EXHIBIT 10.4
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THIS SECURITY IS NOT BEING REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS
SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) TO THE COMPANY, OR (2)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT.
THE HOLDER OF THIS NOTE IS ENTITLED TO THE BENEFITS OF THE GUARANTEE
AND SECURITY AGREEMENT DATED NOVEMBER 8, 2001 AMONG THE COMPANY, CERTAIN
SUBSIDIARY GUARANTORS THERETO AND COMPAQ FINANCIAL SERVICES CORPORATION, AS
AMENDED, MODIFIED AND SUPPLEMENTED FROM TIME TO TIME. ADDITIONALLY, THE HOLDER
OF THIS NOTE IS ENTITLED TO THE BENEFITS OF THE AMENDMENT TO AND RESTATEMENT OF
THE INVESTOR RIGHTS AGREEMENT DATED NOVEMBER 8, 2001 AMONG THE COMPANY, COMPAQ
FINANCIAL SERVICES CORPORATION AND CMGI, INC., AS AMENDED, MODIFIED AND
SUPPLEMENTED FROM TIME TO TIME.
NAVISITE, INC.
12% Convertible, Senior, Secured Note
Due December 31, 2007
U.S. $55,093,333.33 November 8, 2001
FOR VALUE RECEIVED, the undersigned, NaviSite, Inc., a Delaware
corporation (the "Company"), hereby promises to pay to Compaq Financial Services
Corporation, a Delaware corporation (the "Purchaser"), the principal sum of
US$55,093,333.33 in twelve equal quarterly installments (each a "Principal
Payment"), together with accrued but unpaid interest thereon, commencing on the
first Interest Payment Date (as defined below) in 2005 and continuing on each
Interest Payment Date thereafter (each date on which a Principal Payment is
made, a "Principal Payment Date") until December 31, 2007 (the "Maturity Date").
The Company may not prepay this Note. Interest on the outstanding principal
shall be at a rate of 12% per annum ("Interest"), calculated on the basis of a
360 day year consisting of twelve 30 day months, and will be payable quarterly
in arrears on March 31, June 30, September 30 and December 31 of each year (each
an "Interest Payment Date") beginning December 31, 2001 until the Maturity Date.
Interest for the first Interest Payment Date shall be calculated from the date
of issuance hereof to the first Interest Payment Date. If all or a portion of a
Principal Payment or Interest shall not be paid when due (whether at its stated
maturity, by acceleration or otherwise), the Company hereby promises to pay, on
demand, interest on such overdue amount
from and including the due date to, but excluding, the date such amount is paid
in full at 14% per annum (and until the date such overdue amount is paid in
full, "Interest" on such overdue amount shall mean interest at such rate).
This Note is being delivered pursuant to a Note Purchase Agreement,
dated as of October 29, 2001, among the Company, the Purchaser and CMGI, Inc., a
Delaware corporation (the "Note Purchase Agreement"). This Note is one of the
Notes referred to in the Note Purchase Agreement, which among other things,
contains provisions for the acceleration of the maturity hereof upon the
happening of certain events and for the amendment or waiver of certain
provisions of the Note Purchase Agreement, all upon the terms and conditions
therein specified.
1. Certain Definitions. As used herein, the following terms have the
following meanings:
"Closing Price" shall mean, on any day, (i) the closing price of the
Common Stock (or any other security for which a closing price must be
determined) on a national securities exchange or as quoted on the Nasdaq
National Market on such day, as reported by the Wall Street Journal or (ii) if
the Common Stock (or any such other security) is quoted on the Nasdaq National
Market but no sale occurs on such day, the average of the closing bid and asked
prices of the Common Stock (or any such other security) on the Nasdaq National
Market on such day, as reported by the Wall Street Journal or (iii) if the
Common Stock (or any such other security) is not so listed or quoted, the
average of the closing bid and asked prices of the Common Stock (or any such
other security) in the U.S. over-the-counter market or (iv) if no such trading
market is readily available, the fair market value of the Common Stock (or any
such other security) as determined in accordance with Section 5(b) hereof.
"Current Market Price" of the Common Stock means the average of the
daily Closing Prices of the Common Stock for the five consecutive trading days
selected by the board of directors commencing not more than 20 trading days
before, and ending not later than the date immediately preceding the record date
fixed in connection with such event or, if there is no record date, the date of
such event; provided, that the Current Market Price of the Common Stock in
connection with a Spin-Off shall mean the average of the daily Closing Prices of
the Common Stock for the same five consecutive trading days used to determine
the Fair Market Value of the securities being distributed in such Spin-Off.
"Fair Market Value" of the securities to be distributed to the holders
of the Common Stock in connection with a Spin-Off shall mean the average of the
daily Closing Prices of such securities for a five consecutive trading day
period selected by the board of directors during the period beginning on the
first day of trading of such securities after the effectiveness of such Spin-Off
and ending not later than 20 days after the effectiveness of the Spin-Off.
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All capitalized terms used but not otherwise defined herein shall have
the meaning ascribed to such terms in the Note Purchase Agreement.
2. Security.
The Purchaser's right to payment pursuant to the terms of this Note
shall be secured to the extent and on the terms and conditions set forth in the
Security Agreement, and the terms and provisions of the Security Agreement are
incorporated herein by reference.
3. Payment.
Principal Payments on each Principal Payment Date and Interest on each
Interest Payment Date shall be made by bank cashier's check payable to the
Purchaser at the Purchaser's principal address set forth in Section 10.04 of the
Note Purchase Agreement (or at such other place as the Purchaser hereof shall
notify the Company in writing) or, if the Purchaser so specifies, by written
notice to the Company given not less than two Business Days prior to the
Principal Payment Date or the Interest Payment Date, as the case may be, by bank
wire transfer, in immediately available funds, to the account so specified, in
lawful money of the United States of America; provided that, at the election of
the Company, so long as the Company is listed on the Nasdaq National Market, up
to one-sixth of the amount of Interest due on any Interest Payment Date through
and including the Interest Payment Date in December 2003 may be paid in shares
of Common Stock. The number of shares of Common Stock to be issued in payment of
the Interest due on such Interest Payment Date shall equal the amount of such
Interest to be paid in Common Stock divided by the average of the Closing Prices
per share of the Common Stock on the five consecutive trading days ending on the
trading day immediately preceding such Interest Payment Date. If any Principal
Payment Date or any Interest Payment Date occurs on a date that is not a
Business Day, then the Principal Sum or Interest then due shall be paid on the
next succeeding Business Day.
4. Conversion.
(a) Conversion Rights. Subject to and in accordance with the
provisions of this Section 4, at any time on or prior to the Maturity
Date, the Purchaser may elect, in its sole discretion, to effect the
conversion (the "Conversion") of all or any portion of the outstanding
principal and interest due on this Note into shares of Common Stock.
The number of shares of Common Stock into which the outstanding
principal and accrued but unpaid interest (or portion thereof) shall
be converted pursuant to this Section 4(a) shall be determined by
dividing the amount of outstanding principal and interest the
Purchaser has elected to convert by $0.26. The Conversion Price is
subject to adjustment as provided in Section 5 hereof.
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(b) Manner of Effecting the Conversion. If the Purchaser
elects to effect the Conversion pursuant to Section 4(a) hereof, the
Purchaser shall deliver a duly executed written notice to the Company
of such election (the "Conversion Notice"), and in such event the
Conversion shall be deemed to have been effected at the close of
business on the date such Conversion Notice is given. Upon any
Conversion of this Note in accordance with the terms hereof, the
rights of the Purchaser with respect to the outstanding principal and
all interest pursuant to this Note shall cease and the Purchaser shall
be deemed to have become the holder of record of the shares of Common
Stock into which this Note shall have been converted, provided that,
if the Purchaser elects to convert only a portion of the outstanding
principal and interest pursuant to Section 4(a) hereof, then the
Company will deliver a new note to the Purchaser, on the same terms
and conditions as this Note, with respect to the portion of the
outstanding principal and interest that is not converted (the "New
Note"). Concurrently with the delivery of a Conversion Notice, the
Purchaser shall surrender this Note to the Company. Promptly upon its
receipt of a Conversion Notice, the Company shall (i) deliver to or
upon the written order of the Purchaser, a certificate or certificates
for the number of shares of Common Stock issuable upon such
Conversion, (ii) make a cash payment in respect of any fraction of a
share as provided in Section 4(c) hereof and (iii) if applicable,
deliver a New Note as set forth in this Section 4(b).
(c) Fractional Shares. No fractional shares shall be issued
upon any Conversion. Instead of any fractional share which would
otherwise be issuable upon a Conversion, the Company shall pay a cash
amount in respect of such fractional share in an amount based upon the
Closing Price of the Common Stock on the trading day immediately
preceding such Conversion.
(d) Notwithstanding anything contained herein, this Note may
not be converted until the Company has obtained the stockholder
approvals required in accordance with Rule 4350(i) of the National
Association of Securities Dealers Manual and Delaware corporate law.
5. Antidilution Provisions.
(a) The Conversion Price shall be subject to adjustment from
time to time as follows:
(i) Stock Splits and Combinations. In case the
Company shall at any time or from time to time after the
Closing Date (A) subdivide or split the outstanding shares of
Common Stock, (B) combine or reclassify the outstanding shares
of Common Stock into a smaller number of shares or (C) issue by
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reclassification of the shares of Common Stock any shares of
Capital Stock of the Company, then, and in each such case, the
Conversion Price in effect immediately prior to such event or
the record date therefor, whichever is earlier, shall be
adjusted so that the holder of this Note thereafter surrendered
for conversion shall be entitled to receive the number of
shares of Common Stock or other securities of the Company which
such holder would have owned or have been entitled to receive
after the occurrence of any of the events described above, had
such Note been surrendered for conversion immediately prior to
the occurrence of such event or the record date therefor,
whichever is earlier. An adjustment made pursuant to this
subparagraph (i) shall become effective at the close of
business on the day upon which such corporate action becomes
effective. Such adjustment shall be made successively whenever
any event listed above shall occur.
(ii) Stock Dividends in Common Stock. In case the
Company shall at any time or from time to time after the
Closing pay a dividend or make a distribution in shares of
Common Stock on any class of Capital Stock of the Company other
than dividends or distributions of shares of Common Stock or
other securities with respect to which adjustments are provided
in Section 5(a)(i) above, the Conversion Price shall be
adjusted so that the holder of this Note shall be entitled to
receive upon conversion thereof, the number of shares of Common
Stock determined by multiplying (A) the applicable Conversion
Price by (B) a fraction, the numerator of which shall be the
number of shares of Common Stock theretofore outstanding and
the denominator of which shall be the sum of such number of
shares and the total number of shares issued in such dividend
or distribution.
(iii) Issuance of Rights or Warrants. In case the
Company shall issue to all holders of Common Stock rights or
warrants entitling such holders to subscribe for or purchase
Common Stock at a price per share less than the Current Market
Price, the Conversion Price in effect immediately prior to the
close of business on the record date fixed for determination of
stockholders entitled to receive such rights or warrants shall
be reduced by multiplying such Conversion Price by a fraction,
the numerator of which is the
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sum of the number of shares of Common Stock outstanding at the
close of business on such record date and the number of shares
of Common Stock that the aggregate offering price of the total
number of shares of Common Stock so offered for subscription or
purchase would purchase at such Current Market Price and the
denominator of which is the sum of the number of shares of
Common Stock outstanding at the close of business on such
record date and the number of additional shares of Common Stock
so offered for subscription or purchase. For purposes of this
subparagraph (iii), the issuance of rights or warrants to
subscribe for or purchase securities convertible into Common
Stock shall be deemed to be the issuance of rights or warrants
to purchase the Common Stock into which such securities are
convertible at an aggregate offering price equal to the sum of
the aggregate offering price of such securities and the minimum
aggregate amount (if any) payable upon conversion of such
securities into Common Stock. Such adjustment shall be made
successively whenever any such event shall occur.
(iv) Distribution of Indebtedness, Securities or
Assets. In case the Company shall distribute to all holders of
Common Stock (whether by dividend or in a merger, amalgamation
or consolidation or otherwise) evidences of indebtedness,
shares of Capital Stock of any class or series, other
securities, cash or assets (other than Common Stock, rights or
warrants referred to in subparagraph (iii) above and other than
as a result of a Fundamental Change (as defined below)), the
Conversion Price in effect immediately prior to the close of
business on the record date fixed for determination of
stockholders entitled to receive such distribution shall be
reduced by multiplying such Conversion Price by a fraction, the
numerator of which is the Current Market Price on such record
date less the fair market value (as determined in good faith by
the board of directors, except in the case of a Spin-Off (as
defined below)) of the portion of such evidences of
indebtedness, shares of capital stock, other securities, cash
and assets so distributed applicable to one share of Common
Stock, and the denominator of which is the Current Market
Price. Such adjustment shall be made successively whenever any
such event shall occur.
