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EXHIBIT 10.6
WARRANT
TO PURCHASE COMMON STOCK OF
NAVISITE, INC.
Warrant No. 2
Original Issue Date: April 11, 2006
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE
STATE
SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED UNLESS (I) A
REGISTRATION
STATEMENT COVERING SUCH SHARES IS EFFECTIVE UNDER THE ACT OR (II)
THE
TRANSACTION IS EXEMPT FROM REGISTRATION UNDER THE ACT.
Warrant No. 2
WARRANT
TO
PURCHASE 878,733 SHARES (SUBJECT TO ADJUSTMENT) OF COMMON STOCK
OF
NAVISITE, INC.
THIS IS TO CERTIFY THAT SPCP Group III LLC, a Delaware limited
liability corporation ("Silver Point"), or its registered assigns,
is entitled,
at any time prior to the Expiration Date to purchase from NaviSite,
Inc., a
Delaware corporation (the "Company"), 878,733 shares (subject to
adjustment as
provided herein) of the common stock, par value $0.01 per share, of
the Company
at a purchase price of $0.01 per share (the initial "Exercise
Price", subject to
adjustment as provided herein).
This Warrant was issued in connection with that certain Credit
and
Guaranty Agreement, dated as of the date hereof, by and among the
Company, the
Guarantors party thereto, the Lenders from time to time party
thereto, and
Silver Point, as Administrative Agent for the Lenders (as amended,
modified,
supplemented or restated from time to time, the "Credit
Agreement"), and is
subject to the terms thereof.
1.
DEFINITIONS
As used in this Warrant, the following terms have the
respective
meanings set forth below:
"Affiliate" of, or a Person "Affiliated" with, a specified
Person
means any other Person directly or indirectly controlling,
controlled by, or
under common control with, that Person. For the purposes of this
definition,
"control" (including, with correlative meanings, the terms
"controlling,"
"controlled by" and "under common control with"), as applied to any
Person,
means the possession, directly or indirectly, of the power (i) to
vote 5% or
more of the Securities having ordinary voting power for the
election of
directors of such Person, or (ii) to direct or cause the direction
of the
management and policies of that Person, whether through the
ownership of voting
securities or by contract or otherwise. Notwithstanding anything to
the
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contrary herein, in no event shall any Agent or Lender be
considered an
"Affiliate" of any Credit Party.
"Affiliate Transaction" shall have the meaning assigned to it
in
Section 5.4 hereof.
"Agreed Rate" means the rate of interest announced publicly by
Citibank, N.A. in New York, New York, from time to time, as
Citibank, N.A.'s
base rate.
"Appraisal Procedure" means the following procedure to determine
the
fair market value, as to any security, for purposes of the
definition of "Fair
Market Value" or the fair market value, as to any other property
(in either
case, the "Valuation Amount"). The Valuation Amount shall be
determined in good
faith jointly by the Company and the Holder; provided, however,
that if such
parties are not able to agree on the Valuation Amount within a
reasonable period
of time (not to exceed twenty (20) Business Days), the Valuation
Amount shall be
determined by an investment banking firm of national reputation,
which firm
shall be reasonably acceptable to the Company and the Holder. If
the Company and
the Holder are unable to agree upon an acceptable investment
banking firm within
ten (10) days after the date either party proposed that one be
selected, the
investment banking firm will be selected by an arbitrator located
in New York
City, New York, selected by the American Arbitration Association
(or if such
organization ceases to exist, the arbitrator shall be chosen by a
court of
competent jurisdiction). The arbitrator shall select the investment
banking firm
(within ten (10) days of his appointment) from a list, jointly
prepared by the
Company and the Holder, of not more than six investment banking
firms of
national reputation in the United States, of which no more than
three may be
named by the Company and no more than three may be named by the
Holder. The
arbitrator may consider, within the ten-day period allotted,
arguments from the
parties regarding which investment banking firm to choose, but the
selection by
the arbitrator shall be made in its sole discretion from the list
of six. The
Company and the Holder shall submit their respective valuations and
other
relevant data to the investment banking firm, and the investment
banking firm
shall, within thirty days of its appointment, make its own
determination of the
Valuation Amount. The determination of the final Valuation Amount
by such
investment banking firm shall be final and binding upon the
parties. The Company
shall pay all of the fees and expenses of the investment banking
firm and
arbitrator (if any) used to determine the Valuation Amount. If
required by any
such investment banking firm or arbitrator, the Company shall
execute a retainer
and engagement letter containing reasonable terms and conditions,
including,
without limitation, customary provisions concerning the rights
of
indemnification and contribution by the Company in favor of such
investment
banking firm or arbitrator and its officers, directors, partners,
employees,
agents and Affiliates.
