is recommended by the Board of Directors.
(Continued and to be signed on reverse side)
1. Election of Directors. Nominees: George a. McMillan
David S. Wetherell
[_] FOR nominees [_] WITHHELD 2. Approval of the issuance of NaviSite FOR AGAINST ABSTAIN
(except from Common Stock upon conversion of [_] [_] [_]
as indicated all NaviSite's debt obligations held by
to the nominees Compaq Financial Services Corporation
contrary) and CMOI, Inc., and approval of the
related amendment of NaviSite's
Amended and Restated Certificate of
Incorporation increasing from
150,000,000 to 395,000,000 the number
of authorized shares of NaviSite
Common Stock.
3. To authorize the Board of Directors, FOR AGAINST ABSTAIN
in its discretion, to
perform any action it deems necessary, [_] [_] [_]
including, without limitation,
amendment of NaviSite's Amended and
Restated Certificate of Incorporation,
to effect a reverse stock split of
NaviSite's issued and outstanding
shares of Common Stock, in a range from
5-to-1 to 15-to-1, without further
approval or authorization of the
Company's stockholders.
4. Approval of the selection of KPMG LLP FOR AGAINST ABSTAIN
as independent auditors for the fiscal [_] [_] [_]
year ending July 31, 2002.
(CONTINUED ON REVERSE SIDE)
(CONTINUED FROM PREVIOUS SIDE)
5.In their discretion, the FOR AGAINST ABSTAIN
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: