<PAGE>

     As filed with the Securities and Exchange Commission on July 22, 1999

                                            Registration Statement No. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ---------------------
                                    FORM S-1
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                             ---------------------
                                 NaviSite, Inc.
             (Exact name of registrant as specified in its charter)
                             ---------------------
<TABLE>
<S>  <C>
         Delaware                    7379                    52-2137343
     (State or other          (Primary Standard           (I.R.S. Employer
       jurisdiction               Industrial            Identification No.)
   of incorporation or       Classification Code
      organization)                Number)
</TABLE>

                                 NaviSite, Inc.
                             100 Brickstone Square
                          Andover, Massachusetts 01810
                                 (978) 552-3300
              (Address, including zip code, and telephone number,
       including area code, of registrant's principal executive offices)
                             ---------------------
                                 Joel B. Rosen
                            Chief Executive Officer
                                 NaviSite, Inc.
                             100 Brickstone Square
                          Andover, Massachusetts 01810
                                 (978) 552-3300
           (Name, address, including zip code, and telephone number,
                   including area code, of agent for service)
                             ---------------------
                                   Copies to:
<TABLE>
<S>  <C>
                                                  Peter B. Tarr, Esq.
        David T. Brewster, Esq.               Joseph E. Mullaney III, Esq.
  Skadden, Arps, Slate, Meagher & Flom             Hale and Dorr LLP
                  LLP                               60 State Street
           One Beacon Street                  Boston, Massachusetts 02109
      Boston, Massachusetts 02108                    (617) 526-6000
             (617) 573-4800
</TABLE>

  Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
  If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [_]
  If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
  If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
  If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
  If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
                             ---------------------
                        CALCULATION OF REGISTRATION FEE
<TABLE>
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
<CAPTION>
                                             Proposed Maximum
      Title of Each Class of                Aggregate Offering Amount of Registration
   Securities to be Registered                 Price(1)(2)             Fee(2)
-------------------------------------------------------------------------------------
<S>                                         <C>                <C>
Common Stock, par value $0.01 per share...     $70,000,000            $19,460
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
</TABLE>
(1) Includes shares of common stock which the underwriters have the option to
    purchase from NaviSite solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
    registration fee pursuant to Rule 457(o) under the Securities Act of 1933,
    as amended. The registration fee was paid on June 11, 1999.
                             ---------------------
  The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

    The inside front cover page contains the following:

    [Centered on the lower third of the page, a picture of the control room in
a NaviSite data center. Directly above it, covering the top two-thirds of the
page, is the NaviSite logo with the following text super-imposed on top of it:]

    NaviSite, Inc., an Internet application service provider, offers Web site
and Internet application hosting and management services. Our enhanced,
integrated service offerings, high level of customer service and state-of-the-
art infrastructure allow us to offer service levels backed by guarantees that
we believe are among the highest and most comprehensive in the industry. With
our services, customers can focus on their core competencies, assured that
their Web sites and Internet applications are being managed 24 hours-a-day,
seven-days-a-week.
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+               INTEGRATED APPLICATION SERVICES                                +
+            TO MATCH CUSTOMERS' PROCESS LIFE CYCLE                            +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

 The inside front cover page also contains the following:

                                          [Customer logos]
 rent


--------------------




 We rent Internet     We help companies
 applications to      cost-effectively
 make it easier for   run their Internet
 customers to gain    applications with
 cost-effective       greater speed,
 access to key        security,
 online               efficiency. . .
 capabilities.




                      . . . and less
 deploy               worry.
--------------------

 We are able to
 rapidly deploy
 Internet
 applications,
 saving customers
 critical time by
 avoiding lengthy
 staffing,
 configuration and
 deployment cycles.

 advise
--------------------

 We provide expert
 advice and
 planning support
 for determining
 the optimal
 hardware and
 software
 configurations to
 meet a customer's
 performance goals.

 host
--------------------

 With a world-class
 infrastructure,
 private transit
 Internet
 connections and
 state-of-the-art
 facilities, we are
 able to offer
 service levels
 backed by
 guarantees that we
 believe are among
 the highest and
 most comprehensive
 in the industry.

 manage
--------------------

 We manage not only
 Web site and
 application
 servers, but also,
 in many cases, the
 Internet
 applications
 themselves.
 Services include
 custom reporting,
 load balancing,
 mirroring, system
 security, advanced
 back-up options,
 remote management
 and problem
 resolution.

 support
--------------------

 Our network
 operations centers
 are fully staffed
 24-hours-a-day,
 seven-days-a-week,
 and are designed
 for rapid response
 to ensure that our
 customers' Web
 sites and Internet
 applications
 operate reliably.
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the     +
+Securities and Exchange Commission is effective. This prospectus is not an    +
+offer to sell securities, and we are not soliciting offers to buy these       +
+securities, in any state where the offer or sale is not permitted.            +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
                   SUBJECT TO COMPLETION, DATED JULY 22, 1999

                                     [LOGO]

                                       Shares

                                  Common Stock

  NaviSite, Inc. is offering     shares of its common stock. This is NaviSite's
initial public offering. We have applied to have the shares we are offering
approved for quotation on the Nasdaq National Market under the symbol "NAVI."
We anticipate that the initial public offering price will be between $    and
$    per share.

  At the request of NaviSite, the underwriters have reserved at the initial
public offering price up to     shares of common stock for sale to officers,
directors, employees and other business associates of NaviSite and up to
shares of common stock for sale to stockholders of CMGI, Inc.

  Upon completion of this offering, CMGI will directly own approximately  % of
the outstanding shares of NaviSite common stock and will continue to control
NaviSite.

                                --------------

                 Investing in our common stock involves risks.
                    See "Risk Factors" beginning on page 7.

                                --------------

<TABLE>
<CAPTION>
                                                                 Per Share Total
                                                                 --------- -----
<S>                                                              <C>       <C>
Public Offering Price...........................................   $       $
Underwriting Discounts and Commissions..........................   $       $
Proceeds to NaviSite............................................   $       $
</TABLE>

  The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.

  NaviSite has granted the underwriters a 30-day option to purchase up to an
additional     shares of common stock to cover over-allotments. BancBoston
Robertson Stephens Inc. expects to deliver the shares of common stock to
purchasers on      , 1999.

                                --------------

BancBoston Robertson Stephens

                                      ING Barings

                                                                    FAC/Equities

                 The date of this prospectus is        , 1999.
<PAGE>

  You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus. In this prospectus, references to "NaviSite,"
"we," "us" and "our" refer to NaviSite, Inc., a Delaware corporation, and its
consolidated subsidiary, Servercast Communications, L.L.C., a Delaware limited
liability company. References to fiscal 1998, fiscal 1997 and fiscal 1996 mean
the fiscal years ended July 31, 1998 and 1997 and the period from July 1, 1996
through July 31, 1996, respectively.

  Until      , 1999 (25 days after the date of this prospectus), all dealers
that buy, sell or trade our common stock, whether or not participating in this
offering, may be required to deliver a prospectus. This requirement is in
addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.

                             ---------------------

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
Summary..................................................................   4
Risk Factors.............................................................   7
Forward Looking Statements...............................................  18
Use of Proceeds..........................................................  19
Dividend Policy..........................................................  19
Capitalization...........................................................  20
Dilution.................................................................  21
Selected Consolidated Financial Data.....................................  22
Management's Discussion and Analysis of Financial Condition and Results
  of Operations..........................................................  23
Business.................................................................  32
Management...............................................................  43
Certain Transactions.....................................................  50
Ownership of Principal Stockholder and Management........................  55
Description of Capital Stock.............................................  57
Shares Eligible For Future Sale..........................................  61
Underwriting.............................................................  63
Legal Matters............................................................  65
Experts..................................................................  65
Where You Can Find Additional Information................................  65
Index to Financial Statements............................................ F-1
</TABLE>

                             ---------------------

    "NaviSite" and the NaviSite logo are service marks of our company for which
service mark applications are pending. This prospectus also contains
trademarks, trade names and service marks of other companies which are the
property of their respective owners.

                                       3
<PAGE>

                                    SUMMARY

    Because this is only a summary, it does not contain all of the information
that may be important to you. You should read this entire prospectus, including
"Risk Factors" and our consolidated financial statements and the accompanying
notes appearing elsewhere in this prospectus, before deciding to invest in our
common stock.

                                 NaviSite, Inc.

    NaviSite is an Internet application service provider offering Web site and
application hosting and management services. Our Internet application service
offerings allow businesses to outsource the deployment, configuration, hosting,
management and support of their Web sites and Internet applications in a cost-
effective and rapid manner. Our focus on enhanced management services, beyond
basic co-location services, allows us to meet the expanding needs of businesses
as their Web sites and Internet applications become more complex. We also
provide our customers with access to our state-of-the-art data centers and the
benefit of our direct private transit Internet connections to major Internet
backbone providers. We only use direct private transit Internet connections,
which differentiates our network infrastructure from that of most of our
competitors. These connections increase reliability and download speeds. Our
enhanced, integrated services enable our clients to realize the following key
benefits.

  .   Cost-Effective Application Services. Our scalable infrastructure,
      repeatable Internet application services and hosting and management
      expertise enable us to offer our customers application services on a
      cost-effective basis.

  .   Rapid Deployment. We are able to rapidly deploy Internet applications,
      allowing our customers to quickly launch Web sites and Internet
      applications, often in a matter of weeks.

  .   High-Performance, World-Class Infrastructure. Our infrastructure has
      been designed expressly to meet the more demanding technical
      requirements of increasingly sophisticated Web sites and Internet
      applications.

    The scalability of our infrastructure and cost-effectiveness of our
services allow us to offer a comprehensive suite of services to meet the
current and future hosting and management needs of our customers. Our suite of
service offerings includes:

  .   Web site and Internet application hosting, which includes access to our
      state-of-the-art data centers, bandwidth and basic back-up, storage and
      monitoring services;

  .   Enhanced server management, which includes custom reporting, hardware
      options, load balancing and mirroring, system security, advanced back-
      up options, remote management and the services of our business solution
      managers;

  .   Specialized application management, which includes management of e-
      commerce and other sophisticated applications and their underlying
      services, including ad-serving, streaming, databases and transaction
      processing; and

  .   Application rentals and related consulting and other professional
      services.

    The dramatic growth in Internet usage in recent years, combined with the
Internet's enhanced functionality, accessibility and security, has made the
Internet increasingly attractive to businesses as a medium for communication
and commerce. As more businesses have incorporated the Internet into their
business strategy, a growing number of them have chosen to outsource Internet
application development, implementation and support, particularly the hosting
and management of their Web sites and Internet applications. Forrester
Research, Inc., a leading market research firm, has estimated that the market
for managed Web site hosting in the United States will grow from less than $1.0
billion in 1998 to over $14.0 billion in 2003. In January 1998, Forrester
Research estimated that the market for branded application outsourcing services
in the United States will grow to $21.1 billion by 2001.

                                       4
<PAGE>


    Our objective is to be the leading Internet application service provider.
We plan to achieve this goal by continuing to enhance and leverage our
expertise, service offerings and infrastructure to provide customers with
integrated, reliable and secure Internet-based business solutions. Key elements
of our strategy are to:

  .   expand the number and vary the kind of applications and management
      services we offer to our customers;

  .   meet the evolving needs of our customers by offering multiple service
      levels;

  .   increase awareness of the NaviSite brand in key business markets and
      associate our brand with the highest quality solutions and service;

  .   maintain the competitive advantage that our infrastructure and
      expertise provide so that we can grow our business;

  .   continue to leverage a number of key industry relationships which we
      have developed, as well as develop new relationships to expand the
      scope and scale of the services we offer;

  .   take advantage of foreign market opportunities; and

  .   continue to pursue focused, complementary acquisitions.

    Since our inception, we have experienced operating losses and negative cash
flows for each quarterly and annual period. We expect to continue to incur
operating losses for the foreseeable future. In addition, the market we serve
is highly competitive, and our revenue could be adversely affected by increased
competition. To date, a material portion of our revenue has been derived from
CMGI, Inc. and CMGI affiliates. CMGI affiliates include all entities in which
CMGI holds an equity interest. CMGI and CMGI affiliates accounted for 68% of
our revenue for the quarter ended April 30, 1999 as compared to 97% of our
revenue for the quarter ended April 30, 1998.

    CMGI will own approximately  % of our outstanding common stock upon
completion of this offering. Accordingly, CMGI will have the power, acting
alone, to elect a majority of our board of directors and will have the ability
to determine the outcome of any corporate actions requiring stockholder
approval, regardless of how our other stockholders may vote. 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, our other stockholders.
CMGI's ownership may have the effect of delaying, deferring or preventing a
change in control of NaviSite. CMGI's interests could conflict with the
interests of our other stockholders.

                              --------------------

    We were incorporated in Delaware in December 1998. At that time, we
received a contribution of assets from our predecessor, NaviSite Internet
Services Corporation. NaviSite Internet Services Corporation was incorporated
in Delaware in February 1997 under the name CMG Information Technology, Inc.
and changed its name to NaviSite Internet Services Corporation in May 1997. Our
principal investors include CMGI, Dell Computer Corporation and Microsoft
Corporation.

    Our principal executive offices are located at 100 Brickstone Square,
Andover, Massachusetts 01810, and our telephone number is (978) 552-3300. Our
Web site address is www.navisite.com. The information on our Web site is not
incorporated by reference into this prospectus and should not be considered as
part of this prospectus.

                              --------------------

    Except as otherwise noted, all information in this prospectus:

  .   assumes the conversion of all debt held by CMGI as of April 30, 1999
      into shares of convertible preferred stock and the conversion of all
      convertible preferred stock outstanding as of April 30, 1999 into an
      aggregate of 18,142,850 shares of common stock upon completion of this
      offering; and

  .   assumes no exercise of the underwriters' over-allotment option.

                                       5
<PAGE>

                                  THE OFFERING

<TABLE>
<S>                                   <C>
Common stock offered by NaviSite.....       shares

Common stock to be outstanding after
  this offering......................       shares

Use of proceeds...................... For enhancement and expansion of our
                                      network infrastructure, expansion of
                                      sales and marketing efforts, enhancement
                                      of application management and technical
                                      expertise and possible acquisitions of
                                      complimentary businesses and
                                      technologies, and for working capital
                                      and general corporate purposes. See "Use
                                      of Proceeds."

Proposed Nasdaq National Market
  symbol............................. NAVI
</TABLE>

                      Summary Consolidated Financial Data
                     (In thousands, except per share data)

<TABLE>
<CAPTION>
                         Period from                        Nine months ended
                         July 1, 1996 Year ended July 31,       April 30,
                         to July 31,  --------------------  -------------------
                             1996       1997       1998       1998      1999
                         ------------ ---------  ---------  --------  ---------
                                                               (unaudited)
<S>                      <C>          <C>        <C>        <C>       <C>
Statement of Operations
  Data:
Total revenue...........     $ --     $   3,361  $   4,029  $  2,836  $   6,817
Gross profit (loss).....       (6)         (133)    (4,847)   (3,587)    (6,477)
Loss from operations....      (27)         (947)    (9,076)   (6,052)   (15,070)
Net loss................      (27)         (948)    (9,172)   (6,080)   (15,436)
Unaudited pro forma
  basic and diluted net
  loss per share........                         $   (1.02)           $   (1.01)
Pro forma weighted
  average number of
  basic and diluted
  shares outstanding....                             9,027               15,248
</TABLE>

    The following table is a summary of our balance sheet at April 30, 1999 (i)
on an actual basis, (ii) on a pro forma basis after giving effect to the
conversion of all debt held by CMGI into shares of convertible preferred stock
and the conversion of all outstanding shares of convertible preferred stock
into shares of common stock and (iii) on a pro forma as adjusted basis to
reflect the sale of     shares of common stock at an assumed initial public
offering price of $   per share, after deducting underwriting discounts and
commissions and estimated offering expenses payable by us.

<TABLE>
<CAPTION>
                          April 30, 1999
                  --------------------------------
                                        Pro Forma
                   Actual   Pro Forma  As Adjusted
                  --------  ---------  -----------
                           (unaudited)
<S>      <C>      <C>       <C>        <C>
Balance Sheet
  Data:
Cash and
  equivalents.... $     --  $     --
Working capital
  (deficit)......  (15,268)   (4,507)
Total assets.....   10,286    10,286
Debt to CMGI.....   10,761        --
Total
  stockholders'
  equity
  (deficit)......   (9,815)      946
</TABLE>

                                       6
<PAGE>

                                  RISK FACTORS

    You should carefully consider the following risks before making an
investment decision. The risks and uncertainties described below are not the
only ones that we face. Additional risks that generally apply to publicly
traded companies, that are not yet identified or that we currently think are
immaterial may also impair our business operations. Our financial condition and
operating results could be materially adversely affected by any of the risks
set forth below. The market price of our common stock could decline due to any
of these risks, and you could lose all or part of your investment. You should
also refer to the other information set forth in this prospectus, including our
consolidated financial statements and the accompanying notes appearing
elsewhere in this prospectus.

                Risks Related to Our Company and Our Operations

Because we have a limited operating history, there is limited information upon
which you can evaluate our business

    We have a limited operating history upon which you can evaluate our
business. NaviSite was organized in 1996 by CMGI, Inc., formerly known as CMG
Information Services, Inc., to support the networks and host the Web sites of
CMGI and a number of CMGI affiliates. It was not until the Fall of 1997 that we
began providing Web site hosting and Internet application management services
to companies unaffiliated with CMGI. As an early stage company in the new and
rapidly evolving Web site and Internet application hosting and management
service market, we face numerous risks. Some of these risks relate to our
ability to:

  .   expand our Web site and Internet application hosting and management
      expertise;

  .   respond to technological developments or service offerings of our
      competitors;

  .   develop and offer new, successful services and differentiate our
      services from those offered by our competitors, in particular Internet
      application service providers;

  .   expand our infrastructure to keep pace with our anticipated growth;

  .   continue to attract and retain qualified personnel;

  .   enter into industry relationships with Web site design firms, Internet
      application developers, system integrators, Internet application
      software vendors and key technology providers;

  .   build a more comprehensive sales and marketing structure to support
      our business and achieve broader brand recognition in the Internet
      application service market; and

  .   build, maintain and expand our distribution channels.

    We may not be successful in addressing these risks, and, if we are not
successful, our financial condition and operating results could be materially
adversely affected.

We have a history of operating losses and expect future losses

    We cannot assure you that we will ever achieve profitability on a quarterly
or annual basis or, if we achieve profitability, that it will be sustainable.
Since our inception in 1996, we have experienced operating losses and negative
cash flows for each quarterly and annual period. As of April 30, 1999, we had
an accumulated deficit of $25.6 million. The income potential of our business
is unproven, and our limited operating history makes it difficult to evaluate
our prospects. We anticipate increased expenses as we continue to expand and
improve our infrastructure, invest in additional applications, enhance our
application management expertise, expand our sales and marketing efforts and
pursue additional industry relationships. As a result, we expect to incur
operating losses for the foreseeable future.

                                       7
<PAGE>

Fluctuations in our quarterly operating results may negatively impact our stock
price

    Our quarterly operating results may fluctuate significantly in the future
as a result of a variety of factors, many of which are outside our control.
These factors include:

  .   the demand for and market acceptance of our Web site and Internet
      application hosting and management services;

  .   our ability to develop, market and introduce new services on a timely
      basis;

  .   downward price adjustments by our competitors;

  .   changes in the mix of services provided by our competitors;

  .   technical difficulties or system downtime affecting the Internet
      generally or our hosting operations specifically;

  .   the ability to meet any increased technological demands of our
      customers;

  .   the amount and timing of costs related to our marketing efforts and
      service introductions; and

  .   economic conditions specific to the Internet application service
      provider industry.

    Our operating results for any particular quarter may fall short of our
expectations or those of investors or securities analysts. In this event, the
market price of our common stock would be likely to fall.

We are controlled by our principal stockholder

    As of June 30, 1999, CMGI, through its ownership of NaviSite Internet
Services Corporation, beneficially owned approximately 89.4% of our outstanding
common stock, assuming the conversion of all outstanding shares of convertible
preferred stock as of June 30, 1999, and upon completion of this offering will
beneficially own approximately  % of our outstanding common stock. Accordingly,
CMGI will continue to have the power, acting alone, to elect a majority of our
board of directors and will have the ability to determine the outcome of any
corporate actions requiring stockholder approval, regardless of how our other
stockholders may vote. Under Delaware law, 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, our other stockholders. CMGI's interests could
conflict with the interests of our other stockholders. The possible need of
CMGI to maintain control of NaviSite in order to avoid becoming a registered
investment company could influence future decisions by CMGI as to the
disposition of any or all of its ownership position in NaviSite. CMGI would be
subject to numerous regulatory requirements with which it would have difficulty
complying if it were required to register as an investment company. As a
result, CMGI may be motivated to maintain at least a majority ownership
position in NaviSite, even if other stockholders of NaviSite might consider a
sale of control of NaviSite to be in their best interests. As long as it is a
majority stockholder, CMGI has contractual rights to purchase shares in any
future financing of NaviSite, other than this offering, sufficient to maintain
its majority ownership position. CMGI's ownership may have the effect of
delaying, deferring or preventing a change in control of our company or
discouraging a potential acquiror from attempting to obtain control of us,
which in turn could adversely affect the market price of our common stock.

Our business is dependent on revenues generated by CMGI and companies
affiliated with CMGI

    NaviSite was organized by CMGI in 1996 to support the networks and host the
Web sites of CMGI and a number of CMGI affiliates. In the Fall of 1997, we
began providing hosting and management services to unaffiliated customers. We
have serviced unaffiliated customers for a limited time period and have
generated limited revenue from these unaffiliated customers. CMGI and CMGI
affiliates accounted for 96% of our revenue in fiscal 1998 and 70% of our
revenue for the nine months ended April 30, 1999. We currently are
substantially dependent on revenues generated by services provided to CMGI and
CMGI affiliates, and we anticipate that we will continue to receive a
significant portion of our revenue in the future from CMGI and CMGI affiliates.
We cannot assure you that these revenues will continue or that we will be able
to secure business from unaffiliated customers to replace these revenues in the
future. The loss of revenue from CMGI and CMGI affiliates, or our inability to
replace this revenue, would materially adversely affect our financial
condition.

                                       8
<PAGE>

If the market for Internet commerce and communication does not continue to
grow, there may not be sufficient market demand for our services, and as a
result, our business could be adversely affected

    The increased use of the Internet for retrieving, sharing and transferring
information among businesses and consumers has developed only recently, and the
market for the purchase of products and services over the Internet is new and
emerging. Demand for our Web site and Internet application hosting and
management services will depend, in part, on the acceptance and continued
growth of the Internet as a medium for commerce and communication solutions. We
cannot assure you that businesses or consumers will continue to use the
Internet for commerce or communication. If acceptance and growth of the
Internet as a medium for commerce and communication does not continue, our
business could be materially adversely affected because there may not be a
market demand for our Web site and Internet application hosting and management
services. Our success will depend, in large part, on the willingness of
businesses to continue to turn to outsourced Web site and Internet application
hosting and management service providers to enable their Web sites for commerce
and communication. In addition, in order for the market for our services to
grow, consumers who have historically purchased and communicated through
traditional means must elect to purchase products and services and conduct
their communication online. These transitions must continue to ensure a growing
market for our Web site and Internet application hosting and management
services.

Our ability to grow may be limited if the market for Internet application
services fails to develop or if we cannot achieve broad market acceptance

    The market for Internet application services has only developed recently
and is evolving rapidly. There is significant uncertainty as to whether the
Internet application service market will ultimately prove to be viable or, if
it becomes viable, that it will continue to grow. Historically, businesses have
been reluctant to outsource the hosting and management of sophisticated
applications and have considered third-party service vendors to be unequipped
to manage Internet applications critical to their businesses. Our future growth
will depend on the willingness of businesses to outsource the system and
network management of their Web sites and Internet applications. If this market
fails to develop, or develops more slowly than we expect, or if our Web site
and Internet application hosting and management services do not achieve broad
market acceptance, our growth may be substantially limited.

Our ability to market our services could be materially adversely affected if
any of the Internet applications deployed by us have reliability, quality or
compatibility problems

    We have experienced difficulties with Internet applications in the past and
we cannot assure you that we will not experience difficulties that could delay
or prevent the successful development, introduction or marketing of Internet
application services in the future. In addition, if any newly introduced
Internet applications suffer from reliability, quality or compatibility
problems, market acceptance of our services could be greatly hindered and our
ability to attract new customers could be adversely affected. We cannot assure
you that new applications deployed by us will be free from any reliability,
quality or compatibility problems. If we incur increased costs or are unable,
for technical or other reasons, to host and manage new Internet applications or
enhancements of existing applications, our ability to grow our business would
be materially adversely affected.

Our failure to successfully execute our business strategy could result in
continued operating losses and negative cash flows

    Our business strategy is multi-tiered and requires that we successfully
complete many diverse tasks. In order to be successful, we will need to:

  .   differentiate our company and our service offerings from other
      Internet application service providers and their service offerings;

  .   leverage and expand our existing infrastructure;

                                       9
<PAGE>

  .   attract and retain highly skilled employees with Web site and Internet
      application hosting and management expertise;

  .   establish and maintain relationships or negotiate and sustain
      partnerships with industry-leading Web design firms, Internet
      application developers, system integrators, application software
      vendors and others with brand recognition and established sales and
      support channels; and

  .   utilize our marketing and direct sales force, supplemented by our
      channel sales relationships, to penetrate the market for Web site and
      Internet application hosting and management services.

    The future success of our business will depend, in large part, on our
ability to host and manage Internet applications that are scalable and can be
deployed for a large number of customers at an acceptable cost. We cannot
assure you that we will be able to identify and deploy a sufficient number of
Internet applications meeting these criteria, or that any of these applications
will receive the market acceptance necessary for the profitable conduct of our
business.

    Moreover, we cannot assure you that we will be able to successfully execute
our business strategy. If we are unable to successfully execute our business
strategy, we may continue to experience operating losses and negative cash
flows.

The market we serve is highly competitive, and we may lack the resources needed
to compete successfully

    We compete in the Internet application service market. This market is
rapidly evolving, highly competitive and likely to be characterized by an
increasing number of market entrants and by industry consolidation. Because
there are no substantial barriers to entry, we expect that we will face
competition from both existing competitors and new market entrants in the
future. We believe that participants in our market must grow rapidly and
achieve a significant presence to compete effectively. We may lack the
financial and other resources, expertise or capability to compete successfully.

    Our current and prospective competitors include other providers of Web site
hosting and related services, national and regional Internet service providers,
companies that focus on customized Internet application services, application
developers, Internet application software vendors, large system integrators and
information technology outsourcing firms and global, regional and local
telecommunications companies. Many of these competitors have substantially
greater financial, technical and marketing resources, larger customer bases,
longer operating histories, greater name recognition and more established
relationships in the industry than we have. As a result, many of these
competitors may be able to develop and expand their network infrastructures and
service offerings more rapidly, adapt to new or emerging technologies and
changes in customer requirements more quickly, take advantage of acquisitions
and other opportunities more readily, devote greater resources to the marketing
and sale of their services and adopt more aggressive pricing policies than we
can. Because of these competitive factors, and due to our comparatively small
size and lack of financial resources, we may be unable to successfully compete
in the Internet application service market.

    In addition, we believe that there will be continued consolidation within
the Internet application service market in which we compete. Our competitors
may consolidate with one another, or acquire or be acquired by application
software vendors or technology providers, enabling them to more effectively
compete with us. This consolidation could affect prices and other competitive
factors in ways which would impede our ability to compete successfully in the
Internet application service market.

    Additional information regarding the competition we face is included in
this prospectus under the heading "Business--Competition."

                                       10
<PAGE>

The future success of our business will depend on our ability to maintain
numerous third-party industry relationships

 We depend on telecommunications network suppliers for the availability and
 reliability of our private transit Internet connections

  Our customers rely on our ability to move their digital content as
 efficiently as possible to the people accessing their Web sites and Internet
 applications. We depend on our direct private transit Internet connections
 to major backbone providers as a means of avoiding congestion and resulting
 performance degradation at public Internet exchange points. We rely on these
 telecommunications network suppliers to maintain the operational integrity
 of their backbones so that our private transit Internet connections operate
 effectively. Any interruptions in, or degradation of, our private transit
 Internet connections could damage relationships with our customers and
 hinder our ability to attract new customers.

  Our private transit Internet connections are already more costly than
 alternative arrangements commonly utilized to move Internet traffic. If our
 providers increase the pricing associated with utilizing their bandwidth, we
 may be required to identify alternative methods to distribute our customers'
 digital content. We cannot assure you that our customers will continue to be
 willing to pay the higher costs associated with direct private transit, or
 that we could effectively move to another network approach. If we are unable
 to access alternative networks to distribute our customers' digital content
 on a cost-effective basis or to pass any additional costs on to our
 customers, our operating costs would increase significantly.

 We depend on Internet application software vendors for the sale, marketing and
 provision of our Internet application services

  We believe that our success in penetrating the market for our Web site and
 Internet application hosting and management services will depend in large
 part on our ability to maintain existing and develop additional
 relationships with industry-leading Internet application software vendors
 and other third parties. We license or lease our software applications from
 Internet application software vendors. The loss of any of these applications
 could materially impair our ability to provide services to our customers or
 require us to obtain substitute software applications of lower quality or
 performance standards or at greater cost. In addition, because we generally
 license applications on a non-exclusive basis, our competitors may license
 and utilize the same software applications. In fact, many of the companies
 with which we have strategic relationships currently have, or could enter
 into, similar license agreements with our competitors or prospective
 competitors. We cannot assure you that software applications will continue
 to be available to us from Internet application software vendors on
 commercially reasonable terms. If we are unable to identify and license
 software applications which meet our targeted criteria for new application
 introductions, we may have to discontinue or delay introduction of services
 relating to these applications unless we can find, license and launch
 equivalent software applications.

 We depend on a limited number of suppliers for key components of our
 infrastructure

  We depend on a limited number of suppliers for key components of our
 infrastructure, including networking equipment, that are available only from
 limited sources in the quantities and with the quality that we demand. For
 example, we purchase most of the routers and switches used in our
 infrastructure from Cisco Systems Inc. and most of the intelligent Web
 switching technology from ArrowPoint Communications Inc. We cannot assure
 you that we will have the necessary hardware or parts on hand or that our
 suppliers will be able to provide them in a timely manner in the event of
 equipment failure. Our inability or failure to obtain the necessary hardware
 or parts on a timely basis could result in a loss of revenue due to customer
 loss or claims for service credits under our service level guarantees.

    We cannot assure you that one or more of our third-party agreements or
industry relationships will not be terminated in the future. In order to
provide services to our growing customer base, we also intend to seek
additional industry relationships. We can not assure you that we will be able
to enter into favorable new

                                       11
<PAGE>

relationships or that we will be able to effectively manage multiple
relationships with a growing number of third parties. If any of our strategic
agreements or relationships are terminated or not renewed or we otherwise are
unable to use some or all of the software applications or technology tools on
which our business depends, we may be unable to successfully execute our
business strategy.

If we are unable to manage our anticipated growth and the related expansion of
our operations, our business could be materially adversely affected

    We have experienced rapid growth in our service offerings and our customer
base. As of April 30, 1998, we were a Web site hosting provider with
approximately 22 customers. As of April 30, 1999, we were providing Web site
and Internet application hosting and management services to approximately 101
customers. In order to service our growing customer base, we will need to
continue to improve and expand our network infrastructure, in particular
through the expansion of one of our existing data centers and the construction
of new data centers. The ability of our network to connect and manage a
substantial number of customers at high transmission speeds while maintaining
superior performance is largely unproven. If our network infrastructure is not
scalable, we may not be able to provide our services to additional customers,
which would result in decreased revenue.

    In addition, between April 30, 1998 and April 30, 1999, we increased the
number of our employees from 64 to 171. This growth has placed, and will likely
continue to place, a significant strain on our financial, management,
operational and other resources. To effectively manage our anticipated growth,
we will be required to continue to enhance our operating and financial
procedures and controls, to upgrade or replace our operational, financial and
management information systems and to attract, train, motivate, manage and
retain key employees. If we are unable to effectively manage our rapid growth,
our financial condition and operating results would be materially adversely
affected.

Our historical source of funding is expected to change, and other funding may
not be available to us on favorable terms, if at all, and as a result, you may
experience additional dilution

    CMGI has historically funded our operations as needed, increasing our
obligations to CMGI and allowing us to maintain a zero-balance cash account. We
expect this source and manner of funding to continue until completion of this
offering. At that time, we expect that our net obligations to CMGI, together
with all convertible preferred stock held by CMGI, will be converted into
common stock.

    After completion of, and the application of the net proceeds from, this
offering, we may need to raise additional funds. We cannot assure you that
additional financing will be available on terms favorable to us, if at all. If
adequate funds are not available or are not available on acceptable terms, our
ability to respond to competitive pressures would be significantly limited.
Moreover, if additional funds are raised through the issuance of equity or
convertible debt securities, your percentage ownership in us will be reduced,
and you may experience additional dilution.

Our network infrastructure could fail, which would damage our ability to
provide guaranteed levels of service and could result in significant losses

    To be successful, we must operate our network infrastructure on a 24-hour-
a-day, seven-day-a-week basis without interruption. Our operations depend upon
our ability to protect our network infrastructure, equipment and customer files
against damage from human error, natural disasters, unexpected equipment
failure, power loss or telecommunications failures, sabotage or other
intentional acts of vandalism. Even if we take precautions, the occurrence of a
natural disaster, equipment failure or other unanticipated problem at our data
centers could result in interruptions in the services we provide to our
customers. We cannot assure you that our disaster recovery plan will address
all, or even most, of the problems we may encounter in the event of such a
disaster.

                                       12
<PAGE>

    We have experienced service interruptions in the past and any future
service interruptions could:

  .   require us to spend substantial amounts of money to replace equipment
      or facilities;

  .   entitle customers to claim service credits under our service level
      guarantees;

  .   cause customers to seek damages for losses incurred; or

  .   make it more difficult for us to attract new customers or enter into
      additional strategic relationships.

  Any of these occurrences could result in significant operating losses.

We must protect our proprietary rights

 Our business could be materially adversely affected by the misappropriation
 of our proprietary rights

  We rely on a combination of trademark, service mark, copyright and trade
 secret laws and contractual restrictions to establish and protect our
 proprietary rights. We do not own any patents that would prevent or inhibit
 competitors from using our technology or entering our market. We cannot
 assure you that the contractual arrangements or other steps taken by us to
 protect our proprietary rights will prove sufficient to prevent
 misappropriation of our proprietary rights or to deter independent, third-
 party development of similar proprietary assets. In addition, we provide our
 services in other countries where the laws may not afford adequate
 protection for our proprietary rights.

 We depend on proprietary rights, and our business could be materially
 adversely affected by third-party infringement claims against our technology
 suppliers, our customers or us

  We license or lease most technologies used in the Internet application
 services that we offer. Our technology suppliers may become subject to
 third-party infringement claims which could result in their inability or
 unwillingness to continue to license their technology to us. We expect that
 we and our customers increasingly will be subject to third-party
 infringement claims as the number of Web sites and third-party service
 providers for Web-based businesses grows. In addition, we have received
 notices alleging that our service marks infringe the trademark rights of
 third parties. We cannot assure you that third parties will not assert
 claims against us in the future or that these claims will not be successful.
 Any infringement claim as to our technologies or services, regardless of its
 merit, could be time-consuming, result in costly litigation, cause delays in
 service, installation or upgrades, adversely impact our relationships with
 suppliers or customers or require us to enter into royalty or licensing
 agreements.

The future success of our business will depend on our ability to retain key
officers and personnel and to continue to recruit additional skilled personnel

 The loss of key officers and personnel could materially adversely affect our
 business

  The future success of our business will depend, in large part, upon the
 continued service of key personnel, including Joel B. Rosen, our recently
 elected Chief Executive Officer, and Robert B. Eisenberg, our founder and
 President. None of our key officers or personnel is currently a party to an
 employment agreement with us. This means that any officer or employee can
 terminate his or her relationship with us at any time. In addition, we do
 not carry life insurance for any of our key personnel to insure our business
 in the event of their death. The loss of any of our key officers or
 personnel could impair our ability to successfully execute our business
 strategy, because we substantially rely on their experience and management
 skills.

  Our positive relations with our customers significantly depend upon members
 of our sales and marketing teams and key technical service personnel. In
 addition, any loss of key technical personnel would jeopardize the stability
 of our infrastructure and our ability to provide the guaranteed service
 levels our customers expect. Any loss of key personnel with important
 customer relationships or technical expertise could materially adversely
 affect our financial condition and operating results.

                                       13
<PAGE>

 Our failure to recruit additional skilled personnel could materially
 adversely affect our business

  We believe our future success will depend in large part upon our ability to
 attract, train, motivate and retain highly skilled technical, managerial and
 sales personnel, particularly in the areas of Web site and Internet
 application management and technical support. Our business requires
 individuals with significant levels of Internet application expertise, in
 particular to win consumer confidence in outsourcing the hosting and
 management of mission-critical applications. Competition for such personnel
 is intense, and qualified technical personnel are likely to remain a limited
 resource for the foreseeable future. Locating candidates with the
 appropriate qualifications, particularly in the desired geographic location,
 can be costly and difficult. We may not be able to hire the necessary
 personnel to implement our business strategy, or we may need to provide
 higher compensation to such personnel than we currently anticipate. Our
 inability to continue to attract and retain sufficient numbers of highly
 skilled employees could limit our growth and, as a result, our business may
 not be successful.

Our business could be materially adversely affected as a result of the risks
associated with potential acquisitions

    Our business strategy contemplates future acquisitions of complementary
businesses or technologies. If we do pursue additional acquisitions, our risks
may increase because our ongoing business may be disrupted and management's
attention and resources may be diverted from other business concerns. In
addition, through acquisitions, we may enter into markets or market segments in
which we have limited prior experience.

    Once we complete an acquisition, we will face additional risks. These risks
include:

  .   difficulty assimilating acquired operations, technologies and
      personnel;

  .   inability to retain management and other key personnel of the acquired
      business; and

  .   changes in management or other key personnel that may harm
      relationships with the acquired business's customers and employees.

    In addition, for at least the next two years, our acquisitions must be
accounted for using the purchase method of accounting, which could materially
adversely effect our financial condition and operating results. We cannot
assure you that any acquisitions will be successfully identified and completed
or that, if one or more acquisitions are completed, the acquired business,
assets or technologies will generate sufficient revenue to offset the
associated costs or other adverse effects.

Our expansion into international markets may not be successful

    One component of our long-term strategy is to expand into international
markets. We have entered into a bilateral agreement for Internet hosting
services with Planet Online Limited, a network access and Web site hosting
company in the United Kingdom, and we plan to pursue additional strategic
relationships with other companies in Europe and Asia to provide worldwide
capabilities to our customer base. Our financial condition and operating
results could be materially adversely affected if the revenue generated by any
current or future international data center or other operations is not adequate
to offset the expense of establishing and maintaining those international
operations. The international market for Web site and Internet application
hosting and management services is unproven, and we cannot assure you that we
will be able to market, sell and provide our services successfully outside the
United States.

    In addition, there are risks inherent in doing business in international
markets, including different regulatory requirements, trade barriers,
challenges in staffing and managing foreign operations, currency risk,
different technology standards, different tax structures which may adversely
impact earnings, different privacy, censorship and service provider liability
standards and regulations, and foreign political and economic instability, any
of which could adversely affect the success of our international operations.

                                       14
<PAGE>

Problems relating to the "Year 2000 issue" could materially adversely affect
our business

    Because we offer computer-related services and because of the business-
critical nature of many of our customers' applications, our risk of lawsuits
related to Year 2000 issues is likely to be greater than that of companies in
some other industries. We confront the Year 2000 problem in several contexts:

    Our Facilities and Services. Because our network infrastructure
incorporates components from multiple hardware and software providers, we may
be unable to determine whether any of these components will cause unexpected
Year 2000 problems or whether different components will interact in a way that
causes malfunctions. In most cases we do not independently verify the Year 2000
compliance of vendors' products, and we cannot offer any assurance that
vendors' guarantees, if and when provided, are true or sufficient or that we
will not encounter Year 2000 compliance problems associated with those
products. While we expect that our network infrastructure and all other
material components of our facilities will be Year 2000 compliant on or before
September 30, 1999, we cannot assure you that we will meet this goal or that we
will not discover any compliance problems in the future. Our failure to
adequately address Year 2000 compliance issues in our network infrastructure
could result in claims of mismanagement, misrepresentation or breach of
contract and related litigation, which could be costly and time-consuming for
us to defend.

    Our Customers. We also face risks from customer-provided hardware or
software that we host in our data centers. The failure of our customers and
third-party providers to ensure that this hardware and software is Year 2000
compliant could result in unforeseen problems within our network
infrastructure, which could materially adversely affect our financial condition
and operating results. In addition, we cannot give any assurances that our
customers will upgrade their internal networks which interface with our network
infrastructure or will otherwise provide appropriate remediation for Year 2000
compliance.

    Our Suppliers. Our business could be materially adversely affected if we
cannot obtain products, services or systems that are Year 2000 compliant when
we need them. In addition, if vendors and service providers cannot deliver
their products because of their own Year 2000 compliance problems, our
financial condition and operating results could be materially adversely
affected.

    Information on our state of readiness, costs and contingency plans
regarding the Year 2000 issue is included in this prospectus under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Considerations."

                     Risks Related to the Internet Industry

The growth of our business will depend on continued development of the Internet
infrastructure

    The recent growth in the use of the Internet has caused frequent periods of
performance degradation, requiring the upgrade of routers and switches,
telecommunications links and other components forming the infrastructure of the
Internet by Internet service providers and other organizations with links to
the Internet. Any perceived degradation in the performance of the Internet as a
means to transact business and communicate could undermine the benefits and
market acceptance of our Web site and Internet application hosting and
management services. Our services are ultimately limited by, and dependent
upon, the speed and reliability of hardware, communications services and
networks operated by third parties. Consequently, the emergence and growth of
the market for our Internet application services will depend in part on
improvements being made to the entire Internet infrastructure to alleviate
overloading and congestion.

                                       15
<PAGE>

We face risks associated with Internet security and the security of our systems

    A significant barrier to the growth of e-commerce and communications over
the Internet has been the need for secure transmission of confidential
information. Several of our Internet application services rely on encryption
and authentication technology licensed from third parties to provide the
protections necessary to effect secure transmission of confidential
information. We also rely on security systems designed by third parties and the
personnel in our network operations centers to secure our data centers. Any
unauthorized access, computer viruses, accidental or intentional actions and
other disruptions could materially adversely affect our financial condition and
operating results. We may incur significant costs to protect against these
interruptions and the threat of security breaches or to alleviate problems
caused by such interruptions or breaches, and we expect to expend significant
financial resources in the future to equip our new and existing data centers
with state-of-the-art security measures. If a third party were able to
misappropriate a consumer's personal or proprietary information, including
credit card information, during the use of an application solution provided by
us, we could be subject to claims, litigation or other potential liability.

We may become subject to burdensome government regulation and legal
uncertainties

    It is likely that laws and regulations directly applicable to the Internet
or to Internet application service providers may be adopted. These laws may
cover a variety of issues, including user privacy and the pricing,
characteristics and quality of products and services. The adoption or
modification of laws or regulations relating to commerce over the Internet
could materially adversely affect our financial condition and operating
results. Moreover, the applicability of existing laws to the Internet and
Internet application service providers is uncertain. These existing laws could
expose us to substantial liability if they are found to be applicable to our
business. For example, we provide services over the Internet in many states in
the United States and in the United Kingdom, and we facilitate the activities
of our customers in these jurisdictions. As a result, we may be required to
qualify to do business, be subject to taxation or be subject to other laws and
regulations in these jurisdictions, even if we do not have a physical presence,
employees or property there.

We may be subject to legal claims in connection with the information
disseminated through our network

    As an Internet application service provider, we may face potential direct
and indirect liability for claims of defamation, negligence, copyright, patent
or trademark infringement, violation of securities laws and other claims based
on the nature and content of the materials disseminated through our network.
For example, lawsuits may be brought against us claiming that content
distributed by some of our current or future customers may be regulated or
banned. In these and other instances, we may be required to engage in
protracted and expensive litigation, which could have the effect of diverting
management's attention and require us to expend significant financial
resources. Our general liability insurance may not necessarily cover any of
these claims or may not be adequate to protect us against all liability that
may be imposed.

    In addition, on a limited number of occasions in the past, businesses,
organizations and individuals have sent unsolicited commercial e-mails from
servers hosted at our facilities to massive numbers of people, typically to
advertise products or services. This practice, known as "spamming," can lead to
complaints against service providers that enable such activities, particularly
where recipients view the materials received as offensive. We have in the past
received, and may in the future receive, letters from recipients of information
transmitted by our customers objecting to such transmission. Although we
prohibit our customers by contract from spamming, we cannot assure you that our
customers will not engage in this practice, which could subject us to claims
for damages.

                                       16
<PAGE>

                        Risks Related to this Offering

There is no prior public market for our common stock, and you may not be able
to resell shares of our common stock for a profit

    Prior to this offering, there has been no public market for our common
stock. We, together with the underwriters, will determine the initial public
offering price, and this price may not be the price at which the common stock
will trade after this offering. The market price of the common stock may
decline below the initial public offering price. Although the common stock
will be quoted on the Nasdaq National Market, an active trading market may not
develop after this offering. We cannot assure you of the extent to which
investor interest in NaviSite will lead to the development of an active
trading market or how liquid that market may become. A more detailed
discussion of factors to be considered in determining the initial public
offering price is included in this prospectus under the heading
"Underwriting."

The market price of our common stock may experience extreme price and volume
fluctuations

    The market price of the common stock may fluctuate substantially due to a
variety of factors, including:

  .   any actual or anticipated fluctuations in our financial condition and
      operating results;

  .   public announcements concerning us or our competitors, or the Internet
      industry;

  .   the introduction or market acceptance of new service offerings by us
      or our competitors;

  .   changes in industry research analysts' earnings estimates;

  .   changes in accounting principles;

  .   sales of our common stock by existing stockholders; and

  .   the loss of any of our key personnel.

    In addition, the stock market has experienced extreme price and volume
fluctuations. The market prices of the securities of technology and Internet-
related companies have been especially volatile. This volatility has often
been unrelated to the operating performance of particular companies. In the
past, securities class action litigation has often been brought against
companies that experience volatility in the market price of their securities.
Whether or not meritorious, litigation brought against us could result in
substantial costs and a diversion of management's attention and resources,
which could materially adversely affect our financial condition.

If our existing stockholders sell a substantial number of shares of our common
stock in the public market, the market price of our common stock will likely
fall

    If our stockholders sell substantial amounts of our common stock in the
public market following this offering, including shares issuable upon the
exercise of outstanding options, the market price of our common stock will
likely fall. CMGI, Dell and Microsoft will directly own approximately  %,  %
and  %, respectively, of the outstanding shares of our common stock upon
completion of this offering and will have registration rights which will
permit them to sell all of these shares in the public market approximately 180
days after completion of this offering. These sales also might make it more
difficult for us to sell equity securities in the future at a time and price
that we deem appropriate. After this offering, we will have outstanding
shares of common stock. Of these shares, the     shares being offered in this
offering will be freely tradeable. Our directors, executive officers and
stockholders have agreed that they will not sell, directly or indirectly, any
common stock without the prior written consent of BancBoston Robertson
Stephens Inc. for a period of 180 days after the completion of this offering.
However, BancBoston Robertson Stephens Inc. may, in its sole discretion and at
any time or from time to time, without notice, release all or any portion of
the securities subject to the lock-up agreements. Additional information
regarding the market for our common stock is included in this prospectus under
the headings "Shares Eligible for Future Sale" and "Underwriting."

                                      17
<PAGE>

We may spend a substantial portion of the net proceeds of this offering in ways
with which you may not agree

    We plan to use the net proceeds of this offering for investment in the
growth of our business, including enhancement and expansion of our network
infrastructure, expansion of our sales and marketing efforts, including the
hiring of additional personnel, enhancement of our application management and
technical expertise and possible acquisitions of complementary businesses and
technologies, and for working capital and general corporate purposes. Our
management will have broad discretion to allocate the net proceeds from this
offering. As a result, investors in this offering will be relying upon
management's judgment with only limited information about its specific
intentions regarding the use of proceeds. We cannot assure you that the
proceeds will be invested to yield a favorable return. Additional information
regarding the ways in which we intend to spend the proceeds of this offering is
included in this prospectus under the heading "Use of Proceeds."

Investors in this offering will experience immediate and substantial dilution
of their investment

    The initial public offering price is expected to be substantially higher
than the book value per share of the outstanding common stock. You will
therefore incur immediate substantial dilution in the amount of $    per share
based upon an assumed initial public offering price of $    per share. In
addition, to the extent outstanding stock options are exercised, you will incur
further dilution. Additional information regarding the dilution to investors in
our initial public offering is included in this prospectus under the heading
"Dilution."

The reliability of the market data included in this prospectus is uncertain

    Since we are a relatively new company and operate in a new and rapidly
changing market, we have included market data in this prospectus from industry
publications, including Forrester Research, Inc. Industry publications
generally state that the information contained in these publications has been
obtained from sources believed to be reliable, but that its accuracy and
completeness is not guaranteed. Although we believe market data used in this
prospectus are reliable, it has not been independently verified and we cannot
assure you of its reliability.

                           FORWARD-LOOKING STATEMENTS

    This prospectus contains forward-looking statements which involve risks and
uncertainties. These forward-looking statements are often accompanied by words
such as "believes," "anticipates," "plans," "expects" and similar expressions.
These statements include, without limitation, statements about the market
opportunity for Web site and Internet application hosting and management
services, our business strategy, competition and expected expense levels. Our
actual results could differ materially from those expressed or implied by these
forward-looking statements as a result of various factors, including the risk
factors described above and elsewhere in this prospectus.

                                       18
<PAGE>

                                USE OF PROCEEDS

    We expect to receive net proceeds from the sale of the     shares of common
stock offered by us of approximately $   , or $    if the over-allotment option
granted to the underwriters is exercised in full, based on an assumed initial
public offering price of $    per share, and after deducting underwriting
discounts and commissions and estimated offering expenses payable by us.

    The principal purposes of this offering are:

  .   to increase our equity capital;

  .   to facilitate future access by us to public equity markets;

  .   to provide increased visibility and credibility in the marketplace;
      and

  .   to enhance our ability to use common stock as consideration for
      acquisitions and as a means of attracting and retaining key employees.

    We currently intend to use the net proceeds of this offering for the
following:

  .   enhancement and expansion of our network infrastructure;

  .   expansion of our sales and marketing efforts, including the hiring of
      additional personnel;

  .   enhancement of our application management and technical expertise; and

  .   working capital and general corporate purposes.

    In addition, we may also use a portion of the net proceeds of this offering
for the acquisition of businesses or technologies that are complementary to
those we currently possess. While we evaluate these types of opportunities from
time to time, there are currently no agreements with respect to any specific
acquisitions.

    We have not yet determined the actual expected expenditures and therefore
cannot estimate the amounts to be used for each purpose set forth above. The
amounts and timing of these expenditures will vary significantly depending upon
a number of factors, including, but not limited to, the amount of cash
generated by our operations and the market response to our Web site and
Internet application hosting and management services. Accordingly, our
management will retain broad discretion as to the allocation of the proceeds of
this offering.

    Pending use of the net proceeds as described above, we intend to invest the
net proceeds of this offering in short-term, interest-bearing, investment-grade
securities.

                                DIVIDEND POLICY

    We have never declared or paid any cash dividends on our common stock, and
we do not currently intend to pay any cash dividends on the common stock in the
foreseeable future. We expect to retain future earnings, if any, to fund the
development and growth of our business. Future dividends, if any, will be
determined by our board of directors. In addition, the terms of our outstanding
preferred stock restrict the payment of dividends on our common stock. As a
result of not collecting a dividend, there is a risk that stockholders will not
experience a positive return on their investment, unless they sell their shares
of common stock at a profit.

                                       19
<PAGE>

                                 CAPITALIZATION

    The following table is a summary of our balance sheet at April 30, 1999:

  .  on an actual basis;

  .  on a pro forma basis after giving effect to the conversion of all debt
     held by CMGI into shares of convertible preferred stock and the
     conversion of all outstanding shares of convertible preferred stock
     into shares of common stock; and

  .  on a pro forma as adjusted basis to reflect the sale of     shares of
     common stock at an assumed initial public offering price of $    per
     share, after deducting underwriting discounts and commissions and
     estimated offering expenses payable by us.

    This information should be read in conjunction with the section of this
prospectus with the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and the accompanying notes appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
                                                        April 30, 1999
                                                --------------------------------
                                                                      Pro Forma
                                                 Actual   Pro Forma  As Adjusted
                                                --------  ---------  -----------
                                                        (In thousands)
<S>                                             <C>       <C>        <C>
Debt to CMGI................................... $ 10,761  $     --      $
                                                --------  --------      ----
Stockholders' equity (deficit):
  Series A convertible preferred stock, par
    value $0.01 per share: 1,323,953 shares
    authorized, issued and outstanding
    (actual); no shares authorized, issued or
    outstanding (pro forma and pro forma as
    adjusted)..................................       13        --
  Common stock, par value $0.01 per share:
    30,000,000 shares authorized (actual);
    shares authorized (pro forma and pro forma
    as adjusted); 69,338 shares issued and
    outstanding (actual); 18,212,188 and
    shares issued and outstanding (pro forma
    and pro forma as adjusted).................        1       182
Additional paid-in capital.....................   15,754    26,347
Accumulated deficit............................  (25,583)  (25,583)
                                                --------  --------      ----
  Total stockholders' equity (deficit).........   (9,815)      946
                                                --------  --------      ----
     Total capitalization...................... $    946  $    946      $
                                                ========  ========      ====
</TABLE>

    The number of shares of common stock set forth in the table above as
outstanding after the completion of this offering excludes (i) 2,287,058 shares
of common stock issuable upon exercise of stock options outstanding under the
NaviSite, Inc. 1998 Equity Incentive Plan as of April 30, 1999, with a weighted
average exercise price of $2.27 per share, (ii) 50,000 shares of common stock
issuable upon exercise of stock options outstanding under the NaviSite, Inc.
1998 Director Stock Option Plan as of April 30, 1999, with a weighted average
exercise price of $0.49 per share, and (iii) an additional 43,604 shares of
common stock reserved for issuance under the 1998 Equity Incentive Plan and
75,000 shares of common stock reserved for issuance under the 1998 Director
Stock Option Plan.

                                       20
<PAGE>

                                    DILUTION

    Our pro forma net tangible book value as of April 30, 1999 was $   , or
$    per share of common stock. Pro forma net tangible book value per share
represents the amount of our total tangible assets less total liabilities,
divided by    , the pro forma number of shares of common stock outstanding as
of April 30, 1999. Pro forma net tangible book value dilution per share
represents the difference between the amount per share paid by new investors
purchasing shares of common stock in this offering and the pro forma net
tangible book value per share of common stock immediately after completion of
this offering on a pro forma as adjusted basis. After giving effect to the sale
of the     shares of common stock offered by us at an assumed initial public
offering price of $    per share of common stock, and after deducting
underwriting discounts and commissions and estimated offering expenses payable
by us, our pro forma net tangible book value as of April 30, 1999 would have
been $   , or $    per share of common stock. This represents an immediate
increase in net tangible book value of $    per share of common stock to
existing stockholders and an immediate dilution in pro forma net tangible book
value of $    per share of common stock to new investors purchasing shares of
common stock in this offering. The following table illustrates this per share
dilution:

<TABLE>
<S>                                                                      <C>  <C>
Assumed initial public offering price per share........................       $
                                                                              ----
  Pro forma net tangible book value per share as of April 30, 1999.....  $
  Increase per share attributable to new investors.....................
                                                                         ----
Pro forma net tangible book value per share after this offering........
                                                                              ----
Dilution per share to new investors....................................       $
                                                                              ====
</TABLE>

    The following table summarizes, on a pro forma basis as of April 30, 1999,
the number of shares of common stock purchased from us, the total cash
consideration paid and the average price per share paid to us by the existing
stockholders and by new investors purchasing shares of common stock in this
offering.

<TABLE>
<CAPTION>
                          Shares Purchased      Total Consideration
                          -------------------   ---------------------   Average Price
                          Number    Percent      Amount     Percent       Per Share
                          -------   ---------   ---------  ----------   -------------
<S>                       <C>       <C>         <C>        <C>          <C>
Existing stockholders...                      %  $                    %     $
New investors...........                                                    $
                           -------   ---------   ---------  ----------
  Total.................                 100.0%  $               100.0%
                           =======   =========   =========  ==========
</TABLE>

    The foregoing tables and calculations assume no exercise of options
outstanding under our 1998 Equity Incentive Plan or our 1998 Director Stock
Option Plan. As of April 30, 1999, there were 2,337,058 shares of common stock
reserved for issuance upon exercise of outstanding options with a weighted
average exercise price of $2.23 per share. To the extent that any of these
options are exercised, there will be further dilution to new investors.

                                       21
<PAGE>

                      SELECTED CONSOLIDATED FINANCIAL DATA

    The following selected financial data should be read in conjunction with
our consolidated financial statements and the accompanying notes appearing
elsewhere in this prospectus and with the section of this prospectus under the
heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Our statement of operations for the period from July 1,
1996 through July 31, 1996 and for the years ended July 31, 1997 and 1998, and
our balance sheet data as of July 31, 1997 and 1998, are derived from our
consolidated financial statements that have been audited by KPMG LLP and appear
elsewhere in this prospectus. Our balance sheet data as of July 31, 1996 are
derived from our audited consolidated financial statements that are not
included herein. Our statement of operations data for the nine months ended
April 30, 1998 and 1999, and the balance sheet data as of April 30, 1999 are
derived from our unaudited consolidated financial statements appearing
elsewhere in this prospectus. Our unaudited financial statements have been
prepared on the same basis as our audited financial statements and, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results of
operations for such periods. Historical results are not necessarily indicative
of the results to be expected in the future and results of interim periods are
not necessarily indicative of results for any future period.

<TABLE>
<CAPTION>
                               Period from   Year ended     Nine months ended
                              July 1, 1996    July 31,          April 30,
                                 through    --------------  -------------------
                              July 31, 1996 1997    1998      1998      1999
                              ------------- -----  -------  --------  ---------
                                                               (unaudited)
                                  (In thousands, except per share data)
<S>                           <C>           <C>    <C>      <C>       <C>
Statement of Operations
  Data:
Revenue:
 Revenue....................      $ --      $  --  $   158  $     39  $   2,052
 Revenue, related parties...        --      3,361    3,871     2,797      4,765
                                  ----      -----  -------  --------  ---------
  Total revenue.............        --      3,361    4,029     2,836      6,817
Cost of revenue.............         6      3,494    8,876     6,423     13,294
                                  ----      -----  -------  --------  ---------
  Gross profit (loss).......        (6)      (133)  (4,847)   (3,587)    (6,477)
                                  ----      -----  -------  --------  ---------
Operating expenses:
 Selling and marketing......        --        347    2,530     1,424      4,052
 General and
   administrative...........        21        467    1,412       927      2,271
 Product development........        --         --      287       114      2,270
                                  ----      -----  -------  --------  ---------
  Total operating expenses..        21        814    4,229     2,465      8,593
                                  ----      -----  -------  --------  ---------
Loss from operations........       (27)      (947)  (9,076)   (6,052)   (15,070)
Other income (expense):
 Interest expense, net......        --         (1)     (85)      (28)      (330)
 Other expense, net.........        --         --      (11)       --        (36)
                                  ----      -----  -------  --------  ---------
Net loss....................      $(27)     $(948) $(9,172) $ (6,080) $ (15,436)
                                  ====      =====  =======  ========  =========
Unaudited pro forma basic
  and diluted net loss per
  share.....................                       $ (1.02)           $   (1.01)
                                                   =======            =========
Pro forma weighted average
  number of basic and
  diluted shares
  outstanding...............                         9,027               15,248
                                                   =======            =========
</TABLE>

<TABLE>
<CAPTION>
                                                  July 31,
                                           ------------------------   April 30,
                                           1996    1997      1998       1999
                                           -----  -------  --------  -----------
                                                                     (unaudited)
Balance Sheet Data:                                  (In thousands)
<S>                                        <C>    <C>      <C>       <C>
Cash and equivalents...................... $  --  $    --  $     --   $     --
Working capital (deficit).................  (157)  (2,566)  (13,522)   (15,268)
Total assets..............................   130    2,010     5,479     10,286
Debt to CMGI..............................   155    2,273    11,439     10,761
Stockholders' equity (deficit)............   (27)    (895)  (10,066)    (9,815)
</TABLE>

                                       22
<PAGE>

   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                                   OPERATIONS

    The following discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those
discussed in the forward-looking statements as a result of a number of factors,
including those set forth in the section of this prospectus under the heading
"Risk Factors" and elsewhere in this prospectus. The following information
should be read in conjunction with the "Selected Consolidated Financial Data"
and our consolidated financial statements and the accompanying notes, each of
which appears elsewhere in this prospectus.

Overview

    We provide enhanced, integrated hosting and management services for
business Web sites and Internet applications. We also provide application
rentals to customers and developers and supply related consulting services. Our
Internet application service offerings allow businesses to outsource the
deployment, configuration, hosting, management and support of their Web sites
and Internet applications in a cost-effective and rapid manner. Our focus on
enhanced management services, beyond basic co-location services, allows us to
meet the expanding needs of businesses as their Web sites and Internet
applications become more complex. The cost for our services varies from
customer to customer based on the number of hosted or managed servers and the
nature and level of services provided.

    We were incorporated in Delaware in December 1998 as a wholly owned
subsidiary of NaviSite Internet Services Corporation as part of a corporate
reorganization of NaviSite Internet Services Corporation. At that time, we
received a contribution of assets from NaviSite Internet Services Corporation
in exchange for 60,589 shares of our common stock and 1,323,953 shares of our
Series A convertible preferred stock. At the same time, NaviSite Internet
Services Corporation contributed the remainder of its assets to NaviNet, Inc.,
another newly formed subsidiary of NaviSite Internet Services Corporation. We
expect the NaviSite Internet Services Corporation reorganization to be
completed prior to the completion of this offering, at which time NaviSite
Internet Services Corporation will be merged with and into CMGI, leaving
NaviSite and NaviNet, Inc. as direct subsidiaries of CMGI.

    Our predecessor, NaviSite Internet Services Corporation, was incorporated
in Delaware in February 1997 under the name CMG Information Technology, Inc.
and changed its name to NaviSite Internet Services Corporation in May 1997. We
commenced operations in July 1996, funded by CMGI, to support the networks and
host the Web sites of CMGI and a number of CMGI affiliates. CMGI affiliates
include all entities in which CMGI holds an equity interest. We began providing
Web site hosting and Internet application management services to companies
unaffiliated with CMGI in the Fall of 1997.

    All financial information presented here refers only to NaviSite, including
the hosting and Internet application management segments of NaviSite Internet
Services Corporation, and does not include the financial condition or results
of operations of NaviNet, Inc., including the dial-up operations of NaviSite
Internet Services Corporation.

    In July 1998, we acquired Servercast Communications, L.L.C., a developer
and integrator of Internet applications, for $1.0 million in notes, plus bridge
notes receivable of $25,000 and $20,000 in acquisition costs. We acquired
Servercast principally for its expertise in online advertising, e-commerce,
content management and streaming media. The purchase price plus associated
costs of the acquisition were recorded as goodwill and are being amortized on a
straight-line basis over five years.

                                       23
<PAGE>

    We intend to expand domestically and internationally and currently have two
new data centers under construction. In addition, we are converting 3,200
square feet of office space at our current data center location in Andover,
Massachusetts into data center space. In May 1999, we executed a 12-year lease
for a new 150,000 square foot facility located in Andover, Massachusetts,
currently being constructed to our specifications, which will include a new
data center. We anticipate that work will be completed on the new Massachusetts
facility in the Spring of 2000. Construction also has started on a new 66,000
square foot facility located in San Jose, California, which will include a new
data center. In May 1999, we executed a seven-year lease for this facility,
which should be available for occupation in the Fall of 1999. The procurement,
development and equipping of these facilities will significantly increase our
costs and operating expenses.

    Our corporate headquarters are currently shared with CMGI and several other
CMGI affiliates. CMGI allocates rent, facility maintenance and service costs
among these affiliates based upon headcount within each affiliate and within
each department of each affiliate. Services provided by CMGI include support
for human resources, systems, business development and marketing. Actual
expenses could have varied had we been operating on a stand-alone basis. Costs
are allocated to us on the basis of the fair market value for the facilities
used and the services provided. We intend to relocate our executive offices to
our new facility, also located in Andover, Massachusetts, upon completion of
that facility, and upon that relocation, we will no longer share space with
CMGI.

    We derive our revenue from a variety of services, including: Web site and
Internet application hosting, which includes access to our state-of-the-art
data centers, bandwidth and basic back-up, storage and monitoring services;
enhanced server management, which includes custom reporting, hardware options,
load balancing and mirroring, system security, advanced back-up options, remote
management and the services of our business solution managers; specialized
application management, which includes management of e-commerce and other
sophisticated applications and their underlying services, including ad-serving,
streaming, databases and transaction processing; and application rentals and
related consulting and other professional services. Revenue also includes
income from the rental of equipment to customers and one-time installation
fees. Revenue is recognized in the period in which the services are performed
and installation fees are recognized in the period of installation. Our
contracts generally are a one-year commitment.

    Our revenue from sales to related parties principally consists of sales of
services to CMGI and other customers that are CMGI affiliates. In the nine
months ended April 30, 1999, we sold services to CMGI and 19 CMGI affiliates
totaling approximately $4.8 million, or 70% of revenue. Two of these customers
accounted for approximately 24% and 18% of revenue, respectively, for the nine
months ended April 30, 1999. As of April 30, 1999, through its ownership of
NaviSite Internet Services Corporation, CMGI owned approximately 90% of our
outstanding common stock on a fully diluted basis with the balance owned by
employees and directors.

    Cost of revenue consists primarily of salaries and benefits for operations
personnel, bandwidth fees and related Internet connectivity charges, equipment
costs and related depreciation and costs to run our two data centers, such as
rent and utilities. We expect these costs to increase in dollar terms, but
decline on a percentage of revenue basis, with the growth of our overall
business. We also expect to achieve economies of scale as a result of spreading
more volume over fixed assets, increasing productivity and using new
technological tools.

    Selling and marketing expenses consist primarily of salaries and related
benefits, commissions and marketing expenses such as advertising, product
literature, trade shows, marketing and direct mail programs. We expect selling
and marketing expenses to increase significantly in dollar terms, but decline
on a percentage of revenue basis, as we continue to invest in these areas to
promote brand recognition and to acquire new customers. We intend to accomplish
this by hiring additional sales and marketing personnel, opening additional
sales offices and increasing spending on public relations, advertising and
marketing programs.

    General and administrative expenses include the costs of financial, leasing
and administrative personnel, professional services and corporate overhead.
Also included are intercompany charges from CMGI for

                                       24
<PAGE>

facilities, human resource support and business development. We expect the
dollar value of these expenses to increase in future periods but decline on a
percentage of revenue basis as we hire additional personnel and incur
additional costs related to the growth of our business and our operations as a
public company.

    Product development expenses consist mainly of salaries and related costs.
Our product development staff is comprised of four separate operating groups:
Internet applications; network architecture; security architecture and
planning; and information systems. The Internet applications group identifies
new Internet application software offerings, incorporates these new offerings
into our suite of service offerings and positions these new offerings for
marketing, sale and deployment. The network architecture group identifies,
selects and implements the various technologies, including network storage and
back-up, that provide the basic infrastructure for both our internal network
and the solutions we offer our customers. The security architecture and
planning group plans for and implements the technologies which secure the
confidential information and infrastructures belonging to us and our customers
against unauthorized access, computer viruses, accidental or intentional
actions and other disruptions. The information systems group develops, manages
and maintains our internal business systems, including financial software
systems and our corporate databases. As with sales and marketing, we believe
that increased investment in product development is critical to attaining our
strategic objectives and maintaining our competitive edge. We expect the dollar
value of product development expenses to increase significantly in future
periods but decline on a percentage of revenue basis.

    We have incurred significant net losses and negative cash flows from
operations since our inception and, as of April 30, 1999, had an accumulated
deficit of approximately $25.6 million. These losses primarily have been funded
by CMGI through the issuance of convertible preferred stock and convertible
debt and by equipment lease financing. We intend to continue to invest heavily
in sales, marketing, promotion, technology and infrastructure development as we
grow. As a result, we believe that we will continue to incur operating losses
and negative cash flows from operations for the foreseeable future and that the
rate at which such losses will be incurred may increase.

Results of Operations

    The following table sets forth the consolidated statement of operations
data for the periods indicated as a percentage of revenues:

<TABLE>
<CAPTION>
                                            Nine months
                            Year ended          ended
                             July 31,         April 30,
                           --------------   ---------------
                           1997     1998     1998     1999
                           -----   ------   ------   ------
                                             (unaudited)
<S>                        <C>     <C>      <C>      <C>
Revenue:
 Revenue.................    0.0%     3.9%     1.4%    30.1%
 Revenue, related
   parties...............  100.0     96.1     98.6     69.9
                           -----   ------   ------   ------
 Total revenue...........  100.0    100.0    100.0    100.0
Cost of revenue..........  104.0    220.3    226.5    195.0
                           -----   ------   ------   ------
 Gross profit (loss).....   (4.0)  (120.3)  (126.5)   (95.0)
                           -----   ------   ------   ------
Operating expenses:
 Selling and marketing...   10.3     62.8     50.2     59.4
 General and
   administrative........   13.9     35.0     32.7     33.3
 Product development.....    0.0      7.1      4.0     33.3
                           -----   ------   ------   ------
 Total operating
   expenses..............   24.2    104.9     86.9    126.1
                           -----   ------   ------   ------
Loss from operations.....  (28.2)  (225.2)  (213.4)  (221.1)
Other income (expense):
 Interest expense........    0.0     (2.1)    (1.0)    (4.8)
 Other expense, net......    0.0     (0.3)     0.0     (0.5)
                           -----   ------   ------   ------
 Total other income
   (expense).............    0.0     (2.4)    (1.0)    (5.3)
                           -----   ------   ------   ------
Net loss.................  (28.2)% (227.6)% (214.4)% (226.4)%
                           =====   ======   ======   ======
</TABLE>

                                       25
<PAGE>

Comparison of the Nine Months Ended April 30, 1999 and April 30, 1998

 Revenue

    Total revenue increased 140% to approximately $6.8 million for the nine
months ended April 30, 1999, from approximately $2.8 million for the nine
months ended April 30, 1998. The increase in revenue is due to additional
business with CMGI and CMGI affiliates and the increase in the number of non-
affiliated customers to 82 as of April 30, 1999 (including customers of
Servercast, acquired by us on July 1, 1998) from 10 as of April 30, 1998.
Customers of Servercast accounted for $934,000, or 14%, of total revenue for
the nine months ended April 30, 1999.

 Cost of Revenue

    Cost of revenue increased 107% to approximately $13.3 million for the nine
months ended April 30, 1999, from approximately $6.4 million for the nine
months ended April 30, 1998. As a percentage of revenue, cost of revenue
decreased to 195% for the nine months ended April 30, 1999, from 227% for the
nine months ended April 30, 1998. The dollar-value increase in each period is
due primarily to the costs associated with increased investment in our existing
data centers. These costs principally include labor and headcount expenses,
additional equipment and maintenance costs and increased bandwidth and
connectivity charges.

 Operating Expenses

    Selling and Marketing. Selling and marketing expenses increased 185% to
approximately $4.1 million for the nine months ended April 30, 1999, from
approximately $1.4 million for the nine months ended April 30, 1998. This
increase is due primarily to the development of NaviSite's sales and marketing
capability in connection with the commencement of sales to non-affiliated
customers. These costs primarily include salaries and commissions and expenses
for marketing programs, advertising and product literature.

    General and Administrative. General and administrative expenses increased
145% to approximately $2.3 million for the nine months ended April 30, 1999,
from approximately $927,000 for the nine months ended April 30, 1998. The
dollar-value increase in general and administrative expenses is due primarily
to the hiring of additional administrative and finance personnel to support our
growing operations and due to intercompany charges from CMGI for human resource
support, business development and corporate overhead. Other expenses
contributing to the dollar-value increase include moving and rental costs
associated with the occupation of our current corporate headquarters and
increased legal and professional fees.

    Product Development. Product development expenses increased to $2.3 million
for the nine months ended April 30, 1999, from approximately $114,000 for the
nine months ended April 30, 1998. This increase is due primarily to the costs
associated with an increase in product development personnel by April 30, 1999
from one person at the inception of our product development operations in 1998.
This growth in product development personnel reflects our increased service
offerings and emphasis on application services.

 Interest Expense, net

    Interest expense, net increased to approximately $330,000 for the nine
months ended April 30, 1999, from $28,000 for the nine months ended April 30,
1998. This increase is due primarily to the inclusion in interest expense, net
for the nine months ended April 30, 1999 of interest on intercompany debt at a
rate of 7% per annum pursuant to an arrangement entered into between NaviSite
and CMGI in the second half of fiscal 1998. Interest expense associated with
the issuance of term notes in connection with our acquisition, in July 1998, of
Servercast Communications, L.L.C. totaled approximately $41,000 during the nine
months ended April 30, 1999. Interest expense on long-term capital lease
obligations is also included in interest expense, net.

Comparison of Fiscal Years Ended July 31, 1998, 1997 and 1996

 Revenue

    Total revenue increased 20% to approximately $4.0 million in fiscal 1998,
from approximately $3.4 million in fiscal 1997. Total revenue was zero in
fiscal 1996. Because NaviSite first sold its services to

                                       26
<PAGE>

unaffiliated customers in the Fall of 1997, almost all of NaviSite's revenue in
fiscal 1998 and fiscal 1997 came from CMGI and CMGI affiliates. The dollar-
value increase in revenue in fiscal 1998 from fiscal 1997 is due to a growth in
revenue of approximately $510,000 from services provided to affiliated
customers and the addition of commercial customers with revenue totaling
$158,000. In fiscal 1998, three customers, all affiliates of CMGI, accounted
for 40%, 19% and 11% of revenue, respectively. In fiscal 1997, these same three
customers accounted for 46%, 28% and 14% of revenue, respectively.

 Cost of Revenue

    Cost of revenue increased 154% to approximately $8.9 million in fiscal
1998, from approximately $3.5 million in fiscal 1997. As a percentage of
revenue, cost of revenue increased to 220%, from 104%, reflecting costs
associated with the build-out of the Andover data center and the opening of the
Scotts Valley data center in anticipation of future growth.

 Operating Expenses

    Selling and Marketing. Selling and marketing expenses increased to $2.5
million in fiscal 1998, from $347,000 in fiscal 1997. Selling and marketing
expenses were zero in fiscal 1996. The increases are the result of significant
growth in our sales force and marketing group during this period as we
commenced sales to unaffiliated customers. Advertising costs and significant
initial costs for product literature also are components of the increase in
fiscal 1998 over fiscal 1997.

    General and Administrative. General and administrative expenses increased
202% to approximately $1.4 million in fiscal 1998, from approximately $467,000
in fiscal 1997, and increased from $21,000 in fiscal 1996. These increases are
the result of increased payroll and related costs and professional fees
required to support our growing operations.

    Product Development. Product development expenses increased to $287,000 in
fiscal 1998 due to initial hiring in our product development group at its
inception in fiscal 1998. Product development expenses were zero in fiscal 1997
and fiscal 1996. The introduction of product development personnel reflects our
increased service offerings and emphasis on application services.

 Interest Expense, net

    Interest expense, net increased to $85,000 in fiscal 1998, from $1,000 in
fiscal 1997. Interest expense, net was zero in fiscal 1996. The increase in
fiscal 1998 from fiscal 1997 is due primarily to the inclusion in interest
expense, net in fiscal 1998 of interest on intercompany debt at a rate of 7%
per annum pursuant to an arrangement entered into between NaviSite and CMGI in
the second half of fiscal 1998. Interest expense on long-term capital lease
obligations is also included in interest expense, net in fiscal 1998 and is the
sole component of interest expense, net in fiscal 1997.

Income Taxes

    NaviSite is part of the CMGI consolidated group for tax purposes and as
such, all benefits of federal tax losses from inception through July 31, 1998
have been used to the benefit of CMGI in its consolidated return. As a result,
NaviSite has no federal tax loss carryforwards or carrybacks as of April 30,
1999. NaviSite has net operating loss carryforwards for Massachusetts state tax
purposes of approximately $728,000 as of July 31, 1998. In addition, NaviSite
has net operating loss carryforwards for California state tax purposes of
approximately $475,000 as of July 31, 1998. These state tax loss carryforwards
will expire from 2001 through 2003.

                                       27
<PAGE>

Selected Unaudited Quarterly Results of Operations

    The following table sets forth unaudited quarterly statements of operations
data for each of the six quarters in the 18-month period ended April 30, 1999.
In the opinion of management, the unaudited financial results include all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair presentation of our results of operations for those periods. The quarterly
data should be read in conjunction with the audited consolidated financial
statements and the accompanying notes appearing elsewhere in this prospectus.
The results of operations for any quarter are not necessarily indicative of the
results of operations for any future period.

<TABLE>
<CAPTION>
                                            Three Months Ended
                          ----------------------------------------------------------------
                          Jan. 31,   April 30,  July 31,   Oct. 31,   Jan. 31,   April 30,
                            1998       1998       1998       1998       1999       1999
                          --------   ---------  --------   --------   --------   ---------
Statement of Operations
Data:                                         (In thousands)
<S>                       <C>        <C>        <C>        <C>        <C>        <C>
Revenue:
 Revenue................  $    11     $    28     $ 119    $   490    $   604     $   958
 Revenue, related
   parties..............      941       1,024     1,074      1,178      1,562       2,025
                          -------     -------   -------    -------    -------     -------
  Total revenue.........      952       1,052     1,193      1,668      2,166       2,983
Cost of revenue.........    2,098       2,584     2,453      3,760      3,909       5,625
                          -------     -------   -------    -------    -------     -------
 Gross profit (loss)....   (1,146)     (1,532)   (1,260)    (2,092)    (1,743)     (2,642)
                          -------     -------   -------    -------    -------     -------
Operating expenses:
 Selling and marketing..      422         762     1,106      1,350      1,039       1,663
 General and
   administrative.......      282         378       485        505        758       1,008
 Product development....       10         104       173        410        584       1,276
                          -------     -------   -------    -------    -------     -------
  Total operating
    expenses............      714       1,244     1,764      2,265      2,381       3,947
                          -------     -------   -------    -------    -------     -------
Loss from operations....   (1,860)     (2,776)   (3,024)    (4,357)    (4,124)     (6,589)
Other income (expense):
 Interest expense, net
   .....................       (4)        (24)      (57)      (156)       (39)       (135)
 Other expense, net.....        0           0       (11)         4          0         (40)
                          -------     -------   -------    -------    -------     -------
  Total other income
    (expense)...........       (4)        (24)      (68)      (152)       (39)       (175)
                          -------     -------   -------    -------    -------     -------
Net loss................  $(1,864)    $(2,800)  $(3,092)   $(4,509)   $(4,163)    $(6,764)
                          =======     =======   =======    =======    =======     =======
<CAPTION>
                                       Percentage of Total Revenues
                                            Three Months Ended
                          ----------------------------------------------------------------
                          Jan. 31,   April 30,  July 31,   Oct. 31,   Jan. 31,   April 30,
                            1998       1998       1998       1998       1999       1999
                          --------   ---------  --------   --------   --------   ---------
Statement of Operations
Data:
<S>                       <C>        <C>        <C>        <C>        <C>        <C>
Revenue:
 Revenue................      1.2 %       2.7 %    10.0 %     29.4 %     27.9 %      32.1 %
 Revenue, related
   parties..............     98.8        97.3      90.0       70.6       72.1        67.9
                          -------     -------   -------    -------    -------     -------
  Total revenue.........    100.0       100.0     100.0      100.0      100.0       100.0
Cost of revenue.........    220.4       245.6     205.6      225.4      180.5       188.6
                          -------     -------   -------    -------    -------     -------
 Gross profit (loss)....   (120.4)     (145.6)   (105.6)    (125.4)     (80.5)      (88.6)
                          -------     -------   -------    -------    -------     -------
Operating expenses:
 Selling and marketing..     44.3        72.4      92.7       80.9       48.0        55.7
 General and
   administrative.......     29.6        35.9      40.7       30.3       35.0        33.8
 Product development....      1.1         9.9      14.5       24.6       27.0        42.8
                          -------     -------   -------    -------    -------     -------
  Total operating
    expenses............     75.0       118.3     147.9      135.8      109.9       132.3
                          -------     -------   -------    -------    -------     -------
Loss from operations ...   (195.4)     (263.9)   (253.5)    (261.2)    (190.4)     (220.9)
Other income (expense):
 Interest expense, net
   .....................     (0.4)       (2.3)     (4.8)      (9.4)      (1.8)       (4.5)
 Other expense, net.....      0.0         0.0      (0.9)       0.2        0.0        (1.3)
                          -------     -------   -------    -------    -------     -------
  Total other income
    (expense)...........     (0.4)       (2.3)     (5.7)      (9.1)      (1.8)       (5.9)
                          -------     -------   -------    -------    -------     -------
Net loss................   (195.8)%    (266.2)%  (259.2)%   (270.3)%   (192.2)%    (226.8)%
                          =======     =======   =======    =======    =======     =======
</TABLE>

                                       28
<PAGE>

Liquidity and Capital Resources

    Since our inception, our operations have been funded primarily by CMGI
through the issuance of preferred stock and convertible debt.

    Net cash used in operating activities amounted to $7.9 million, $644,000
and $19,000 for fiscal 1998, fiscal 1997 and fiscal 1996, respectively, and
amounted to $11.8 million and $4.8 million for the nine months ended April 30,
1999 and 1998, respectively. The increase in cash used in operations has
primarily been caused by increasing net operating losses, which are partially
offset by non-cash depreciation and amortization charges included in the
applicable net loss and increases in accrued expenses.

    Net cash used in investing activities amounted to $1.2 million, $1.6
million and $137,000 during fiscal 1998, fiscal 1997 and fiscal 1996,
respectively, and amounted to $2.4 million and $901,000 for the nine months
ended April 30, 1999 and 1998, respectively. The net cash used for investing
activities was utilized to acquire property and equipment required to support
the growth of the business and to expand data center infrastructure.

    Net cash provided by financing activities amounted to $9.1 million, $2.2
million and $156,000 for fiscal 1998, fiscal 1997 and fiscal 1996,
respectively, and amounted to $14.2 million and $5.7 million for the nine
months ended April 30, 1999 and 1998, respectively. Our current interest rate
for our financing activities is 7.0%. Cash provided in each period primarily
was related to funds advanced from CMGI to fund our operations. Non-cash
financing transactions included capital lease financing for equipment and
software licenses payable in fiscal 1998 and the nine months ended April 30,
1999.

    CMGI has historically funded our operations as needed, increasing our
obligations to CMGI and allowing us to maintain a zero-balance cash account.
Customer and other receipts have been remitted to CMGI and have been applied to
reduce our obligations to CMGI. The outstanding balance of our obligations to
CMGI at the end of each fiscal quarter through April 30, 1999 has been
evidenced by a demand promissory note convertible into shares of our
convertible preferred stock. The amount of each borrowing represented by the
note is convertible as of the end of the fiscal quarter in which the borrowing
was made into the number of shares of Series B convertible preferred stock
equal to one-tenth of the quotient of the aggregate amount of principal and
interest to be so converted, divided by the applicable conversion price for
that fiscal quarter. The conversion price applicable for any fiscal quarter,
except the fiscal quarter during which a qualified initial public offering
occurs, is determined by dividing our total enterprise value as of the fiscal
quarter end (as determined in good faith by our board of directors) by the
number of shares of common stock outstanding on a fully diluted, as-if-
converted basis. As of April 30, 1999, there was $10.8 million in principal
amount outstanding to CMGI under this note. We expect that we will continue to
borrow funds from CMGI under this arrangement until completion of this offering
and that the net obligations incurred after the end of the fiscal quarter
preceding completion, to the extent outstanding, will be converted into common
stock at the initial public offering price.

    We have experienced a substantial increase in our expenditures since
inception consistent with our growth in operations and staffing. We anticipate
that expenditures will continue to increase for the foreseeable future as we
accelerate the growth of our business. Additionally, we will continue to
evaluate investment opportunities in businesses that management believes will
complement our technologies and market strategies.

    We currently anticipate that our available cash resources, together with
the net proceeds from this offering, will be sufficient to meet our anticipated
needs for working capital and capital expenditures for at least the twelve
months following the date of this prospectus. However, we may need to raise
additional funds in order to fund more rapid expansion, to develop new or
enhance existing services or products, to respond to competitive pressures or
to acquire complementary businesses, products or technologies. If additional
funds are raised through the issuance of equity or convertible debt securities,
the percentage ownership of our stockholders will be reduced and our
stockholders may experience additional dilution. We cannot assure you that
additional financing will be available on terms favorable to us, if at all. If
adequate funds are not available or are not available on acceptable terms, our
ability to fund our expansion, take advantage of unanticipated opportunities,
develop or enhance services or products or otherwise respond to competitive
pressures would be significantly limited.

                                       29
<PAGE>

Quantitative and Qualitative Disclosure About Market Risk

    We are exposed to market risk related to changes in interest rates. We
intend to invest excess cash balances in cash equivalents. We believe that the
effect, if any, of reasonably possible near-term changes in interest rates on
our financial position, results of operations and cash flows will not be
material.

Year 2000 Considerations

    Currently, many installed computer systems and software products are coded
to accept only two-digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. As a result, many
companies' software and computer systems may need to be upgraded or replaced in
order to continue to function properly into the Year 2000 and beyond. We
recognize the need to assure that our operations will not be adversely impacted
by Year 2000 software and computer system failures. We confront the Year 2000
problem in several contexts:

    Our Facilities and Services. We are a hosting and application management
services provider and we rely on our network infrastructure, software and
hardware to provide our services. Because we offer computer-related services
and because of the business-critical nature of many of our customers'
applications, our risk of lawsuits related to Year 2000 issues is likely to be
greater than that of companies in some other industries. We currently have 14
full-time employees and consultants dedicated to completing our internal Year
2000 project plan. As of June 30, 1999, we have spent nearly $600,000 on our
Year 2000 compliance effort and we have budgeted up to an additional $700,000
to complete our internal Year 2000 project plan. We have completed the
awareness, inventory and assessment phases of our Year 2000 project plan and we
anticipate completing the remediation and contingency planning phases in July
1999. However, because our infrastructure incorporates components from
different providers, we may be unable to determine whether any of these
components will cause unexpected Year 2000 problems or whether different
components will interact in a way that causes malfunctions. While we expect
that our network infrastructure and all other material components of our
facilities will not experience any Year 2000-related failures, we cannot assure
you that we will not experience such failures or that we will not discover any
compliance problems in the future. Our failure timely and adequately to address
Year 2000 compliance issues in our business could result in lost revenues and
claims of mismanagement, misrepresentation or breach of contract and related
litigation, which could be costly and time-consuming for us to defend.

    Our Customers. We also face risks from customer-provided hardware and
software that we host in our data centers that in many cases has been
customized by outside service providers or customer personnel. While we inform
our customers that they are responsible for the Year 2000 compliance of their
hosted hardware and software, we cannot assure you that our customers will take
the steps necessary to achieve Year 2000 compliance. The failure of our
customers and third-party providers to ensure that their hosted hardware and
software is Year 2000 compliant could disrupt our operations and materially
adversely affect our financial condition and operating results. In addition,
our customers maintain their internal operations on networks which may be
impacted by Year 2000 complications, which could in turn affect our internal
structure or our ability to provide services to them. We cannot assure you that
our customers will upgrade their internal networks or otherwise provide
appropriate remediation for Year 2000 compliance. In addition, in the event
that a significant number of our customers experience Year 2000-related
problems, whether due to our products or not, demand for technical support and
assistance may increase dramatically. In this case, our costs for providing
technical support may rise and the quality of our service or our ability to
manage incoming requests may be impaired.

    Our Suppliers. In addition, we depend on software and hardware supplied by
numerous vendors to provide our application hosting and management services,
rental services and consulting services. We are currently seeking assurances
from our existing vendors that their products are Year 2000 compliant, and we
require that all new software application providers certify that they are Year
2000 compliant before we enter into agreements with them. However, because in
most cases we do not independently verify the Year 2000 compliance of vendors'
products, we cannot assure you that these vendors' guarantees are true or
sufficient or that we will not encounter Year 2000 compliance problems
involving their products.

                                       30
<PAGE>

    Our business could be materially adversely affected if we cannot obtain
products, services or systems that are Year 2000 compliant when we need them.
In addition, if vendors and service providers cannot deliver their products
because of their own Year 2000 compliance problems or as a result of systemic
failures such as power outages relating to the Year 2000, our financial
condition and operating results could be materially adversely affected.

Inflation

    We believe that our revenues and results of operations have not been
significantly impacted by inflation during the past three fiscal years.

Recent Accounting Pronouncements

    In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS 131
establishes standards for the way that public business enterprises report
selected information about operating segments in annual and interim financial
statements. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS 131 requires
the use of the "management approach" in disclosing segment information, based
largely on how senior management generally analyzes the business operations.
SFAS 131 is effective for the Company beginning in fiscal 1999. The Company is
in the process of determining the impact of these standards, if any, on its
consolidated financial statements and related disclosures.

    In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants, issued Statement of Position 98-1,
"Accounting for the Cost of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 requires the capitalization of certain internal costs
related to the implementation of computer software obtained for internal use.
The Company is required to adopt this standard in the first quarter of fiscal
year 2000, and expects that the adoption of SOP 98-1 will not have a material
impact on its financial position or its results of operations.

    In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting Costs of Start-Up Activities." Under SOP
98-5, the cost of start-up activities should be expensed as incurred. Start-up
activities are broadly defined as those one-time activities related to opening
a new facility, introducing a new product or service, conducting business in a
new territory, conducting business with a new class of customer, commencing
some new operation or organizing a new entity. SOP 98-5 is effective for the
Company's fiscal 2000 consolidated financial statements. The Company does not
expect its adoption to have a material impact on its financial position or
results of operations.

    In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. SFAS 133
requires the recognition of all derivatives as either assets or liabilities in
the statement of financial position and the measurement of those instruments at
fair value. The Company is required to adopt this standard in the first quarter
of fiscal year 2000, and expects that the adoption of SFAS 133 will not have a
material impact on the its financial position or its results of operations. On
May 20, 1999 a proposed Statement of Financial Accounting Standards was issued
for public comment in which the FASB proposed delaying the effective date of
SFAS 133, with the effect that the Company would not be acquired to adopt this
standard until the first quarter of fiscal year 2001.

                                       31
<PAGE>

                                    BUSINESS

Company Overview

    NaviSite is an Internet application service provider offering Web site and
application hosting and management services. Our Internet application service
offerings allow businesses to outsource the deployment, configuration, hosting,
management and support of their Web sites and Internet applications in a cost-
effective and rapid manner. Our focus on enhanced management services, beyond
basic co-location services, allows us to meet the expanding needs of businesses
as their Web sites and Internet applications become more complex. We also
provide our customers with access to our state-of-the-art data centers and the
benefit of our direct private transit Internet connections to major Internet
backbone providers. We only use direct private transit Internet connections,
which differentiates our network infrastructure from that of most of our
competitors. These connections increase reliability and download speeds.

    The scalability of our infrastructure and cost-effectiveness of our
solutions allow us to offer a comprehensive suite of services to meet the
current and future hosting and management needs of our customers. Our suite of
service offerings includes:

  .   Web site and Internet application hosting, which includes access to
      our state-of-the-art data centers, bandwidth and basic back-up,
      storage and monitoring services;

  .   Enhanced server management, which includes custom reporting, hardware
      options, load balancing and mirroring, system security, advanced back-
      up options, remote management and the services of our business
      solution managers;

  .   Specialized application management, which includes management of e-
      commerce and other sophisticated applications and their underlying
      services, including ad-serving, streaming, databases and transaction
      processing; and

  .   Application rentals and related consulting and other professional
      services.

Industry Background

    Growth of Business Use of the Internet. The dramatic growth in Internet
usage in recent years, combined with enhanced functionality, accessibility and
security, has made the Internet increasingly attractive to businesses as a
medium for communication and commerce. Forrester Research, Inc. has estimated
that the number of U.S. enterprise businesses online will increase from
approximately 1.8 million in 1998 to approximately 4.3 million in 2002.

    As business use of the Internet grows, we believe those businesses which
are utilizing the Internet are seeking to identify and implement increasingly
sophisticated Internet applications. These new applications permit businesses
to:

  .   engage in business-to-business and business-to-consumer e-commerce;

  .   enhance business sales efforts through Web-based technologies such as
      ad-serving and streaming;

  .   build and enhance customer relationships by providing Internet-based
      customer service and technical support; and

  .   communicate and conduct business more rapidly and cost-effectively
      with customers, suppliers and employees worldwide.

    As a result, the proliferation of business Web sites and Internet
applications has created a strong demand for specialized information technology
support and application expertise.

    Movement Toward Outsourcing. A growing number of businesses using the
Internet as part of their business strategy have chosen to outsource Internet
application development, implementation and support, particularly the hosting
and management of their Web sites and Internet applications. This follows an
overall movement toward outsourcing of information technology services.
According to Forrester Research, businesses

                                       32
<PAGE>

in the United States are now spending approximately 25% of their overall
information technology budgets on outsourced services. The growth in outsourced
hosting and management of Web sites and Internet applications is driven by a
number of factors, including:

  .   the desire of businesses to improve the reliability, availability and
      overall performance of their Web sites and Internet applications as
      those applications increase in complexity and importance;

  .   the desire of businesses to reduce time to market;

  .   the challenges faced by businesses in hiring, training and retaining
      application engineers and information technology employees with
      Internet expertise;

  .   the increased costs associated with developing and maintaining
      business networks and software applications; and

  .   deployment risk and the risk of technological obsolescence as they
      attempt to capitalize on leading-edge technologies.

    Forrester Research has estimated that the market for managed Web site
hosting in the United States will grow from less than $1.0 billion in 1998 to
over $14.0 billion in 2003. In January 1998, Forrester Research estimated that
the market for branded application outsourcing services in the United States
will grow to $21.1 billion by 2001.

    Need for Providers of Enhanced, Integrated Hosting and Application
Management Services. Many businesses have outsourced hosting and management of
their Web sites and Internet applications. However, many Web site hosting
providers lack the requisite expertise to implement and manage increasingly
sophisticated Internet applications. Moreover, many of these providers lack the
scalable capacity, high-speed connectivity, monitoring capabilities and level
of reliability and availability which businesses demand. System integrators and
turnkey application developers often have the requisite expertise and resources
to supply businesses with highly customized application solutions, but these
solutions are expensive and time consuming to implement. Some businesses
attempt to reduce cost and shorten time to deployment by utilizing multiple
vendors, each of which provides only a partial solution. This has created
significant opportunity for an application service provider which can offer Web
site and Internet application deployment, configuration, hosting, management
and support.

The NaviSite Solution

    We provide a range of integrated, scalable Web site and Internet
application hosting and management services that can be deployed in a cost-
effective and rapid manner. Our Internet application service offerings allow
customers to outsource the deployment, configuration, hosting, management and
support of Web sites and Internet applications. Our focus on enhanced
management services, beyond basic co-location services, allows us to meet the
expanding needs of businesses as their Web sites and Internet applications
become more complex. Key components of our services include:

    Cost-Effective Application Services. The scalable nature of our
infrastructure, the repeatability of our Internet application services and our
hosting and management expertise allow us to provide our customers with Web
site and Internet application hosting and management services on a cost-
effective basis. We believe that our customers would otherwise be required to
make significant expenditures to replicate our performance, reliability and
expertise either internally or by using outside vendors.

    Rapid Deployment. We offer our customers the ability to rapidly deploy
Internet applications, often in a matter of weeks, instead of months. We
believe that we can deploy sophisticated Internet applications much more
rapidly than businesses can deploy the same applications in-house. Moreover,
our Internet application solutions can be deployed more rapidly than highly
customized applications. This is crucial as our customers develop a Web
presence and need to have their Web sites and Internet applications online as
quickly as possible.

                                       33
<PAGE>

    High-Performance, World-Class Infrastructure. Our infrastructure has been
designed expressly to meet the more demanding technical requirements of
sophisticated Web sites and Internet applications and to provide capacity ahead
of customer demand. We believe that this approach to capacity facilitates the
high-speed data transmission, reliability and availability which our customers'
Web sites and Internet applications demand. In addition, our direct private
transit Internet connections to major Internet backbone providers increase
reliability and download speeds and differentiate our network infrastructure
from that of most of our competitors. Our high-performance infrastructure
together with our trained and experienced staff enable us to offer levels of
service which are backed by guarantees which we believe are among the highest
and most comprehensive in the industry.

Strategy

    NaviSite's objective is to be the leading Internet application service
provider. We plan to achieve this goal by continuing to enhance and leverage
our expertise, service offerings and infrastructure to provide customers with
integrated, reliable and secure Internet-based business solutions. Key
components of our strategy include:

    Expand Our Suite of Internet Applications. We intend to both increase the
number and vary the kind of applications and application management services we
offer and increase revenue from application rentals. We continue to introduce
Internet business applications which enable customers to develop a Web-based
business presence. Currently, we offer our customers e-commerce and other
sophisticated applications and their underlying services, including ad-serving,
streaming, databases and transaction processing. We focus on application
services which are repeatable, meaning services that we can provide to
customers with minimal additional customization and integration. We believe
that this repeatability decreases our time to market, reduces our operating
risks and produces a higher return on our investment.

    Offer Multiple Service Levels to Meet the Evolving Needs of Customers. We
offer multiple service levels to customers so that we can meet their needs for
Internet application services at each stage in the development of their Web-
based operations. For example, a customer initially may use our Web site or
Internet application hosting services or enhanced server management. Later, as
its operations grow and the Internet becomes more of an integral part of its
business strategy, the customer may use our specialized application management
services or application rentals. We believe we have created a competitive
advantage by offering multiple service levels to meet the evolving needs of
customers.

    Increase Brand Awareness. We intend to increase awareness of the NaviSite
brand in key business markets and associate the NaviSite brand with the highest
quality Web site and Internet application hosting and management services, high
performance, world-class infrastructure and superior customer service. We
believe that this awareness and association is essential to the continued
expansion of our customer base. We plan to aggressively build the NaviSite
brand through our industry relationships and the use of marketing and co-
marketing programs.

    Enhance Our Expertise and Technological Capabilities. We have acquired, and
intend to continue to enhance, the expertise and technological capabilities
required to conduct and grow our business ahead of customer demand. This means
hiring and training application experts before introducing a new application to
customers. This also means expanding existing data centers, adding data
centers, keeping current with key technological trends and increasing
bandwidth. We intend to enhance our expertise by training existing personnel
and by hiring and retaining new application service professionals. We believe
the combination of our Web site and Internet application hosting and management
expertise and our scalable infrastructure provide us with a competitive
advantage.

    Continue to Develop and Leverage Industry Relationships. We believe our
industry relationships with Internet application software vendors and
developers, application and system integrators, hardware suppliers and others
provide us with enhanced market opportunities. Through these relationships, we
purchase, license or

                                       34
<PAGE>

lease services or products to expand our application service offerings or
infrastructure. We also intend to expand our channel sales capability by
working with an increasing number of system integrators and Internet
application software developers and providers. By leveraging our current and
future industry relationships, we intend to not only increase our market
visibility and credibility but also offer our clients more fully integrated
Web site and Internet application hosting and management services.

    Access Foreign Markets. We continually assess the need for foreign
operations based on opportunities in specific geographic locations. We
currently have data center capacity in Europe through a bilateral agreement
for Internet hosting services with Planet Online. This arrangement was
established to meet the overseas demands of existing domestic customers. As
the needs of our existing and prospective customers evolve, we intend to take
advantage of foreign market opportunities as they arise.

    Pursue Strategic Acquisitions. As opportunities arise, we intend to
continue to pursue strategic acquisitions that can provide complementary
capabilities, technical personnel, established customer relationships and
geographic presence in domestic and international markets.

Services

    We offer a comprehensive suite of services to meet the current and future
hosting and management needs of our customers.

    Web Site and Internet Application Hosting. Our Web site and application
hosting services provide customers with access to our state-of-the-art data
centers, bandwidth and basic back-up, storage and monitoring services.
Customers are able to access their servers 24-hours-a-day, seven-days-a-week.
These co-located servers are securely housed in separate, limited-access rooms
in our data centers. For the nine months ended April 30, 1999, approximately
7.2% of our revenue was derived from basic co-location customers to which we
provide no enhanced or specialized management services.

    Web Site and Application Management. We provide both enhanced server
management and specialized application management. Both types of management
services permit us to provide customers with comprehensive problem-solving
solutions, from identification to resolution to post-resolution analysis. To
provide these services, our trained technical personnel utilize advanced
network monitoring and management tools for Web site and application
troubleshooting, together with internal policies and procedures designed to
ensure rapid, effective solutions to technical problems.

    Our enhanced server management services include custom reporting, hardware
options, load balancing and mirroring, system security, advanced back-up
options, remote management and the services of our business solution managers.

    We also provide specialized application management services for select
software applications, such as:

  .   ad-serving, which allows customers to conduct advertising and
      profiling over the Internet; and

  .   e-commerce, which enables customers to implement online stores,
      customer ordering, payment and fulfillment.

    Application Rentals. We offer Internet application rentals to customers
and application developers who need to access sophisticated Internet
applications or application components which can be customized by developers
as part of a complete software solution. Often, obtaining a full license for
these applications is too expensive for customers or application developers,
especially for short-term or single-project use. In addition, these
applications may require experienced personnel to deploy and configure them.
Applications which we currently offer to customers on a rental basis include
Engage Technologies, Inc.'s ad-serving application and a number of Oracle
Corporation's database applications. Internet application components that we
offer to application developers include streaming, personalization,
statistical reporting and imaging services.

                                      35
<PAGE>

    Professional Services. We supply consulting and other professional services
to our customers. These services include network and system configuration and
architecture, project implementation, bandwidth planning and, in limited cases,
basic software development and system integration.

Sales and Marketing

    Our sales and marketing objective is to leverage our Web site and Internet
application hosting and management expertise to become the leading provider of
Internet application services. We have developed a sales and marketing strategy
that initially has targeted businesses that have adopted the Internet as an
integral part of their business strategy. We intend to increasingly target more
traditional enterprises as they incorporate the Internet into their business
models.

    Our sales efforts focus on direct sales, as well as channel sales through
various industry relationships. We plan to establish a leading position in our
target markets by aggressively expanding our sales force, continuing to
establish and leverage industry relationships to increase channel sales and
expanding our marketing staff.

    Direct Sales. Our direct sales professionals include:

  .   sales representatives, who conduct sales campaigns, identify targeted
      prospects, oversee sales territories and manage customer
      relationships;

  .   sales engineers, who discuss with prospective customers their Web site
      and Internet application hosting and management needs and technical
      requirements; and

  .   telesales representatives, who qualify customer leads.

    Our direct sales teams currently are located in: Andover, Massachusetts;
New York, New York; and San Jose and Los Angeles, California. We plan to expand
our sales force to provide geographic presence in other key markets.

    Channel Sales. We have developed important industry relationships to
enhance our channel sales and marketing capabilities. In 1998, we began
pursuing channel sales relationships through our Alliance Partner Program and
also have generated leads or referrals on an informal basis from application
and system integrators and Internet application software vendors. We intend to
continue to leverage our industry relationships to develop customer referrals,
mutual referral relationships, enhanced service offerings, and in some cases,
co-selling and cross-selling opportunities. Although our industry relationships
have not yet matured into significant sources of new customers, we expect these
relationships to generate more referrals and leads in the future.

    Marketing. Our marketing group is responsible for corporate and product
marketing, product management, corporate communications, public relations, lead
generation and marketing communications. As with our sales approach, our
overall marketing strategy focuses on supporting both direct sales and channel
sales. The key goals for our current marketing efforts are to establish a
national and local awareness of the NaviSite brand and our services, position
ourselves as a leading Web site and Internet application hosting and management
partner, develop and enhance channel sales relationships and demonstrate to
potential customers how our services differentiate us from our competition. Our
marketing efforts include:

  .   comprehensive lead generation through telemarketing, direct marketing,
      direct mail programs, electronic and print advertising, seminars and
      targeted shows and events;

  .   interactive, online marketing programs;

  .   marketing communications and public relations materials to sustain
      press coverage in both trade and business publications;

  .   market development activities targeted to Web site design firms,
      Internet application developers and consultants;

                                       36
<PAGE>

  .   lead generation, referrals, mutual Web site links or co-marketing
      through industry relationships with technology vendors such as Cisco
      Systems Inc., Oracle Corporation, BMC Software Distribution, Inc., EMC
      Corporation and ArrowPoint Communications, Inc.; and

  .   strategic marketing relationships with Dell Computer Corporation and
      Microsoft Corporation, which are principal stockholders of NaviSite.

    We expect to make significant investments in these and other marketing
programs to increase awareness of the NaviSite brand. We also intend to
continue to leverage our advantageous relationship with CMGI as a source of
lead generation and referrals for our services.

 Industry Relationships

    In our sales and marketing efforts, we are pursuing industry relationships
targeted by our Alliance Partner Program.

    Web and Application Developers. We have developed relationships with
multiple small- to medium-sized Web site design firms, Internet application
developers, consultants and other similar companies that have established
relationships with our target customers. These companies generally lack the
infrastructure and expertise needed to offer their customers a complete, cost-
effective solution and, as a result, turn to us to provide hosting and
management services and expertise to enhance their own product and service
offerings. These relationships provide us with greater market reach through
referrals, without the related overhead costs. In return, we offer these
companies discounts on our services, participation in networking events and
trade shows, joint marketing and promotional campaigns and Web site linkage.

    Application and System Integrators. We have developed relationships with
several high-end network integration companies and system integrators that
assist us with complex development, integration and project management, and to
whom we provide application hosting and management solutions. These
relationships enable us to deliver more comprehensive Internet application
solutions to meet the needs of our customers.

    Internet Application Software Vendors. We have developed relationships with
some of the leading Internet application software vendors. We target Internet
application software vendors with brand name recognition and established sales
and support channels. These relationships are mutually beneficial, providing us
with additional applications to sell or rent to our customers, and the software
vendors with a distribution channel for their applications. We also benefit
from cross-selling and co-marketing opportunities and specialized product
training to enhance our application management expertise.

Customers

    We were organized in 1996 by CMGI to support the networks and host the Web
sites of CMGI and a number of CMGI affiliates. In the Fall of 1997, we began
supplying Web site hosting and management services to companies unaffiliated
with CMGI. As of April 30, 1999, we had approximately 101 customers, up from 22
as of April 30, 1998. CMGI and CMGI affiliates accounted for 68% of our revenue
for the quarter ended April 30, 1999 as compared to 97% of our revenue for the
quarter ended April 30, 1998. CMGI and CMGI affiliates accounted for 19% of our
customer base as of April 30, 1999 as compared to 55% of our customer base as
of April 30, 1998.

    A representative list of our customers as of April 30, 1999 includes:
AltaVista Company; Ancestry.com, Inc.; Catalog City, Inc.; CIO Communications,
Inc.; Engage Technologies, Inc.; FairMarket, Inc.; Furniture.com, Inc.;
PlanetAll.com, Inc.; Planet Direct Corporation; Raging Bull, Inc.; Send.com;
ThingWorld.com; and TribalVoice.

                                       37
<PAGE>

Product Development

    Our product development staff is comprised of four separate operating
groups: Internet applications; network architecture; security architecture and
planning; and information systems. Our Internet applications group identifies
new Internet applications, incorporates these applications into our suite of
service offerings and positions them for marketing, sale and rapid deployment.
We focus on Internet applications that permit us to offer our customers
repeatable, scalable services. Our goal is to introduce services capable of
utilization by a large number of customers, maximizing revenue production and
minimizing the incremental operating cost for each additional customer
utilizing that service. As new applications are introduced, our personnel
integrate the application into our management and billing systems, provide
technical documentation and training and ensure the security of the offering.
This process is critical to our ability to provide integrated, scalable
applications to our customers and is designed to result in increased operating
margins, faster product delivery and improved customer service.

    The remaining operating groups involved in product development perform the
following functions:

    Network architecture. This group identifies, selects and implements the
various technologies, including network storage and back-up, that provide the
basic infrastructure for both our internal network and the solutions we offer
our customers.

    Security architecture and planning. This group plans for and implements the
technologies which secure the confidential information and infrastructures
belonging to us and our customers against unauthorized access, computer
viruses, accidental or intentional actions and other disruptions.

    Information systems. This group develops, manages and maintains our
internal business systems, including financial software systems and our
corporate databases.

Customer Service and Support

    We believe customer service and support is critical to our future success
and growth. Our customer care group is focused on direct and indirect customer
service and support. We have developed a customized, life-cycle project
management approach to our operations. For some of our customers, we assign a
single business solutions manager who services the customer from deployment
through the entire customer relationship. This approach is designed to enhance
our responsiveness to customer requests, problem troubleshooting and technology
upgrades. In servicing and supporting our customers, we utilize a number of
state-of-the-art automated systems, including a knowledge-based problem-
resolution and trouble-ticketing system, an enterprise system monitoring
platform, sophisticated data storage, an enterprise tape backup system and a
corporate intranet with a built-in document management and source control
system.

    We believe that our approach to customer service and support and our
ability to rapidly respond to customer needs provides us with a significant
competitive advantage. Our rapid response abilities were favorably recognized
in a recent study performed by and published in Data Communications Magazine.

Network Infrastructure, Technology and Operations

    NaviSite entered the Internet application service market with the advantage
of a well developed infrastructure established by CMGI to support CMGI and a
number of its affiliates. We have differentiated our infrastructure from
competing application service providers through our direct private transit
Internet connections to five major Internet backbone providers. We designed our
infrastructure specifically to provide superior performance for our Web site
and Internet application hosting and management services, including multi-level
network redundancy to provide the highest levels of network uptime, reliable
and customized network security, and fast, guaranteed response time and
availability of customers' content, which we deliver through our private
transit Internet connections. Our infrastructure is also designed to scale to
support continued growth. We believe that our sophisticated and highly
redundant infrastructure provides us with a

                                       38
<PAGE>

competitive advantage over other hosting vendors and most Internet service
providers. Key elements of our infrastructure include:

    Data Centers. Our strategy is to build a select number of high performance
data centers in order to provide our customers with a critical mass of
expertise in Internet applications and management services from each data
center, while capturing the benefits of centralized infrastructure and
staffing. We currently have data centers located in Andover, Massachusetts and
Scotts Valley, California. These state-of-the-art data centers incorporate
technically sophisticated components and are designed to be completely fault-
tolerant. The components used in our data centers include Cisco redundant core
routers, Cisco redundant core switching hubs and secure, virtual local area
networks. We obtain the equipment and tools necessary for our data center
operations, including our infrastructure hardware, networking and software
products from industry leaders such as ArrowPoint Communications, Cisco
Systems, Compaq Computer Corporation, Dell, EMC and Oracle.

    We are adding new data centers, including an additional data center in
Andover and a new data center in San Jose, California. Construction is
currently underway at both of these new sites.

    Private Transit Internet Connectivity. Our use of direct private transit
Internet connections to five major Internet backbone providers differentiates
our network infrastructure from that of our competitors. We have redundant
high-capacity Internet connections to UUNet, CERFnet and MCI on the East Coast
and UUNet, BBN, MCI and SprintLink on the West Coast. We have deployed direct
private transit Internet connections specifically to avoid congestion and data
loss at public Internet exchange points and the resulting degradation of
performance. Our private transit system enables us to provide fast, reliable
access for our customers' Web sites and Internet applications. Because we have
direct private transit links to Internet providers, we can directly monitor the
capacity of all of our connections and guarantee that we will have the
aggregate bandwidth to move large quantities of data at high transmission
speeds. Our private transit Internet connections also enable us to more
effectively launch new applications, such as streaming, which require high
bandwidth availability and run more effectively in a private transit model.

    Service Level Guarantees. The combination of our state-of-the-art
infrastructure, our customer-focused operations group and our hosting and
management expertise enable us to offer our customers service levels backed by
guarantees that we believe are among the highest and most comprehensive in the
industry. For example, we offer our customers 99.99% guarantees for network
segments, our facility and facility components. These guarantees translate into
no more than five minutes of consecutive, unscheduled downtime per month.

    Network Security. Our network incorporates host-based security with
CheckPoint back-end firewalls and Cisco router access control lists, as well as
SecurID token-based authentication. In addition to these physical security
measures, we have a formal security policy in place, including employee
training, that governs all facets of our business and guidelines governing
internal and external access to information housed in our network system.

    Network Operations Centers. Each NaviSite data center has its own network
operations center on site. Each network operations center is fully staffed 24-
hours-a-day, seven-days-a-week with Windows NT, UNIX, application and support
personnel. Our network operations centers perform first-level problem
identification and resolution. The design of our network operations centers
allows network engineers and support personnel to be promptly alerted to
problems, and we have established procedures for rapidly resolving any
technical issues that arise. Network management and monitoring tools
continuously monitor the network and server performance.

Competition

    We compete in the Internet application service market. This market is
evolving rapidly, is highly competitive and is likely to be characterized by an
increasing number of market entrants and by industry

                                       39
<PAGE>

consolidation. Because there are no substantial barriers to entry, we expect
that we will face competition from both existing competitors and new market
entrants in the future. We believe that participants in this market must grow
rapidly and achieve a significant presence to compete effectively. We believe
that the primary competitive factors determining success in our market include:

  .   a state-of-the-art infrastructure providing availability, speed,
      scalability and security;

  .   Web site and Internet application hosting and management expertise;

  .   fast and reliable Internet connectivity;

  .   a reputation for high-quality service and superior customer service
      and support;

  .   numerous and diverse service offerings and timely addition of value-
      added services;

  .   brand recognition;

  .   competitive pricing; and

  .   adequate capital to permit continued investment in infrastructure,
      customer service and support, and sales and marketing.

We may lack the financial and other resources, expertise or capabilities to
compete successfully in this environment in the future.

    Our current and prospective competitors include:

  .   other providers of co-location or high-end Web site hosting and
      related services, including AboveNet Communications, Inc., Digex
      Corporation, Exodus Communications, Inc., Frontier GlobalCenter Inc.,
      Globix Corporation, Interliant, Inc. and a large number of local and
      regional hosting providers;

  .   national and regional Internet service providers, including Concentric
      Network Corporation, MindSpring Enterprises, Inc., PSINet Inc., UUNet,
      WorldCom and Verio Inc.;

  .   companies that focus on customized Internet application services,
      including AppNet Systems, Inc., CORIO, Inc., IBM Global Services,
      USinternetworking, Inc. and USWeb/CKS;

  .   application developers and Internet application software vendors,
      including Open Market, Inc., DoubleClick Inc. and broadcast.com inc.;

  .   large system integrators and information technology outsourcing firms,
      including Electronic Data Systems Corporation and International
      Business Machines Corporation; and

  .   global telecommunications companies, including AT&T Corp., MCI
      WorldCom, Inc. and Sprint Corporation, and regional and local
      telecommunications companies, including MediaOne Group, Inc. and
      regional Bell operating companies, such as Bell Atlantic Corporation.

    Many of these competitors have substantially greater financial, technical
and marketing resources, larger customer bases, longer operating histories,
greater name recognition and more established relationships in the industry
than we have. As a result, many of these competitors may be able to develop and
expand their network infrastructures and service offerings more rapidly, adapt
to new or emerging technologies and changes in customer requirements more
quickly, take advantage of acquisitions and other opportunities more readily,
devote greater resources to the marketing and sale of their services and adopt
more aggressive pricing policies than we can. Because of these competitive
factors and due to our comparatively small size and our lack of financial
resources, we may be unable to successfully compete in the Internet application
service market.

    In addition, we believe that there will be continued consolidation within
the Internet application service market in which we compete. Our competitors
may consolidate with one another, or acquire software application vendors or
technology providers, enabling them to more effectively compete with us. This
consolidation could affect prices and other competitive factors in ways which
would impede our ability to compete successfully in the Internet application
service market.

                                       40
<PAGE>

Proprietary Rights

    We rely on a combination of trademark, service mark, copyright and trade
secret laws and contractual restrictions to establish and protect our
proprietary rights and promote our reputation and the growth of our business.
We do not own any patents that would prevent or inhibit competitors from using
our technology or entering our market. While it is our practice to require all
of our employees, consultants and independent contractors to enter into
agreements containing non-disclosure, non-competition and non-solicitation
restrictions and covenants, and while our agreements with some of our customers
and suppliers include provisions prohibiting or restricting the disclosure of
proprietary information, we can not assure you that these contractual
arrangements or the other steps taken by us to protect our proprietary rights
will prove sufficient to prevent misappropriation of our proprietary rights or
to deter independent, third-party development of similar proprietary assets. In
addition, we provide our services in other countries where the laws may not
afford adequate protection for our proprietary rights.

    We license or lease most technologies used in our Internet application
services. Our technology suppliers may become subject to third-party
infringement claims which could result in their inability or unwillingness to
continue to license their technology to us. The loss of certain of our
technologies could impair our ability to provide services to our customers or
require us to obtain substitute technologies of lower quality or performance
standards or at greater cost. We expect that we and our customers increasingly
will be subject to third-party infringement claims as the number of Web sites
and third-party service providers for Web-based businesses grows. In addition,
we have received notices alleging that our use of our service marks infringes
the trademark rights of third parties. Although we do not believe that any of
these allegations have merit, or that our technologies or services otherwise
infringe the proprietary rights of any third parties, we cannot assure you that
third parties will not assert claims against us in the future or that these
claims will not be successful. Any infringement claim as to our technologies or
services, regardless of its merit, could be time-consuming, result in costly
litigation, cause delays in service, installation or upgrades, adversely impact
our relationships with suppliers or customers or require us to enter into
royalty or licensing agreements.

Government Regulation

    While there currently are few laws or regulations directly applicable to
the Internet or to Internet application service providers, due to the
increasing popularity of the Internet and Web-based applications it is likely
that such laws and regulations may be adopted. These laws may cover a variety
of issues including, for example, user privacy, and the pricing,
characteristics and quality of products and services. The adoption or
modification of laws or regulations relating to commerce over the Internet
could materially adversely affect our financial condition and operating
results. Moreover, the applicability of existing laws to the Internet and
Internet application service providers is uncertain. These existing laws could
expose us to substantial liability if they are found to be applicable to our
business. For example, we provide services over the Internet in many states in
the United States and in the United Kingdom, and we facilitate the activities
of our customers in those jurisdictions. As a result, we may be required to
qualify to do business, be subject to taxation or be subject to other laws and
regulations in these jurisdictions, even if we do not have a physical presence
or employees or property there. The application of existing laws and
regulations to the Internet or our business, or the adoption of any new
legislation or regulations applicable to the Internet or our business, could
materially adversely affect our financial condition and operating results.

Employees

    As of April 30, 1999, we had 171 employees. Of these employees, 86 were
principally engaged in operations, 40 were principally engaged in sales and
marketing, 27 were principally engaged in product development and 18 were
principally engaged in finance and administration. None of our employees are
party to a collective bargaining agreement and we believe our relationship with
our employees is good. We also employ consultants and independent contractors
on a regular basis to assist in the completion of projects and we outsource our
direct telemarketing sales force. It is our practice to require all of our
employees, consultants

                                       41
<PAGE>

and independent contractors to enter into agreements containing non-disclosure,
non-competition and non-solicitation restrictions or covenants.

Facilities

    Existing Facilities. Our executive offices are located at 100 Brickstone
Square, Andover, Massachusetts and occupy approximately 11,000 square feet of
the space leased by CMGI at that location. We also occupy approximately 22,000
square feet at 300 Federal Street, Andover, Massachusetts, pursuant to an
agreement that expires in 2007. Part of this facility is utilized for our East
Coast data center, currently under expansion. We anticipate that work will be
completed on the East Coast data center expansion in July 1999. We believe that
this facility has sufficient growth capacity for the next nine to 12 months.

    We also occupy approximately 14,100 square feet at 1700 Greens Hill Road,
Scotts Valley, California, part of which is utilized for our West Coast data
center, pursuant to an agreement that expires in 2002. We believe that this
facility has sufficient growth capacity for the next 12 to 18 months. We do not
have any current intention to expand the Scotts Valley facility.

    In addition, we occupy three offices at 304 Park Avenue South, 11th Floor,
New York, New York, pursuant to an agreement that expires in October 1999. This
office space is utilized by sales and marketing personnel.

    New Facilities. In May 1999, we executed a 12-year lease for a new 150,000
square foot facility located at 400 Minuteman Road, Andover, Massachusetts,
which is currently being constructed to our specifications. Part of this
facility will be utilized for a new data center. We anticipate that work will
be completed on the new Massachusetts facility in the Spring of 2000, and we
believe that this facility will have sufficient growth capacity for the next
four to five years. Construction also has started on a new 66,000 square foot
facility located in the Valley Technology Centre, 2720 Zanker Road, San Jose,
California, part of which will be utilized for a new data center. This facility
should be available for occupation in the Fall of 1999. In May 1999, we
executed a seven-year lease for this facility. We believe that this facility
will have sufficient growth capacity for three years.

    We believe that upon completion of the two new facilities currently under
construction, our facilities will be adequate for the foreseeable future, and
that we will be able to obtain additional space as needed on commercially
reasonable terms.

Legal Proceedings

    NaviSite is not currently a party to any material legal proceedings.

                                       42
<PAGE>

                                   MANAGEMENT

Executive Officers and Directors

    The executive officers and directors of NaviSite, and their ages and
positions with NaviSite as of June 30, 1999, are as follows:

<TABLE>
<CAPTION>
Name                       Age                   Position(s)
----                       ---                   -----------
<S>                        <C> <C>
Joel B. Rosen.............  41 Chief Executive Officer and Director
Robert B. Eisenberg.......  48 President and Director
Kenneth W. Hale...........  46 Chief Financial Officer, Treasurer and Secretary
Thomas W. Culver..........  52 Vice President, Operations
Barbara H. Fortier........  44 Vice President, Facilities
Peter C. Kirwan, Jr.......  35 Chief Technology Officer
Jonathan Rodin............  41 Vice President, Product Development
Jay S. Seaton.............  44 Vice President, Marketing
J. Andrew Sherman.........  44 Vice President, Sales
David S. Wetherell........  44 Chairman of the Board of Directors
Craig D. Goldman..........  55 Director
Andrew J. Hajducky III....  45 Director
</TABLE>

    Joel B. Rosen has served as NaviSite's Chief Executive Officer and as one
of its Directors since April 1999. From January 1996 to August 1998, Mr. Rosen
served as Executive Vice President of Aspen Technology, Inc., a publicly traded
enterprise software and services provider, where he was responsible for
managing two of Aspen Technology's three business units. From August 1988 to
January 1996, Mr. Rosen held several management positions within Aspen
Technology, including Director of Marketing, Vice President of Marketing and
Senior Vice President of Marketing and New Businesses. From 1984 to 1988, Mr.
Rosen was a Consultant and Manager at Bain & Company.

    Robert B. Eisenberg founded NaviSite in July 1996 while an employee of
CMGI, Inc. He has served as NaviSite's President and as one of its Directors
since NaviSite was incorporated as a separate entity in February 1997, and also
served as its Chief Executive Officer from February 1997 to April 1999. From
March 1995 to July 1996, Mr. Eisenberg served as Vice President of Information
Technology at MediaOne Group, Inc. (formerly Continental Cablevision), a cable
television provider. From September 1991 to March 1995, Mr. Eisenberg served as
the Director of Information Technology at New England Business Services, Inc.,
a provider of business forms and software for small businesses.

    Kenneth W. Hale has served as NaviSite's Chief Financial Officer since
March 1997 and as the Treasurer and Secretary since March 1998. From May 1989
to September 1996, Mr. Hale served as Chief Financial Officer and Treasurer of
Media/Communications Partners, a telecommunications and media venture capital
firm, where he was responsible for overseeing the financial management of
multiple venture capital funds and related entities. From June 1980 to April
1989, Mr. Hale was a Senior Manager, Audit and Tax, at Ernst & Whinney, which
merged with Arthur Young & Co. to form Ernst & Young LLP. Mr. Hale is a
Certified Public Accountant.

    Thomas W. Culver has served as NaviSite's Vice President of Operations
since June 1999. From June 1997 to May 1999, Mr. Culver worked as an
independent consultant. From September 1995 to June 1997, Mr. Culver served as
Group Manager of Information Technology at Paymentech, Inc., formerly known as
First USA Paymentech, a national credit card payment processor, where he was
responsible for systems development, database and systems administration and
operations. From October 1986 to September 1995, Mr. Culver was Chief
Information Officer of DMGT Corp., a credit card payment processor, where he
managed the information technology department.

    Barbara H. Fortier has served as NaviSite's Vice President of Facilities
since June 1999 and served as NaviSite's Vice President of Operations from July
1997 to June 1999. From November 1995 to June 1997,

                                       43
<PAGE>

Ms. Fortier served as Senior Manager of Communications at Staples, Inc., a
national retailer of office supplies, where she was responsible for all
telecommunications services, local area networking and wide area networking
services. From January 1993 to November 1995, Ms. Fortier served as
Communications Manager at New England Business Services, Inc., a provider of
business forms and software for small businesses.

    Peter C. Kirwan, Jr. has served as NaviSite's Chief Technology Officer
since July 1998. In the five years prior to joining NaviSite, Mr. Kirwan was an
entrepreneur in the commercial Internet field, founding two Internet service
providers. The first, Media Access Systems, Inc., was a New York based Internet
service provider focusing on high-speed business Internet connections and one
of the first companies to provide Web server hosting in the United States. The
second, Servercast Communications, L.L.C., focused exclusively on application
management and hosting and was acquired by NaviSite in July 1998.

    Jonathan Rodin has served as NaviSite's Vice President of Product
Development since February 1999. From October 1997 to July 1998, Mr. Rodin
served as Vice President of Engineering at ADSmart Corporation, a developer and
marketer of online ad sales and ad-serving solutions and a subsidiary of CMGI.
From July 1991 to September 1997, Mr. Rodin served as the Vice President of
Engineering at FTP Software, Inc., an independent vendor of software and
related applications for the personal computer market.

    Jay S. Seaton has served as NaviSite's Vice President of Marketing since
December 1997. From November 1996 to December 1997, Mr. Seaton served as Vice
President of Sales and Marketing at Radnet, Inc., a provider of application
tools. From June 1991 to November 1996, Mr. Seaton served as Director of
Marketing and Product Management at Banyan Systems Incorporated, a provider of
distributed networking software.

    J. Andrew Sherman has served as NaviSite's Vice President of Sales since
August 1997. From March 1996 to August 1997, Mr. Sherman served as Vice
President of U.S. Sales for Fulcrum Technologies Inc., a software firm focused
on providing knowledge management capabilities to large enterprises on intranet
platforms. From September 1994 to March 1996, Mr. Sherman served as Regional
Manager at Sybase, Inc., a database and application development tools company.
Prior to 1994, Mr. Sherman also held senior positions at Apple Computer, Inc.
and MCI WorldCom, Inc.

    David S. Wetherell has served as a Director and Chairman of the Board of
Directors of NaviSite since February 1997. Mr. Wetherell has served as Chairman
of the Board, President, Chief Executive Officer and Secretary of CMGI, Inc.
since 1986 and as a member of CMG@Ventures I, LLC, a venture capital firm
subsidiary of CMGI, and President of CMG@Ventures, Inc., the managing partner
of CMG@Ventures I, LLC, since January 1995. He is also a managing member of
CMG@Ventures II, LLC, CMG@Ventures III, LLC and @Ventures Management, LLC,
which also are strategic investment and development venture capital
subsidiaries or CMGI affiliates. From 1982 until joining CMGI in 1986, Mr.
Wetherell was a co-founder and President of Softrend, Inc., a microcomputer
software publisher. Mr. Wetherell is also the founder of BookLink Technologies,
Inc., a CMGI subsidiary that was sold to America Online, Inc. in 1994. Mr.
Wetherell also serves as the Chairman of the Board of Directors of Engage
Technologies, Inc., a subsidiary of CMGI.

    Craig D. Goldman has served as a Director of NaviSite since February 1997.
Mr. Goldman has served as President and Chief Executive Officer for Cyber
Consulting Services Corp., a technology consulting firm, since March 1996. From
October 1991 to March 1996, Mr. Goldman served with Chase Manhattan Bank as
Senior Vice President and Chief Information Officer. Mr. Goldman served with
Chase Manhattan Bank as Senior Vice President, Technology and Operations from
March 1988 to October 1991, after having started with Chase Manhattan in June
1985. Mr. Goldman also serves as a director of CMGI, Inc., Engage Technologies,
Inc. and PRT Group Inc.

    Andrew J. Hajducky III has served as a Director of NaviSite since February
1997. Mr. Hajducky has served as the Chief Financial Officer and Treasurer of
CMGI, Inc. since October 1995 and as a member of CMG@Ventures I, LLC, a venture
capital firm subsidiary of CMGI, since January 1995. He is also a managing

                                       44
<PAGE>

member of CMG@Ventures II, LLC, CMG@Ventures III, LLC and @Ventures Management,
LLC, which are strategic investment and development venture capital
subsidiaries or CMGI affiliates. From 1990 to October 1995, Mr. Hajducky was
the Entrepreneurial Services Partner of the Merger and Acquisition division of
the public accounting firm of Ernst & Young LLP. From 1983 through 1990, he
held various positions with Arthur Young & Co., which merged with Ernst &
Whinney to form Ernst & Young LLP. Previously, Mr. Hajducky was the Chief
Financial Officer of Mountain International Company/AccuTel, Inc., a
telecommunications and software company. Mr. Hajducky is a Certified Public
Accountant. Mr. Hajducky also serves as a director of Engage Technologies, Inc.

    Each executive officer of NaviSite is elected by, and serves at the
discretion of, the board of directors. Each executive officer serves for a term
of one year. There are no family relationships among any of the directors or
executive officers of NaviSite. We intend to appoint one additional outside
director prior to completion of this offering.

Board Committees

    NaviSite's board of directors has an audit committee and a compensation
committee. The audit committee determines our accounting policies and practices
and financial reporting and internal control structures, recommends to the
board of directors the appointment of independent auditors to audit our
financial statements each year and confers with the auditors and oversees our
officers for purposes of reviewing our system of internal accounting and
financial controls.

    The compensation committee of the board of directors is responsible for
determining salaries, incentives and other forms of compensation for officers
and other key employees of NaviSite and administers our incentive compensation
and benefit plans.

Director Compensation

    We do not currently pay any cash compensation to members of our board for
attending meetings of the board of directors or committee meetings, but we do
reimburse directors for their reasonable travel expenses incurred in connection
with attending these meetings. Any board member who is not also an officer or
employee of NaviSite, any subsidiary of NaviSite or CMGI is entitled to non-
statutory stock options under our 1998 Director Stock Option Plan.

    NaviSite has reserved for issuance 125,000 shares of common stock under the
1998 Director Stock Option Plan. Commencing on December 28, 1998, the date that
the Director Stock Option Plan was adopted, each non-employee director of
NaviSite is entitled to receive, upon the date of his or her election, a non-
statutory option to purchase 25,000 shares of common stock, with the exception
of Craig Goldman, who was granted an option to purchase 50,000 shares of common
stock pursuant to the terms of the Director Stock Option Plan. Each automatic
grant will have an exercise price equal to the fair market value of the common
stock at the time of grant and will have a maximum term of ten years, subject
to earlier termination following the optionee's cessation of service on the
board of directors. Each automatic option grant will vest and become
exercisable with respect to 5,000 shares of common stock on the first
anniversary of the date of the grant, with the exception of the grant to Mr.
Goldman, whose option vested and became exercisable as to 10,000 shares on the
date of grant. The remaining option grant will become exercisable with respect
to an additional 5,000 shares (10,000 shares with respect to Mr. Goldman) on
the date of each annual stockholders' meeting at which the option holder is re-
elected as a director. No options will be granted under the Director Stock
Option Plan after December 28, 2008. As of April 30, 1999, options to purchase
50,000 shares of common stock, with an exercise price of $0.49 per share, were
outstanding under the Director Stock Option Plan.

                                       45
<PAGE>

Executive Compensation

    The following table sets forth all compensation earned during the fiscal
year ended July 31, 1998 by Robert B. Eisenberg, who was our Chief Executive
Officer at the end of fiscal 1998, and our other three most highly compensated
executive officers whose total annual salary and bonuses exceeded $100,000 in
fiscal 1998. Joel B. Rosen, our new Chief Executive Officer, who was appointed
in April 1999, receives salary of $200,000 per year and is eligible to receive
a quarterly bonus of up to $25,000 based upon mutually agreed upon objectives.
In addition, Mr. Rosen was granted options to purchase 534,166 shares of
NaviSite common stock, at an exercise price per share of $7.40 per share, and
options to purchase 100,000 shares of CMGI common stock, at an exercise price
of $123.375 per share.

                           Summary Compensation Table
<TABLE>
<CAPTION>
                                                            Long-Term
                             Annual Compensation           Compensation
                             -----------------------    ------------------
                                                            Securities      All Other
Name and Principal Position    Salary        Bonus      Underlying Options Compensation
---------------------------  ----------    ---------    ------------------ ------------
<S>                          <C>           <C>          <C>                <C>
Robert B. Eisenberg(1)..     $  123,500    $  20,833          80,000(2)      $ 1,752(3)
  President and Director
Barbara H. Fortier(4)...       $100,312    $   5,000              --         $    90(3)
  Vice President,
  Facilities
Kenneth W. Hale.........       $117,983(5) $  20,000(5)           --         $ 2,400(3)(5)
  Chief Financial
  Officer
J. Andrew Sherman.......       $126,910           --              --         $82,848(3)(6)
  Vice President, Sales
</TABLE>
--------
(1) Mr. Eisenberg served as our Chief Executive Officer from February 1997 to
    April 1999.
(2) Represents shares of CMGI common stock underlying options to purchase CMGI
    common stock. Gives effect to two two-for-one stock splits of CMGI's common
    stock, effective January 11, 1999 and May 27, 1999.
(3) Represents the amount of matching contributions made by NaviSite under the
    CMGI 401(k) plan.
(4) Ms. Fortier served as our Vice President of Operations from July 1997 to
    June 1999.
(5) Includes salary, bonus payments and 401(k) matching contributions of
    $89,383, $15,000 and $1,728, respectively, from Engage Technologies, Inc.,
    an affiliate of CMGI.
(6) Includes $82,704 in commission payments.

                                       46
<PAGE>

Stock Option Grants

    The following table sets forth information regarding options granted to Mr.
Eisenberg during the fiscal year ended July 31, 1998. The exercise price of
each option is equal to the fair market value of the common stock on the date
of grant as determined by the board of directors. Mr. Eisenberg received no
options to purchase our common stock in fiscal 1998. Ms. Fortier and Messrs.
Hale and Sherman received no options to purchase either our common stock or
CMGI common stock in fiscal 1998. We have never granted any stock appreciation
rights.

                       Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
                                       Individual Grants
                         ------------------------------------------------
                                                                          Potential Realizable
                                                                            Value at Assumed
                                       Percent of                           Annual Rates of
                          Number of      Total                                Stock Price
                         Securities     Options                             Appreciation for
                         Underlying    Granted to  Exercise                 Option Term (2)
                           Options    Employees in Price Per   Expiration --------------------
   Name                  Granted (1)  Fiscal Year    Share        Date       5%        10%
   ----                  -----------  ------------ ---------   ---------- --------- ----------
<S>                      <C>          <C>          <C>         <C>        <C>       <C>
Robert B. Eisenberg.....   80,000(3)      2.9%      $2.313(3)   10/26/02  $  51,116 $  112,943
</TABLE>
--------
(1) The term of the option is five years from the date of grant.
(2) Potential gains are net of the exercise price but before taxes associated
    with the exercise. These numbers are calculated based on the rules of the
    Securities and Exchange Commission and do not represent an estimate or
    projection of future common stock prices. Actual gains, if any, on stock
    option exercises are dependent on the future performance of CMGI's common
    stock, overall stock market conditions and the option-holders' continued
    employment with NaviSite through the vesting period. The amounts reflected
    in the table may not necessarily be achieved.
(3) Represents a grant of options to purchase CMGI common stock, 25% of which
    vest and become exercisable after the first year and the remaining 75% of
    which vest and become exercisable in equal monthly traunches over the 36
    months thereafter. Gives effect to two two-for-one stock splits of CMGI's
    common stock, effective January 11, 1999 and May 27, 1999.


    The following table sets forth information concerning options to purchase
common stock exercised by the executive officers named in the "Summary
Compensation Table" appearing above during the fiscal year ended July 31, 1998
and the number and value of unexercised options held as of July 31, 1998. None
of these executive officers exercised any options in fiscal 1998.

              Aggregated Option Exercises in Last Fiscal Year and
                         Fiscal Year-End Option Values

<TABLE>
<CAPTION>
                                    Number of Securities       Value of Unexercised
                                   Underlying Unexercised     In-The-Money Options at
                                  Options at July 31, 1998       July 31, 1998 (2)
                                  -------------------------  -------------------------
  Name                   Company  Exercisable Unexercisable  Exercisable Unexercisable
  ----                   -------- ----------- -------------  ----------- -------------
<S>                      <C>      <C>         <C>            <C>         <C>
Robert B. Eisenberg..... NaviSite   149,999      150,001        $         $
                             CMGI        --       80,000 (3)      --      $1,177,400 (4)
Barbara H. Fortier...... NaviSite    18,750       56,250
Kenneth W. Hale......... NaviSite    37,499       37,501
J. Andrew Sherman....... NaviSite    25,000       75,000          --
</TABLE>
--------
(1) Based upon fair market value per share on the date of exercise, minus the
    per share exercise price, multiplied by the number of shares of common
    stock underlying such option.
(2) With respect to the NaviSite options, based upon an assumed initial public
    offering price of $    per share, minus the per share exercise price,
    multiplied by the number of shares of common stock underlying the option.
(3) Gives effect to two two-for-one stock splits of CMGI's common stock,
    effective January 11, 1999 and May 27, 1999.
(4) Based on the difference between the option exercise price and $17.03, which
    was the closing price of CMGI common stock on July 31, 1998, as adjusted
    for subsequent stock splits of CMGI's common stock.

                                       47
<PAGE>

Employment and Non-Competition Agreements

    None of our executive officers has an employment agreement, although all of
our executive officers have entered into agreements that contain non-
disclosure, non-competition and non-solicitation restrictions and covenants,
including a provision prohibiting these officers from competing with NaviSite
during their employment with us and for a period of 12 months after termination
of their employment with us.

    In addition, each executive officer is party to an offer letter with CMGI
which sets forth their annual salary, annual bonus eligibility, option grants
and other benefits. Joel Rosen's offer letter, dated April 14, 1999, provides
that if he is terminated without cause or there is a substantive change in his
job title, responsibilities or location of employment, or a reduction in his
compensation, following a change of control of either NaviSite or CMGI, then
his options to purchase 534,166 shares of NaviSite common stock and 100,000
shares of CMGI common stock will immediately become fully vested and
exercisable.

1998 Equity Incentive Plan

    NaviSite has reserved for issuance 2,400,000 shares of common stock under
the NaviSite 1998 Equity Incentive Plan, as amended as of April 20, 1999. Under
the Equity Incentive Plan, NaviSite is authorized to grant incentive stock
options, non-statutory stock options, stock appreciation rights and restricted
stock awards to employees, directors and consultants of NaviSite, or any
affiliate, who is capable of contributing significantly to our successful
performance. In general, options granted pursuant to the 1998 Equity Incentive
Plan are exercisable within four years of the original grant date. The board of
directors or an appropriate committee of the board has the right, at its
discretion, to accelerate the vesting of any award or provide for cash payment
to the participants in exchange for their awards upon a change of control of
NaviSite. Options are not assignable or transferable except by will or the laws
of descent or distribution. Our board of directors may amend, suspend or
terminate the Equity Incentive Plan at any time, subject to any required
stockholder approval.

    As of April 30, 1999, options to purchase an aggregate of 2,287,058 shares
of common stock at a weighted average exercise price of $2.27 per share were
outstanding under the Equity Incentive Plan. As of April 30, 1999, we had not
granted any stock appreciation rights or issued any shares of restricted stock
under the Equity Incentive Plan.

1999 Employee Stock Purchase Plan

    The 1999 Employee Stock Purchase Plan is expected to be adopted by our
board of directors and approved by our stockholders in August 1999, to be
effective upon completion of this offering. The 1999 Employee Stock Purchase
Plan provides for the issuance of a maximum of     shares of our common stock.

    The 1999 Employee Stock Purchase Plan will be administered by the
compensation committee. All employees of NaviSite whose customary employment is
for more than 30 hours per week and for more than three months in any calendar
year are eligible to participate in the 1999 Employee Stock Purchase Plan.
Employees who would own five percent or more of the total combined voting power
or value of NaviSite's stock immediately after having subscribed for shares
under the 1999 Employee Stock Purchase Plan may not participate in the 1999
Employee Stock Purchase Plan. To participate in the 1999 Employee Stock
Purchase Plan, an employee must authorize us to deduct an amount (not less than
one percent nor more than 10% of a participant's total cash compensation) from
his or her pay during quarterly payment periods. At the end of each quarterly
payment period, the participant's funds are used to purchase shares of our
common stock, at a price equal to 85% of the lesser of the last reported sale
price of the common stock on the first or last business day of the payment
period.

                                       48
<PAGE>

401(k) Plan

    NaviSite is a participating employer in the 401(k) defined contribution
profit sharing savings and retirement plan sponsored by CMGI, Inc. All NaviSite
employees who are at least 21 years of age and have satisfied the necessary
service eligibility requirements, except for nonresident aliens with no United
States source of income, are eligible to participate in the plan. Under our
401(k) plan, a participant employee may elect to reduce his or her current
compensation by up to the lower of 15% or the statutorily prescribed limit
($10,000 in 1998) and have the amount of the reduction contributed to the plan
on the employee's behalf as salary deferral contributions. The 401(k) plan
permits additional discretionary matching contributions by us with respect to
our employees' pre-tax contributions up to the first six percent of each
employee's salary contributed to the plan. The 401(k) plan also permits us to
make discretionary profit sharing contributions to the plan on behalf of our
employees. All contributions to the 401(k) plan by or on behalf of employees
are subject to aggregate annual limits prescribed by the Internal Revenue
Service.

Compensation Committee Interlocks and Insider Participation

    Prior to this offering, we had no separate compensation committee or other
board committee performing equivalent functions. These functions were performed
by our board of directors, which consisted of Joel B. Rosen and Robert B.
Eisenberg, our Chief Executive Officer and President, respectively, David S.
Wetherell, Chairman of the Board, President, Chief Executive Officer and
Secretary of CMGI, Craig D. Goldman, a director of CMGI, and Andrew J. Hajducky
III, Chief Financial Officer and Treasurer of CMGI.

                                       49
<PAGE>

                              CERTAIN TRANSACTIONS

Relationship and Transactions between NaviSite and CMGI, Inc.

    Our predecessor was incorporated in February 1997 as a wholly owned
subsidiary of CMGI. As of June 30, 1999, CMGI owned approximately 89.4% of our
common stock, assuming the conversion or exchange of all outstanding shares of
convertible preferred stock as of June 30, 1999, including shares of
convertible preferred stock held by CMGI indirectly through our predecessor.
CMGI will directly own  % upon completion of this offering.

    CMGI has the power to elect our entire board of directors and to approve or
disapprove any corporate transactions or other matters submitted to our
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, our other stockholders. CMGI also holds a majority
equity ownership position in many of our customers.

    NaviSite and CMGI have entered into or, upon or prior to completion of this
offering, will enter into the present and prospective arrangements and
transactions described below. These agreements were or will be negotiated
between CMGI, as a corporate parent, and NaviSite, its subsidiary, and
therefore are not the result of negotiations between independent parties.
NaviSite and CMGI intend that these agreements and the transactions provided
for in these agreements, taken as a whole, accommodate their respective
interests in a manner that is fair to both NaviSite and CMGI. However, because
of the complex nature of the various relationships among NaviSite, CMGI and
various CMGI affiliates, we cannot assure you that each of the agreements
described below, or the transactions provided for in these agreements, were or
will be effected on terms at least as favorable to NaviSite as NaviSite could
have obtained from unaffiliated third parties.

    NaviSite and CMGI or its affiliates may enter into additional or modified
arrangements and transactions in the future. NaviSite, CMGI or its affiliates,
as the case may be, will negotiate the terms of such arrangements and
transactions. Upon or prior to completion of this offering, NaviSite expects to
adopt a policy that all future arrangements between NaviSite and CMGI or its
affiliates will be on terms that NaviSite believes are no less favorable to it
than the terms NaviSite believes would be available from unaffiliated parties
and must be approved by a majority of NaviSite's directors who are not
employees of CMGI (even though such directors may be less than a quorum).

    The following is a summary of the material arrangements and transactions
between NaviSite and CMGI or its affiliates.

 Lease Guarantees

    In connection with our execution of three of our real property leases, CMGI
has provided our landlords with guarantees of all of our obligations under the
leases. In connection with the execution of the lease for our Scotts Valley,
California facility, CMGI guaranteed the full performance of all of our
obligations through the expiration of the lease term. In connection with the
execution of the lease for our new Andover, Massachusetts facility, CMGI
executed an unconditional guaranty of the lease and an accompanying letter of
credit to ensure the full and punctual payment, as well as performance of all
of our obligations, under the lease. CMGI will be released from the Andover
guaranty upon the occurrence of the earlier of the closing of this offering or
the date on which we occupy the premises and begin to pay rent. CMGI also
executed an unconditional and irrevocable guaranty in connection with the
execution of the lease for our new facility in San Jose, California. CMGI will
be released from the San Jose guaranty within 15 days of the later of the
closing of this offering or the landlord's receipt of a letter of credit, in
the form specified in the guaranty, in the amount of $2,388,660.

                                       50
<PAGE>

 Debt Conversion

    We have issued a secured convertible demand note to CMGI in exchange for
the cancellation of all intercompany debt incurred by us to CMGI prior to April
30, 1999. This note also provides for additional advances by CMGI to us after
April 30, 1999. CMGI may elect to convert amounts payable under the note into
Series B convertible preferred stock at any time. Additional intercompany debt
incurred after April 30, 1999 accrues interest at a rate of seven percent per
year, compounded monthly until the day CMGI elects to convert the debt into
shares of Series B convertible preferred stock. The amount of each borrowing
represented by the note is convertible as of the end of the fiscal quarter in
which the borrowing was made into the number of shares of Series B convertible
preferred stock equal to one-tenth of the quotient of:

  .  the aggregate amount of principal and interest to be so converted,
     divided by

  .  the applicable conversion price for that fiscal quarter.

    The conversion price applicable for any fiscal quarter, except the fiscal
quarter during which a qualified initial public offering occurs, is determined
by dividing our total enterprise value as of the fiscal quarter end, as
determined in good faith by our board of directors, by the number of shares of
common stock outstanding on a fully diluted, as-if-converted basis. It is
expected that all debt due to CMGI prior to the closing of this offering will
be converted into Series B convertible preferred stock no later than the
closing of this offering. Each share of Series B convertible preferred stock
issued and outstanding will convert into ten shares of common stock upon the
completion of this offering.

    Under this note, intercompany debt in the aggregate amount of $10,760,822,
representing $5,347,705 advanced during the quarter ended January 31, 1999 and
an additional $5,413,117 advanced during the quarter ended April 30, 1999, in
each case including interest accrued during the applicable fiscal quarter, was
converted into 490,332 shares of Series B convertible preferred stock (based
upon applicable conversion prices of $12.74 and $76.68, respectively). Upon the
completion of this offering, such preferred shares will convert into 4,903,320
shares of common stock.

    We expect to borrow additional amounts from CMGI to fund our operations
prior to the closing of this offering. To the extent that additional advances
are made during the fiscal quarter in which the closing of this offering
occurs, such borrowings and accrued interest, net of any repayments, will be
converted into additional shares of common stock at the initial public offering
price upon the closing of this offering.

    This note is secured by all of our intellectual property and other assets,
whether now owned or hereafter acquired, under the terms of an intellectual
property security agreement and a security agreement between us and CMGI.

 Facilities and Administrative Support Agreement

    Upon or prior to completion of this offering, we will enter into a
facilities and administrative support agreement with CMGI under which CMGI will
continue to make available to us space at its headquarters in Andover,
Massachusetts and will provide various services to us, including accounting,
tax administration, computer and information systems, telecommunications,
property and casualty insurance, utilities and employee benefits
administration.

    Under this agreement, CMGI also will agree to make available to us at least
11,000 square feet of space at its headquarters until completion of our new
Andover, Massachusetts facility. We intend to relocate our executive offices to
our new facility upon completion of that facility.

    The initial term of this agreement will be one year from the date of the
agreement, with automatic renewals at the end of the initial term and each
renewal term for successive one-year periods. Either party will be permitted to
terminate the facilities and administrative support agreement upon prior
written notice. The facilities and administrative support agreement will
automatically terminate upon the date CMGI owns less than 50% of our
outstanding common stock.

                                       51
<PAGE>

    The fees payable by us for the availability of space and other services are
typically determined through an allocation of CMGI's costs based upon the
proportion of our employee headcount to the total headcount of CMGI and other
CMGI affiliates located in the same facility or using the same services. Under
the facilities and administrative support agreement, we will pay CMGI a monthly
fee reflecting the cost of the services provided by CMGI based on the total
number of our employees and consultants on the last day of that month.

    In fiscal 1997, fiscal 1998 and the nine months ended April 30, 1999, we
paid CMGI $48,000, $218,000 and $246,000, respectively, for services similar to
those to be provided under the facilities and administrative support agreement.

 Tax Allocation Agreement

    Upon or prior to completion of this offering, we will enter into a tax
allocation agreement with CMGI to allocate responsibilities, liabilities and
benefits relating to taxes. We will be required to pay our 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
we will no longer be a member of CMGI's group for federal, state or local tax
purposes, as the case may be. CMGI will indemnify us 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 us. Accordingly, any
redetermined tax liabilities for those periods will be the responsibility of
CMGI, and any refunds or credits of taxes attributable to us or our
subsidiaries in respect of consolidated, combined or unitary tax returns for
those periods will be for the account of CMGI. We will be responsible for
filing any separate tax returns for any taxable period and will be responsible
for any tax liabilities, and entitled to any refunds or credits of taxes, with
respect to separately filed tax returns. We will indemnify CMGI against any tax
liability with respect to separately filed tax returns.

    Neither CMGI nor us will have 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 will be 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 us for a period after the closing date, thereby
generating future depreciation deductions to us, we 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 us.

    Each of Navisite and CMGI has control of any audit, appeal, litigation or
settlement of any issue raised with respect to a tax return for which it has
filing responsibility. Payments of claims under the agreement must be made
within 30 days of the date that a written demand for the claim is delivered.
Interest accrues on payments that are not made within 10 days of the final due
date at the rate applicable to underpayments of the applicable tax. Any dispute
concerning the calculation or basis of determination of any payment provided
under the tax allocation agreement will be resolved by a law firm or "big five"
accounting firm selected and paid for jointly by the parties.

 Investor Rights Agreement

    Upon or prior to completion of this offering, we will enter into an
investor rights agreement with CMGI under which we will grant CMGI registration
rights and rights to purchase shares to maintain its majority ownership. Under
this agreement, CMGI and its assignees will have the right to demand, on up to
two occasions, that NaviSite register the sale of all or part of their shares
of our common stock having an aggregate value of at least $10.0 million under
the Securities Act. In addition, at any time after we become eligible to file a
registration statement on Form S-3 under the Securities Act, CMGI and its
assignees will have the right to request, on up to five occasions, that we
effect a registration of their shares of our common stock having an aggregate
value of at least $2.5 million on Form S-3. CMGI and its assignees also are
entitled to include shares of our common stock in a registered offering by us
of our securities for our own account, subject to the

                                       52
<PAGE>

underwriters' right to reduce the number of included shares. We will pay all
costs associated with the registration of shares by us pursuant to this
agreement, other than underwriting discounts and commissions and various other
expenses.

    Also under this agreement, until such time as CMGI, or any permitted
transferee, owns less than a majority of voting power of the outstanding shares
of our capital stock, we will permit CMGI, or the transferee, to purchase a
portion of any shares that we may in the future issue so that CMGI or the
transferee will maintain its majority ownership position. Any such purchases
will be at the same price as is paid by third parties for the shares. This
right is transferable by CMGI to any party that acquires directly from CMGI
shares of common stock representing at least a majority of the outstanding
shares of our common stock.

 Other Transactions with CMGI Affiliates

    We have agreements with numerous CMGI affiliates under which we provide
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. We also rent
sophisticated software applications to a number of these affiliates and provide
consulting services to each of these affiliates on an as-needed basis.

    The chart set forth below lists the CMGI affiliates from which we derived
revenue in excess of $60,000 in either of the last two fiscal years or the nine
months ended April 30, 1999 and the revenue derived from these CMGI affiliates
for the fiscal years ended July 31, 1997 and 1998 and for the nine months ended
April 30, 1999, as applicable. Our total revenue was $3,361,480, $4,029,099 and
$6,817,055, for the fiscal years ended July 31, 1997 and 1998 and for the nine
months ended April 30, 1999, respectively.

<TABLE>
<CAPTION>
                                                        Nine months ended
 Name of affiliate        Fiscal 1997(1) Fiscal 1998(1) April 30, 1999(1)
 -----------------        -------------- -------------- -----------------
<S>                       <C>            <C>            <C>
Planet Direct
  Corporation...........    $1,545,948     $1,593,618      $1,652,507
Engage Technologies,
  Inc...................       949,046        751,714       1,223,550
ADSmart Corporation.....       456,673        430,248         358,078
InfoMation..............       158,059        350,312         293,080
Ancestry.com, Inc.......            --             --         258,798
ZineZone Corp.(2).......            --        117,946         173,458
Vicinity Corporation....       236,004        137,226         154,185
Raging Bull, Inc........            --             --         129,611
ThingWorld.com..........            --         66,080         118,884
CMG Direct Corporation..            --        191,300         115,280(3)
Furniture.com, Inc......            --             --          78,259
Universal Learning
  Technology............            --             --          74,293
MotherNature.com, Inc...            --             --          67,383
PlanetAll.com, Inc......            --        182,495              --(4)
</TABLE>
--------
(1) Dashes indicate periods in which the listed customers were not our
    affiliates, but do not indicate that no revenues were derived in those
    periods.
(2) Known as Password Internet Publishing Corp. until February 1999.
(3) All of the issued and outstanding capital stock of CMG Direct Corporation
    was sold by CMGI to Marketing Services Group, Inc. in May 1999. CMGI holds
    approximately 12% of the outstanding common stock of Marketing Services
    Group.
(4) Effective as of August 1998, PlanetAll is no longer our affiliate.

    We also have provided services to CMGI and other CMGI affiliates, including
NextMonet.com, Inc., Lycos, Inc., On-Demand Solutions, Inc., SalesLink
Corporation and TicketsLive Corporation. Aggregate sales to CMGI and these
affiliates totaled $15,750, $50,560 and $67,733 for fiscal 1997, fiscal 1998
and the nine months ended April 30, 1999, respectively.