In respect of a dividend or other distribution of
shares of Capital Stock of any class or series, or similar
equity interests, of or relating to a subsidiary or other
business unit of the Company (a "Spin-Off"), the adjustment to
the Conversion Price under this subparagraph (iv) shall occur
20 trading days after the effective date of the Spin-Off.
(v) Issuance of Common Stock. In case the Company
shall issue or sell any shares of Common Stock at a price per
share less than the Current Market Price (other than any (i)
such transaction as to which an adjustment is otherwise
provided for in this Section 5, (ii) the issuance by the
Company of
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Common Stock to pay interest pursuant to Section 3 hereof or in
satisfaction of Affiliate Obligations, (iii) the issuance by
the Company to directors, employees, consultants or advisors of
the Company of shares of Common Stock, or grant of options or
other rights to purchase or acquire Common Stock, at a price,
or exercise price, as the case may be, no lower than the fair
market value of the Common Stock (as reasonably determined by
the independent directors of the Company in good faith as of
the time of issuance or grant, as the case may be), so long as
the aggregate number of shares of Common Stock that are so
issued or with respect to which an option or other right is so
granted under this clause (iii) does not exceed 14,500,000
shares or (iv) the issuance by the Company of Common Stock
pursuant to the NaviSite Warrants in accordance with their
terms as of the date hereof), the Conversion Price in effect
immediately prior to the close of business on the date
immediately preceding such issuance or sale shall be reduced by
multiplying such Conversion Price by a fraction, the numerator
of which is the sum of the number of shares of Common Stock
outstanding at the close of business on the date immediately
preceding such issuance or sale (giving assumed effect to the
conversion of all convertible securities outstanding on the
date hereof) to and the number of shares of Common Stock that
the aggregate price paid for the total number of shares of
Common Stock so issued or sold on such date would purchase at
such Current Market Price and the denominator of which is the
sum of the number of shares of Common Stock outstanding at the
close of business on the date immediately preceding such
issuance or sale (giving assumed effect to the conversion of
all convertible securities outstanding on the date hereof) and
the number of additional shares of Common Stock so issued or
sold. For purposes of this subparagraph (v), the issuance of
rights, options or warrants to purchase Common Stock or
securities convertible or exchangeable for Common Stock shall
be deemed to be the issuance of the Common Stock into which
such securities are exercisable at an aggregate price equal to
the sum of the aggregate price paid for such securities and the
minimum aggregate amount (if any) payable upon exercise or
conversion of such options, rights, warrants or securities for
Common Stock, and the date of issuance and sale for purposes
hereof shall be the date upon which such options, rights or
warrants were issued or amended. Such adjustment shall be made
successively whenever any such event shall occur; provided that
no adjustment shall be made upon exercise of any option, right
or warrant. If an adjustment is made as the result of the
issuance of an option, right, warrant or convertible security
and such option, right, warrant or
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security expires unexercised or unconverted, the Conversion
Price shall be readjusted to the price that would have been in
effect if no such adjustment had been made.
(vi) Fundamental Changes. In case any transaction or
event (including, without limitation, any merger,
consolidation, combination, recapitalization, sale of assets,
tender or exchange offer, reclassification, compulsory share
exchange or liquidation) shall occur in which all or
substantially all outstanding shares of Common Stock are
converted into or exchanged or acquired for or constitute the
right to receive stock, other securities, cash, property or
assets (each, a "Fundamental Change"), the holder of this Note
outstanding immediately prior to the occurrence of such
Fundamental Change shall have the right upon any subsequent
conversion to receive (but only out of legally available funds,
to the extent required by applicable law) the kind and amount
of stock, other securities, cash, property or assets that such
holder would have received if such share had been converted
immediately prior thereto.
(b) (i) Subject to paragraph (b)(ii) below, each
determination of the Closing Price pursuant to clause (iv) of the
definition of "Closing Price" shall be made in good faith by the
Company. Upon each determination of the fair market value of the
Common Stock by the Company hereunder, the Company shall promptly give
notice thereof to each Purchaser, setting forth in reasonable detail
the calculation of such fair market value and the method and basis of
determination thereof (the "Company Determination").