"Board Observer" shall have the meaning assigned to it in Section
9.3
hereof.
"Business Day" means any day that is not a Saturday or Sunday or a
day
on which banks are required or permitted to be closed in the State
of New York.
"Commission" means the Securities and Exchange Commission or any
other
federal agency then administering the Securities Act and other
federal
securities laws.
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"Common Stock" means the common stock, par value $0.01 per share,
of
the Company as constituted on the Original Issue Date, and any
capital stock
into which such Common Stock may thereafter be changed, and shall
also include
(i) capital stock of the Company of any other class (regardless of
how
denominated) issued to the holders of shares of any Common Stock
upon any
reclassification thereof which is also not preferred as to
dividends or
liquidation over any other class of stock of the Company and which
is not
subject to redemption and (ii) shares of common stock of any
successor or
acquiring corporation received by or distributed to the holders of
Common Stock
of the Company in the circumstances contemplated by Section 4.6
hereof.
"Company" means NaviSite, Inc., a Delaware corporation, and any
successor corporation.
"Conversion Cap" shall have the meaning assigned to it in Section
4.13
hereof.
"Designated Office" shall have the meaning assigned to it in
Section 8
hereof.
"Dilution Price" shall mean, with respect to each share of
Common
Stock, $3.50, subject to appropriate adjustment for events
described in Sections
4.4, 4.5 and 4.6.
"Exercise Date" shall have the meaning assigned to it in
Section
2.1(a) hereof.
"Exercise Notice" shall have the meaning assigned to it in
Section
2.1(a) hereof.
"Exercise Price" means, in respect of a share of Warrant Stock at
any
date herein specified, the initial Exercise Price set forth in the
preamble of
this Warrant, as adjusted from time to time pursuant to Section 4
hereof.
"Expiration Date" means the 10th anniversary of the Original
Issue
Date.
"Fair Market Value" means, as to any security, the Twenty Day
Average
of the average closing prices of such security's sales on all
domestic
securities exchanges on which such security may at the time be
listed, or, if
there have been no sales on any such exchange on any day, the
average of the
highest bid and lowest asked prices on all such exchanges at the
end of such
day, or, if on any day such security is not so listed, the average
of the
representative bid and asked prices quoted on The Nasdaq Capital
Market as of
4:00 P.M., New York City time, on such day, or, if on any day such
security is
not quoted on The Nasdaq Capital Market, the average of the highest
bid and
lowest asked prices on such day in the domestic over-the-counter
market as
reported by the National Quotation Bureau, Incorporated, or any
similar or
successor organization (and in each such case excluding any trades
that are not
bona fide, arm's length transactions). If at any time such security
is not
listed on any domestic securities exchange or quoted on The Nasdaq
Capital
Market or the domestic over-the-counter market, the "Fair Market
Value" of such
security shall be the fair market value thereof as determined in
accordance with
the Appraisal Procedure, using any appropriate valuation method,
assuming an
arms-length sale to an independent party. "Fair Market Value"
means, with
respect to property other than securities, the "fair market value"
determined in
accordance with the Appraisal Procedure. No amount shall be
ascribed to "Fair
Market Value" with respect to any non-cash consideration other than
a security
or other property, as contemplated above.
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"Financial Officer Certification" means, with respect to the
financial
statements for which such certification is required, the
certification of the
chief financial officer of Company that such financial statements
fairly
present, in all material respects, the financial condition of
Company and its
Subsidiaries as at the dates indicated and the results of their
operations and
their cash flows for the periods indicated, in each case in
conformity with GAAP
applied on a consistent basis, subject, in the case of interim
financial
statements, to changes resulting from normal audit and year end
adjustments.