(ii) If the Required Holders shall disagree with the
Company Determination and shall by notice to the Company given
within 10 days after the Company's notice of the Company
Determination (an "Appraisal Notice") elect to dispute the
Company Determination, such dispute shall be resolved as set
forth in paragraph (b)(iii) below; provided that such procedure
shall not apply to any determination of fair market value made
pursuant to Section 5(a)(v)(ii).
(iii) The Company shall within 10 days after an
Appraisal Notice shall have been given pursuant to paragraph
(b)(i) above engage an investment bank or other qualified
appraisal firm reasonably acceptable to the Required Holders
(the "Appraiser") to make an independent determination of the
fair market value of the Common Stock (the "Appraiser
Determination"). The Appraiser Determination shall be final and
binding on the Company and the Purchasers. If the Company
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Determination and the Appraiser Determination differ by an
amount of 15% or less of the Company Determination, then the
costs of conducting the appraisal shall be borne equally by the
Company and the Purchasers; if the Company Determination is
greater than the Appraiser Determination by more than 15% of
the Company Determination, then the costs of conducting the
appraisal shall be borne entirely by the Purchasers; and if the
Appraiser Determination is greater than the Company
Determination by more than 15% of the Company Determination,
then the costs of conducting the appraisal shall be borne
entirely by the Company; provided that in each case costs
separately incurred by the Company and any Purchasers shall be
separately borne by them.
(c) Anything in paragraph (a) to the contrary
notwithstanding, the Company shall not be required to give effect to
any adjustment in the Conversion Price unless and until the net effect
of one or more adjustments (each of which shall be carried forward
until counted toward adjustment), determined as above provided, shall
have resulted in a change of the Conversion Price by at least 1%, and
when the cumulative net effect of more than one adjustment so
determined shall be to change the Conversion Price by at least 1%,
such change in the Conversion Price shall thereupon be given effect.
In the event that, at any time as a result of the provisions of this
paragraph (b), the holder of this Note upon subsequent conversion
shall become entitled to receive any shares of Capital Stock of the
Company other than Common Stock, the number of such other shares so
receivable upon conversion of this Note shall thereafter be subject to
adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions contained herein.
(d) In any case in which paragraph (a) requires that an
adjustment as a result of any event is to become effective from and
after a record date, the Company may elect to defer until after the
occurrence of such event (i) issuing to the holder of this Note
converted after such record date and before the occurrence of such
event the additional shares of Common Stock issuable upon such
conversion over and above the shares issuable on the basis of the
Conversion Price in effect immediately prior to adjustment and (ii)
paying to such holder any amount in cash in lieu of a fractional share
of Common Stock.
(e) If the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend
or other distribution, and shall thereafter and before the
distribution to stockholders thereof legally abandon its plan to pay
or deliver such dividend or distribution, then thereafter no
adjustment in the number of
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shares of Common Stock issuable upon exercise of the right of
conversion or in the Conversion Price then in effect shall be required
by reason of the taking of such record.
(f) Upon any adjustment of the Conversion Price or the number
of shares of Common Stock issuable upon the Conversion of this Note, a
certificate, signed by (i) the Company's president and chief financial
officer or (ii) any independent firm of certified public accountants
of recognized national standing the Company selects at its own
expense, setting forth in reasonable detail the events requiring the
adjustment and the method by which such adjustment was calculated,
shall be mailed to the Purchaser at the address set forth in Section
10.04 of the Note Purchase Agreement hereof and shall specify the
adjusted Conversion Price and the number of shares of Common Stock
issuable upon the Conversion of the Note after giving effect to the
adjustment.
(g) The Company shall not, by amendment of its Certificate of
Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale
of securities or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but shall at all times in good
faith assist in the carrying out of all provisions of this Section 5
and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Purchaser against
impairment.
(h) Except as otherwise provided herein, all sections of this
Section 5 are intended to operate independently of one another. If an
event occurs that requires the application of more than one section,
all applicable sections shall be given independent effect.
6. Governing Laws.
This Note shall be governed by, and construed in accordance with, the
laws of the State of New York in all respects, including all matters of
construction, validity and performance, without regard to the choice of law
provisions thereof.
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IN WITNESS WHEREOF, the Company has caused this Note to be signed on
its behalf, in its corporate name, by its duly authorized officer as an
instrument under seal, as of the day and year first above written.
NAVISITE, INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Chief Executive Officer
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