"Fiscal Quarter" means a fiscal quarter of any Fiscal Year.
"Fiscal Year" means the fiscal year of Company and its
Subsidiaries
ending on July 31 of each calendar year.
"GAAP" means United States generally accepted accounting
principles
consistently applied.
"Governmental Entity" means any federal, state, municipal, national
or
other government, governmental department, commission, board,
bureau, court,
agency or instrumentality or political subdivision thereof or any
entity or
officer exercising executive, legislative, judicial, regulatory
or
administrative functions of or pertaining to any government or any
court, in
each case whether associated with a state of the United States, the
United
States, or a foreign entity or government.
"Holder" means (a) with respect to this Warrant, the Person in
whose
name the Warrant set forth herein is registered on the books of the
Company
maintained for such purpose and (b) with respect to any other
Warrant or shares
of Warrant Stock, the Person in whose name such Warrant or Warrant
Stock is
registered on the books of the Company maintained for such
purpose.
"Lien" means (i) any lien, mortgage, pledge, assignment,
security
interest, charge or encumbrance of any kind (including any
agreement to give any
of the foregoing, any conditional sale or other title retention
agreement, and
any lease in the nature thereof) and any option, trust or other
preferential
arrangement having the practical effect of any of the foregoing,
and (ii) in the
case of Securities, any purchase option, call or similar right of a
third party
with respect to such Securities.
"Original Issue Date" means April 11, 2006, the date on which
the
Original Warrants were issued by the Company pursuant to the
Purchase Agreement.
"Original Warrants" means the Warrants originally issued by the
Company pursuant to the Purchase Agreement.
"Outstanding" means, when used with reference to Common Stock, at
any
date as of which the number of shares thereof is to be determined,
all issued
shares of Common Stock, except shares then owned or held by or for
the account
of the Company or any Subsidiary, and shall include all shares
issuable in
respect of outstanding scrip or any certificates representing
fractional
interests in shares of Common Stock.
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"Person" means and includes natural persons, corporations,
limited
partnerships, general partnerships, limited liability companies,
limited
liability partnerships, joint stock companies, Joint Ventures,
associations,
companies, trusts, banks, trust companies, land trusts, business
trusts or other
organizations, whether or not legal entities, and Governmental
Entity.
"Purchase Agreement" means the Warrant Purchase Agreement by
and
between the Company and Silver Point, dated as of April 11,
2006.
"Securities Act" means the Securities Act of 1933, as amended, and
the
rules and regulations of the Commission thereunder, all as the same
shall be in
effect at the time.
"Shareholder Approval" means the approval by the shareholders of
the
Company of the issuance of the Warrant for the purpose of
terminating the
Conversion Cap.
"Stock Incentive Plan" shall have the meaning assigned to it in
Section 4.16 hereof.
"Subsidiary" means any corporation, association, trust, limited
liability company, partnership, joint venture or other business
association or
entity (i) at least 50% of the Outstanding voting securities of
which are at the
time owned or controlled, directly or indirectly, by the Company;
or (ii) with
respect to which the Company possesses, directly or indirectly, the
power to
direct or cause the direction of the affairs or management of such
Person.
"Transfer" means any disposition of any Warrant or Warrant Stock or
of
any interest therein, which would constitute a "sale" thereof or a
transfer of a
beneficial interest therein within the meaning of the Securities
Act.
"Twenty Day Average" means, with respect to any prices and in
connection with the calculation of Fair Market Value, the average
of such prices
over the twenty Business Days ending on the Business Day
immediately prior to
the day as of which "Fair Market Value" is being determined.
"Warrant Price" means an amount equal to (i) the number of shares
of
Warrant Stock being purchased upon exercise of this Warrant
pursuant to Section
2.1 hereof, multiplied by (ii) the Exercise Price.
"Warrant" means the Original Warrants and all Warrants issued
upon
transfer, division or combination of, or in substitution for, the
Original
Warrants, or any other Warrant subsequently issued to the Holder.
All Warrants
shall at all times be identical as to terms and conditions, except
as to the
number of shares of Warrant Stock for which they may be exercised
and their date
of issuance.
"Warrant Stock" means the shares of Common Stock issued, issuable
or
both (as the context may require) upon the exercise of
Warrants.
2. EXERCISE OF
WARRANT
2.1 Manner of Exercise.
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(a) From and after the Original Issue Date and at any time before
5:00
P.M., New York time, on the Expiration Date, the Holder of this
Warrant may from
time to time exercise this Warrant, on any Business Day, for all or
any part of
the number of shares of Warrant Stock (subject to adjustment as
provided herein)
purchasable hereunder. In order to exercise this Warrant, in whole
or in part,
the Holder shall (i) deliver to the Company at its Designated
Office a written
notice of the Holder's election to exercise this Warrant (an
"Exercise Notice")
substantially in the form attached to this Warrant as Annex A,
which Exercise
Notice shall be irrevocable and specify the number of shares of
Warrant Stock to
be purchased, together with this Warrant and (ii) pay to the
Company the Warrant
Price. The date on which such delivery and payment shall have taken
place being
hereinafter sometimes referred to as the "Exercise Date".
(b) Upon receipt by the Company of such Exercise Notice, surrender
of
this Warrant and payment of the Warrant Price (in accordance with
Section 2.1(c)
hereof), the Company shall, as promptly as practicable, and in any
event within
five (5) Business Days thereafter, execute (or cause to be
executed) and deliver
(or cause to be delivered) to the Holder a certificate or
certificates
representing the shares of Warrant Stock issuable upon such
exercise, together
with cash in lieu of any fraction of a share, as hereafter
provided. The stock
certificate or certificates so delivered shall be, to the extent
possible, in
such denomination or denominations as the exercising Holder shall
reasonably
request in the Exercise Notice and shall be registered in the name
of the Holder
or, subject to compliance with Section 3.3 below, such other name
as shall be
designated in the Exercise Notice. This Warrant shall be deemed to
have been
exercised and such certificate or certificates of Warrant Stock
shall be deemed
to have been issued, and the Holder or any other Person so
designated to be
named therein shall be deemed to have become a holder of record of
such shares
of Warrant Stock for all purposes, as of the Exercise Date.
(c) Payment of the Warrant Price shall be made at the option of
the
Holder by one or more of the following methods: (i) by delivery of
a certified
or official bank check or by wire transfer of immediately available
funds in the
amount of such Warrant Price payable to the order of the Company,
(ii) by
instructing the Company to withhold a number of shares of Warrant
Stock then
issuable upon exercise of this Warrant with an aggregate Fair
Market Value equal
to such Warrant Price, (iii) by surrendering to the Company shares
of Common
Stock previously acquired by the Holder with an aggregate Fair
Market Value
equal to such Warrant Price, or (iv) any combination of the
foregoing. In the
event of any withholding of Warrant Stock or surrender of Common
Stock pursuant
to clause (ii), (iii) or (iv) above where the number of shares
whose Fair Market
Value is equal to the Warrant Price is not a whole number, the
number of shares
withheld by or surrendered to the Company shall be rounded up to
the nearest
whole share and the Company shall make a cash payment to the Holder
based on the
incremental fraction of a share being so withheld by or surrendered
to the
Company in an amount determined in accordance with Section 2.3
hereof.
Notwithstanding the foregoing, the Holder will pay an amount per
Warrant Share
equal to the par value, or such other amount as is necessary to
have fully paid
and nonassessable shares of the Company, provided that any such
election by a
Holder shall not relieve the Company of any liability or obligation
it may have
under this Warrant.
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(d) If this Warrant shall have been exercised in part, the
Company
shall, at the time of delivery of the certificate or certificates
representing
the shares of Warrant Stock being issued, deliver to the Holder a
new Warrant
evidencing the rights of the Holder to purchase the unpurchased
shares of
Warrant Stock called for by this Warrant. Such new Warrant shall in
all other
respects be identical to this Warrant.
(e) All Warrants delivered for exercise shall be canceled by
the
Company.
2.2 Payment of Taxes. All shares of Warrant Stock issuable upon
the
exercise of this Warrant pursuant to the terms hereof shall be
validly issued,
fully paid and nonassessable, issued without violation of any
preemptive or
similar rights of any stockholder of the Company and free and clear
of all
Liens. The Company shall pay all expenses in connection with, and
all taxes and
other governmental charges that may be imposed with respect to, the
issue or
delivery thereof.
2.3 Fractional Shares. The Company shall not be required to issue
a
fractional share of Warrant Stock upon exercise of any Warrant. As
to any
fraction of a share that the Holder of one or more Warrants, the
rights under
which are exercised in the same transaction, would otherwise be
entitled to
purchase upon such exercise, the Company shall pay to such Holder
an amount in
cash equal to such fraction multiplied by the Fair Market Value of
one share of
Common Stock on the Exercise Date.
3. TRANSFER,
DIVISION AND COMBINATION
3.1 Compliance with Securities Act. The Holder, by acceptance
hereof,
agrees to comply in all respects with the provisions of this
Section 3.1 and
further agrees that this Warrant and the Warrant Stock to be issued
upon
exercise hereof are being acquired for investment for its own
account and that
such Holder will not offer, sell or otherwise dispose of this
Warrant or any
Warrant Stock to be issued upon exercise hereof except under
circumstances that
will not result in a violation of the Securities Act. This Warrant
and all
shares of Warrant Stock issued upon exercise of this Warrant
(unless registered
under the Securities Act) shall be stamped or imprinted with a
legend in
substantially the following form:
THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER
THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE
SECURITIES LAWS AND MAY NOT BE SOLD OR TRANSFERRED UNLESS (I) A
REGISTRATION STATEMENT COVERING SUCH SHARES IS EFFECTIVE UNDER THE
ACT OR
(II)
THE TRANSACTION IS EXEMPT FROM REGISTRATION UNDER THE ACT.
In addition, in connection with the issuance of this Warrant, the
Holder
specifically represents to the Company by acceptance of this
Warrant as follows:
(a) The Holder believes it has received all the information it
considers necessary or appropriate for deciding whether to acquire
the Warrant.
The Holder further represents that it has had an opportunity to ask
questions
and receive answers from the Company
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regarding the terms and conditions of the offering of the Warrant
and the
business, properties, prospects and financial condition of the
Company. The
foregoing, however, does not limit or modify the representations
and warranties
of the Company in this Warrant or in the Credit Agreement or the
right of the
Holder to rely thereon.
(b) The Holder understands that the securities it is purchasing
are
characterized as "restricted securities" under the federal
securities laws
inasmuch as they are being acquired from the Company in a
transaction not
involving a public offering and that under such laws and applicable
regulations
such securities may be resold without registration under the
Securities Act,
only in certain limited circumstances. In addition, the Holder
represents that
it is familiar with SEC Rule 144, as presently in effect, and
understands the
resale limitations imposed thereby and by the Securities Act.
(c) The Holder is an investor that can bear the economic risk of
its
investment, and has such knowledge and experience in financial or
business
matters that it is capable of evaluating the merits and risks of
the investment
in the Warrant and the Warrant Stock. The Holder also represents it
has not been
organized solely for the purpose of acquiring the Warrant and the
Warrant Stock.
3.2 Transfer. Each new certificate evidencing the Warrant
and/or
Warrant Stock so transferred shall bear the appropriate restrictive
legend set
forth in Section 3.1 hereof, except that such certificate shall not
bear such
restrictive legend, if, in the opinion of counsel for the Company,
such legend
is not required in order to establish or assist in compliance with
any
provisions of the Securities Act or any applicable state securities
laws. Upon
compliance with the provisions of this Section 3.2, each transfer
of this
Warrant and all rights hereunder, in whole or in part, shall be
registered on
the books of the Company to be maintained for such purpose, upon
surrender of
this Warrant at the Designated Office and compliance with the terms
hereof,
together with a written assignment of this Warrant in the form of
Annex B hereto
duly executed by the Holder or its agent or attorney and funds
sufficient to pay
any transfer taxes described in Section 2.2 in connection with the
making of
such transfer. Upon such compliance, surrender and delivery and, if
required,
such payment, the Company shall execute and deliver a new Warrant
or Warrants in
the name of the assignee or assignees and in the denominations
specified in such
instrument of assignment, and shall issue to the assignor a new
Warrant
evidencing the portion of this Warrant not so assigned and this
Warrant shall
promptly be cancelled.
3.3 Mutilation or Loss. Upon receipt by the Company from any Holder
of
evidence reasonably satisfactory to it of the loss, theft,
destruction or
mutilation of this Warrant and an indemnity reasonably satisfactory
to it (it
being understood that the written indemnification agreement of or
affidavit of
loss of the Holder shall be a sufficient indemnity) and, in case of
mutilation,
upon surrender and cancellation hereof, the Company will execute
and deliver in
lieu hereof a new Warrant of like tenor to such Holder; provided,
however, that,
in the case of mutilation, no indemnity shall be required if this
Warrant in
identifiable form is surrendered to the Company for
cancellation.
3.4 Division and Combination. Subject to compliance with the
applicable provisions of this Warrant, this Warrant may be divided
or combined
with other Warrants upon presentation hereof at the Designated
Office, together
with a written notice specifying the names
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and denominations in which new Warrants are to be issued, signed by
the Holder
or its agent or attorney. Subject to compliance with the applicable
provisions
of this Warrant as to any transfer which may be involved in such
division or
combination, the Company shall execute and deliver a new Warrant or
Warrants in
exchange for the Warrant or Warrants to be divided or combined in
accordance
with such notice.
3.5 Expenses. The Company shall prepare, issue and deliver at its
own
expense any new Warrant or Warrants required to be issued
hereunder.
3.6 Maintenance of Books. The Company agrees to maintain, at
the
Designated Office, books for the registration and transfer of the
Warrants.
4. ANTIDILUTION
PROVISIONS
The number of shares of Warrant Stock for which this Warrant is
exercisable and the Exercise Price shall be subject to adjustment
from time to
time as set forth in this Section 4.
4.1 Upon Issuance of Common Stock. If the Company shall, at any
time
or from time to time after the Original Issue Date, issue any
shares of Common
Stock, options to purchase or rights to subscribe for Common Stock,
securities
by their terms convertible into or exchangeable for Common Stock,
or options to
purchase or rights to subscribe for such convertible or
exchangeable securities
without consideration or for consideration per share less than
either (x) the
Dilution Price in effect immediately prior to the issuance of such
Common Stock
or securities or (y) the Fair Market Value per share of the Common
Stock
immediately prior to such issuance, if such Fair Market Value is
greater than
the Dilution Price, then such Exercise Price shall forthwith be
lowered to a
price equal to the price obtained by multiplying:
(i) the Exercise Price in effect immediately prior to the
issuance of such Common Stock, options, rights or securities by
(ii) a fraction of which (x) the numerator shall be the sum of
(i) the number of shares of Common Stock Outstanding on a
fully-diluted basis immediately prior to such issuance and (ii)
the
number of additional shares of Common Stock which the aggregate
consideration for the number of shares of Common Stock so
offered
would purchase at the greater of the Dilution Price in effect
immediately prior to such issuance or the Fair Market Value per
share
of Common Stock and (y) the denominator shall be the number of
shares
of Common Stock Outstanding on a fully-diluted basis immediately
after
such issuance.
4.2 Upon Acquisition of Common Stock. If the Company or any
Subsidiary
shall, at any time or from time to time after the Original Issue
Date, directly
or indirectly, redeem, purchase or otherwise acquire any shares of
Common Stock,
options to purchase or rights to subscribe for Common Stock,
securities by their
terms convertible into or exchangeable for Common Stock, or options
to purchase
or rights to subscribe for such convertible or exchangeable
securities, for a
consideration per share (plus, in the case of such options, rights,
or
securities, the additional consideration required to be paid to the
Company upon
exercise,
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conversion or exchange) greater than the Fair Market Value per
share of Common
Stock immediately prior to such event, then the Exercise Price
shall forthwith
be lowered to a price equal to the price obtained by
multiplying:
(i) the Exercise Price in effect immediately prior to such
event
by
(ii) a fraction of which (x) the denominator shall be the Fair
Market Value per share of Common Stock immediately prior to such
event
and (y) the numerator shall be the result of dividing:
(A) (1) the product of
(a) the number of shares of Common
Stock Outstanding on a fully-diluted basis and (b) the
Fair Market Value per share of Common Stock, in each
case immediately prior to such event, minus (2) the
aggregate consideration paid by the Company in such
event (plus, in the case of such options