                                       53
<PAGE>

Servercast Communications, L.L.C. Acquisition

 Term Notes

    In connection with our acquisition in July 1998 of Servercast, we issued
four term notes to the members of Servercast in the aggregate principal amount
of $1.0 million, payable on or before January 2, 2000, in exchange for all of
the membership interests in Servercast. CMGI has guaranteed the payment of each
of these term notes. CMGI's guarantee will terminate upon the earlier of (i)
the closing of this offering, (ii) the sale of NaviSite to an acquiror with a
net worth of at least $15 million and (iii) the payment by us of all amounts
owed under the term notes.

    One of these term notes, in the principal amount of $279,100, was issued to
Peter C. Kirwan, Jr., our Chief Technology Officer, in exchange for his 27.91%
membership interest in Servercast. The note bears interest at the rate of 5.5%
per year (calculated on the basis of a 365-day year and the actual number of
days elapsed). The note provides that accrued interest will be paid in three
equal installments of $7,675.25 each, to be paid on January 2, 1999, July 2,
1999 and January 2, 2000. The first and second scheduled payments of $7,675.25
each were made in full on January 2, 1999 and July 2, 1999, respectively. Mr.
Kirwan has agreed that payment of accrued interest or principal may be offset
by claims for indemnification that we may have pursuant to the terms of the
related purchase agreement and that 20% of any principal amount paid prior to
July 1, 2000 shall be delivered into an escrow fund for the purpose of
indemnification.

 Bonus Agreement

    In connection with our acquisition of Servercast, we also entered into a
bonus agreement dated as of July 1, 1998 with Mr. Kirwan. The bonus agreement
provides that Mr. Kirwan will receive an incentive bonus payment if established
targets are met relating to the revenues and operating losses of Servercast for
the one-year period ended July 1, 1999. The maximum amount which Mr. Kirwan
could receive pursuant to the bonus agreement is $231,187. Pursuant to the
terms of the bonus agreement and the related purchase agreement, 20% of any
bonus amount due to Mr. Kirwan as of July 1, 1999 shall be delivered into the
escrow fund described above. In order to be eligible for the incentive bonus
and the return of any escrowed amount, Mr. Kirwan must remain an employee of
NaviSite through July 1, 1999 and July 1, 2000, respectively, unless he either
terminates his employment with just cause or is terminated by us without cause,
in which case he remains entitled to any bonus payments or escrowed amounts
due. Mr. Kirwan remains an employee of NaviSite, and we are currently in the
process of comparing actual revenues and operating losses against the targets
established in the bonus agreement to determine any bonus payment due to Mr.
Kirwan as of July 1, 1999.

    Pursuant to the bonus agreement, we also granted Mr. Kirwan non-statutory
stock options to purchase 50,000 shares of our common stock, at an exercise
price of $0.93 per share. One fourth, or 12,500, of the options vested and
became fully exercisable on July 1, 1999, and the remainder vest ratably at the
end of each month for 36 months, provided that Mr. Kirwan continues to be
employed by us.

                                       54
<PAGE>

               OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT

    Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Except as indicated by the footnotes below,
we believe, based on the information furnished to us, that the persons and
entities named in the tables below have sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by them,
subject to applicable community property laws. Percentage of outstanding shares
of NaviSite common stock is based on 20,300,903 shares of common stock
outstanding as of June 30, 1999, after giving effect to the conversion of all
outstanding convertible preferred stock as of June 30, 1999, and     shares of
common stock outstanding upon completion of this offering. Percentage of
beneficial ownership of CMGI common stock is based on 95,383,222 shares of
common stock outstanding as of June 30, 1999. In computing the number of shares
of common stock beneficially owned by a person and the percentage ownership of
that person, shares of common stock subject to options held by that person that
are currently exercisable or exercisable within 60 days of June 30, 1999 are
deemed outstanding. These shares, however, are not deemed outstanding for the
purpose of computing the percentage ownership of any other person.

Principal Stockholders

    The following table sets forth information with respect to the beneficial
ownership of our common stock by our principal stockholders as of June 30, 1999
and as adjusted to reflect the sale of the shares of common stock offered in
this offering. The outstanding shares of common stock shown as held by CMGI
include shares issuable upon completion of the corporate reorganization of
NaviSite Internet Services Corporation and conversion of convertible preferred
stock held by CMGI as of June 30, 1999.

<TABLE>
<CAPTION>
                                                                Percentage of
                                                                 Outstanding
                                                                   Shares
                                            Number of Shares  -----------------
                                            of Common Stock    Before   After
Name and Address of Beneficial Owner       Beneficially Owned Offering Offering
------------------------------------       ------------------ -------- --------
<S>                                        <C>                <C>      <C>
CMGI, Inc. ...............................     18,142,850       89.4%       %
  100 Brickstone Square
  Andover, Massachusetts 01810
Dell Computer Corporation ................      1,095,472(1)     5.4
  One Dell Way
  Round Rock, Texas 78682
Microsoft Corporation ....................        993,243        4.9
  1 Microsoft Way
  Redmond, Washington 98052-8300
</TABLE>
--------
(1) Consists of shares held of record by Dell USA L.P., a subsidiary of Dell
Computer Corporation.

                                       55
<PAGE>

Management

    The following table sets forth information known to us regarding both the
beneficial ownership of our common stock as of June 30, 1999 and as adjusted to
reflect the sale of the shares of common stock in this offering and the
beneficial ownership of common stock of CMGI as of June 30, 1999 by:

  .   each of our directors;

  .   each of our executive officers named in the "Summary Compensation
      Table" appearing above; and

  .   all of our directors and executive officers as a group.

    Unless otherwise indicated, the address of each beneficial owner listed
below is c/o NaviSite, Inc., 100 Brickstone Square, Andover, Massachusetts
01810.

<TABLE>
<CAPTION>
                                  NaviSite Common Stock                 CMGI Common Stock
                          ------------------------------------------ ----------------------------
                                         Percentage of Percentage of
                                          Outstanding   Outstanding                 Percentage of
                          Number of      Shares Before Shares After  Number of         Common
  Name                      Shares         Offering      Offering    Shares (1)         Stock
  ----                    ----------     ------------- ------------- ----------     -------------
<S>                       <C>            <C>           <C>           <C>            <C>
Joel B. Rosen...........           0            *             *               0            *
Robert B. Eisenberg.....     231,249 (2)      1.1%                        9,342 (3)        *
Barbara H. Fortier......      39,062 (2)        *             *             548            *
Kenneth W. Hale.........      57,812 (2)        *             *             842            *
David S. Wetherell......  18,142,850 (4)     89.4                    10,772,224 (5)     11.0%
Craig D. Goldman........      10,000 (2)        *             *         195,200 (6)        *
Andrew J. Hajducky III..  18,142,850 (4)     89.4                        95,749 (7)        *
J. Andrew Sherman.......      52,083 (2)        *             *             872            *
All current directors
  and executive officers
  as a group (12
  persons)..............  18,605,272 (8)     89.6%                   11,074,777 (9)     11.3%
</TABLE>
--------
*   Represents beneficial ownership of less than one percent of the common
    stock.
(1) Reflects two two-for-one stock splits effective January 11, 1999 and May
    27, 1999.
(2) Consists of shares issuable upon the exercise of options exercisable within
    60 days of June 30, 1999.
(3) Includes 8,334 shares issuable upon the exercise of outstanding options
    that are exercisable within 60 days of June 30, 1999.
(4) Consists of shares owned by CMGI on an as-converted basis. Messrs.
    Wetherell and Hajducky disclaim beneficial ownership of all 18,142,850
    shares owned by CMGI.
(5) Includes 2,305,888 shares issuable upon the exercise of outstanding options
    that are exercisable within 60 days of June 30, 1999, 1,701,732 shares held
    in trust for the benefit of Mr. Wetherell's minor children and 23,372
    shares held by Mr. Wetherell and his wife as trustees for the David S.
    Wetherell Charitable Trusts. Mr. Wetherell disclaims beneficial ownership
    of the 1,725,104 shares held in trust for his children and as trustee for
    the charitable trust.
(6) Includes 75,200 shares issuable upon the exercise of outstanding options
    that are exercisable within 60 days of June 30, 1999.
(7) Includes 74,997 shares issuable upon the exercise of outstanding options
    that are exercisable within 60 days of June 30, 1999.
(8) Includes 462,422 shares issuable upon the exercise of outstanding options
    that are exercisable within 60 days of June 30, 1999 and 18,142,850 shares
    owned by CMGI on an as-converted basis. Messrs. Wetherell and Hajducky
    disclaim beneficial ownership of all 18,142,850 shares owned by CMGI.
(9) Includes 2,464,419 shares issuable upon the exercise of outstanding options
    that are exercisable within 60 days of June 30, 1999, 1,701,732 shares held
    in trust for the benefit of Mr. Wetherell's minor children and 23,372
    shares held by Mr. Wetherell and his wife as trustees for the David S.
    Wetherell Charitable Trusts. Mr. Wetherell disclaims beneficial ownership
    of the 1,725,104 shares held in trust for his children and as trustee for
    the charitable trust.

                                       56
<PAGE>

                          DESCRIPTION OF CAPITAL STOCK

    The following description of our capital stock and various provisions of
our revised certificate of incorporation and our revised by-laws is a summary.
Statements contained in this prospectus relating to such provisions are not
necessarily complete, and reference is made to the revised certificate of
incorporation and the revised by-laws that will be in effect upon the
completion of this offering, copies of which have been filed with the
Securities and Exchange Commission as exhibits to our registration statement of
which this prospectus constitutes a part. The revised certificate of
incorporation and the revised by-laws will become effective upon completion of
this offering.

    Upon completion of this offering, our authorized capital stock will consist
of     shares of common stock, par value $0.01 per share, and     shares of
preferred stock, par value $0.01 per share.

Common Stock

    As of June 30, 1999, there were 20,300,903 shares of common stock
outstanding, assuming the conversion of all outstanding shares of convertible
preferred stock as of June 30, 1999. As of June 30, 1999, our outstanding
common stock was held of record by four stockholders. Upon completion of this
offering, there will be     shares of common stock outstanding. In addition, as
of April 30, 1999, there were outstanding stock options for the purchase of a
total of 2,337,058 shares of common stock. Shares of common stock have the
following rights, preferences and privileges:

    Voting Rights. Each outstanding share of common stock is entitled to one
vote on all matters submitted to a vote of NaviSite's stockholders, including
the election of directors. There are no cumulative voting rights, and therefore
the holders of a plurality of the shares of common stock voting for the
election of directors may elect all of NaviSite's directors standing for
election.

    Dividends. Holders of common stock are entitled to receive dividends at the
same rate if and when dividends are declared by NaviSite's board of directors
out of assets legally available for the payment of dividends, subject to
preferential rights of any outstanding shares of preferred stock.

    Liquidation. In the event of a liquidation, dissolution or winding up of
the affairs of NaviSite, whether voluntary or involuntary, after payment of the
debts and other liabilities of NaviSite and making provision for the holders of
any outstanding shares of preferred stock, the remaining assets of NaviSite
will be distributed ratably among the holders of shares of common stock.

    Rights and Preferences. The common stock has no preemptive, redemption,
conversion or subscription rights. The rights, powers, preferences and
privileges of holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock that we may designate and issue in the future.

    Fully Paid and Nonassessable. All outstanding shares of common stock are,
and the shares of common stock to be issued pursuant to this offering will be,
fully paid and nonassessable.

Preferred Stock

    Upon completion of this offering, it is expected that all outstanding
shares of preferred stock will be converted into common stock. Pursuant to the
terms of our revised certificate of incorporation, the board of directors will
be authorized, subject to any limitations prescribed by Delaware law, without
further stockholder approval, to issue from time to time up to an aggregate of
    shares of preferred stock, in one or more classes or series, and to fix the
voting powers, full or limited, or no voting powers, and the distinctive
designations, preferences and relative, participating, optional or other
special rights and the qualifications, limitations or restrictions of these
rights, of the shares of each such class or series. The board of directors is
authorized to issue preferred stock with voting, conversion and other rights
and preferences that could adversely affect the voting power or other rights of
the holders of common stock.

                                       57
<PAGE>

    We have no current plans to issue any preferred stock. However, the
issuance of preferred stock or of rights to purchase preferred stock could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, a majority of our
outstanding common stock.

Registration Rights

    Under the terms of the Series C and the Series D convertible preferred
stock purchase agreements entered into between us and each of the Series C
stockholder and the Series D stockholder, respectively, effective upon
completion of this offering, assuming the conversion of the preferred stock
held by the Series C stockholder and the Series D stockholder into common
stock, these stockholders, together with their permitted assignees,
collectively the holders of an aggregate of 2,088,715 shares of our common
stock, will have the right to register some or all of their shares under the
Securities Act under specified conditions. At any time after the six-month
anniversary of the closing of this offering, the holders of at least 50% of the
Series C shares or at least 50% of the Series D shares, as applicable, are
entitled to demand that we file a registration statement under the Securities
Act covering the registration of some or all of their shares, subject to
specified limitations. Under these demand registration rights, we are only
obligated to effect two registrations for each of the Series C stockholder,
together with its permitted assignees, and the Series D stockholder, together
with its permitted assignees. In addition, pursuant to the terms of the Series
C convertible preferred stock purchase agreement and the Series D convertible
preferred stock purchase agreement, after the completion of this offering, the
Series C and Series D stockholders will have unlimited incidental registration
rights in the event that we propose to register any shares of common stock
under the Securities Act, either for our own account or for the account of
other security holders. The Series C and Series D stockholders having
incidental registration rights are entitled to receive notice of any such
registration and are entitled to include their shares in the registration,
subject to specified limitations.

    In addition, at any time after the earlier of the one-year anniversary of
the closing of this offering and such time as we become eligible to file a
registration statement on Form S-3, the holders of at least 50% of the Series C
shares or at least 50% of the Series D shares, as applicable, are entitled to
require us to file a registration statement on Form S-3 covering their shares
of common stock. We will not be obligated to effect more than two Form S-3
registrations on behalf of either the Series C stockholder or the Series D
stockholder. These registration rights are subject to customary conditions and
limitations, including the right of the underwriters of an offering to limit
the number of shares of common stock held by security holders with registration
rights to be included in that registration. We also may defer a request for
registration for a period of not more than 90 days, subject to specified
conditions, if our board of directors determines that the requested
registration would be materially detrimental to us and our stockholders. We
generally are required to bear all of the expenses of all of the registrations
effected under the convertible preferred stock purchase agreements, excluding
underwriting discounts and commissions.

    The registration of any of the shares of common stock held by stockholders
with registration rights would result in these shares becoming freely tradeable
without restriction under the Securities Act immediately upon effectiveness of
that registration statement. Information regarding the registration rights of
CMGI is included in this prospectus under the heading "Certain Transactions--
Investor Rights Agreement."

Participation Rights

    Under the terms of the Series C convertible preferred stock purchase
agreement and the Series D convertible preferred stock purchase agreement
entered into between us and each of the Series C stockholder and the Series D
stockholder, respectively, we agreed that, in connection with certain
underwritten public offerings of our common stock, which would include this
offering assuming the conversion of the preferred stock held by the Series C
and the Series D stockholders into common stock, we would use all commercially
reasonable efforts to require that the underwriters offer to each of the Series
C stockholder and the Series D stockholder shares of the common stock to be
sold in the offering. Under these agreements, each of the Series C stockholder
and the Series D stockholder would be permitted to purchase, at the gross price
per share

                                       58
<PAGE>

negotiated by us with the underwriters of the offering as reflected in the
final prospectus, up to an aggregate of 0.5% of the outstanding shares of our
common stock on a fully diluted basis, after giving effect to the sale of
shares of common stock in the offering. In connection with an offering to which
these participation rights are applicable, we agreed to deliver or cause to be
delivered a copy of the preliminary prospectus for the offering to both the
Series C stockholder and the Series D stockholder simultaneously with the
distribution of same to the public at large by the underwriters. The Series C
stockholder and the Series D stockholder each then are entitled to exercise its
respective right of participation by delivering written notice to us not later
than five business days prior to the pricing of the offering. The underwriters
of the offering then are entitled to reduce the number of shares of common
stock to be offered to the Series C stockholder and the Series D stockholder to
the extent deemed necessary in the underwriters' reasonable judgment to ensure
the success of such offering or to comply with applicable rules and
regulations. We intend to comply with these procedures in connection with this
offering.

Delaware Anti-Takeover Statute

    Our revised certificate of incorporation contains a provision expressly
electing not to be governed by Section 203 of the Delaware General Corporation
Law. In general, Section 203 restricts some business combinations involving
interested stockholders or their affiliates. An interested stockholder is
defined as any person or entity that is the beneficial owner of at least 15% of
a corporation's voting stock or is an affiliate or associate of the corporation
or the owner of 15% or more of the outstanding voting stock of the corporation
at any time in the past three years. Because of this election, Section 203 will
not apply to us.

Limitation of Liability and Indemnification

    Our revised certificate of incorporation limits the liability of our
directors to the maximum extent permitted by Delaware law. Delaware law
provides that directors will not be personally liable for monetary damages for
breach of their fiduciary duties as directors, except liability for:

  .   any breach of their duty of loyalty to the corporation or its
      stockholders;

  .   acts or omissions not in good faith or which involve intentional
      misconduct or a knowing violation of law;

  .   unlawful payments of dividends or unlawful stock repurchases or
      redemptions; or

  .   any transaction from which the director derived an improper personal
      benefit.

This provision has no effect on any non-monetary remedies that may be available
to us or our stockholders, nor does it relieve us or our officers or directors
from compliance with federal or state securities laws.

    Our revised certificate of incorporation also generally provides that we
will indemnify, to the fullest extent permitted by Section 145 of the Delaware
General Corporation Law, any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit,
investigation, administrative hearing or any other proceeding by reason of the
fact that he or she is or was a director or officer of ours, or is or was
serving at our request as a director, officer, employee or agent of another
entity, against expenses incurred by him or her in connection with that
proceeding. An officer or director will not be entitled to indemnification by
us if:

  .   the officer or director did not act in good faith and in a manner
      reasonably believed to be in, or not opposed to, our best interests;
      or

  .   with respect to any criminal action or proceeding, the officer or
      director had reasonable cause to believe his or her conduct was
      unlawful.

    In addition, we plan to enter into indemnification agreements with our
directors containing provisions which may require us, among other things, to
indemnify our directors against various liabilities that may arise

                                       59
<PAGE>

by virtue of their status or service as directors and to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified. Insofar as indemnification for liabilities arising under the
Securities Act, may be permitted to directors, officers or persons controlling
NaviSite pursuant to the foregoing provisions or otherwise, NaviSite has been
informed that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.

    NaviSite's revised certificate of incorporation also permits NaviSite to
secure insurance on behalf of any officer or director for any liability arising
out of his or her actions in such capacity, regardless of whether our revised
certificate of incorporation would otherwise permit indemnification for that
liability. Our officers and directors are currently insured under a policy
procured by CMGI that provides coverage against losses arising from claims
against them for any actual or alleged act, omission, misstatement, misleading
statement, neglect, error or breach of duty by them in their capacity as
officers or directors of NaviSite. We are in the process of obtaining our own
liability insurance for our officers and directors.

    At the present time, there is no pending litigation or proceeding involving
any director, officer, employee or agent of NaviSite in which indemnification
will be required or permitted. We are not aware of any threatened litigation or
proceeding which may result in a claim for such indemnification.

Transfer Agent and Registrar

    The transfer agent and registrar for the common stock is EquiServe L.P.

                                       60
<PAGE>

                        SHARES ELIGIBLE FOR FUTURE SALE

Effect of Sales of Shares

    Prior to this offering, no public market existed for our common stock, and
we can make no prediction as to the effect, if any, that sales of shares of
common stock or the availability of shares of our common stock for sale will
have on the market price of the common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of our common stock in the public
market, or the perception that such sales occur, could adversely affect the
market price of our common stock and could impair our future ability to raise
capital through an offering of our equity securities.

Sale of Restricted Shares

    Upon completion of this offering, based upon the number of shares
outstanding as of June 30, 1999, we will have an aggregate of     shares of
common stock outstanding, assuming no exercise of the underwriters' over-
allotment option and no exercise of outstanding options. Of these outstanding
shares, the     shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, except that any
shares purchased by our "affiliates," as that term is defined in Rule 144 under
the Securities Act, generally only may be sold in compliance with the
limitations of Rule 144 described below. All of the remaining 20,300,903 shares
of common stock that will be outstanding after this offering will be
"restricted securities" as that term is defined under Rule 144. Restricted
securities may be sold in the public market only if they qualify for an
exemption from registration under Rule 144, including Rule 144(k), or 701 under
the Securities Act.

Lock-Up Agreements

    Our directors, executive officers and all of our other stockholders,
holding 20,300,903 shares in the aggregate, have agreed that they will not
sell, directly or indirectly, any shares of common stock without the prior
written consent of BancBoston Robertson Stephens Inc. for a lock-up period of
180 days from the date of this prospectus. Upon expiration of the lock-up
period, 180 days after the date of this prospectus,     shares will be
available for resale to the public in accordance with Rule 144, whether under
Rule 144, including Rule 144(k), or Rule 701.

Rule 144

    In general, under Rule 144 as currently in effect, commencing 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year is entitled to sell within any three-month
period a number of shares that does not exceed the greater of:

  .   1% of the number of shares of common stock then outstanding, which is
      expected to be approximately     shares upon completion of this
      offering; or

  .   the average weekly trading volume of the common stock on the Nasdaq
      National Market during the four calendar weeks preceding the filing of
      a notice on Form 144 with respect to such sale, subject to the
      restrictions specified in Rule 144.

    Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.

Rule 144(k)

    Under Rule 144(k), a person who is not one of our affiliates at any time
during the three months preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years, is entitled to sell such
shares under Rule 144(k) without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, Rule 144(k) shares may be sold immediately upon
completion of this offering.

                                       61
<PAGE>

Rule 701

    In general, under Rule 701 of the Securities Act as currently in effect,
any of our employees, consultants or advisors who purchases shares from us in
connection with a compensatory stock plan or other written agreement is
eligible to resell such shares 90 days after the effective date of this
offering in reliance on Rule 144, but without compliance with various
restrictions, including the holding period, contained in Rule 144.

Stock Options

    As of April 30, 1999, options to purchase a total of 2,337,058 shares of
common stock were outstanding, of which 547,559 were then exercisable. Upon
completion of this offering, we intend to file a registration statement to
register for resale an aggregate of 2,525,000 shares of common stock reserved
for issuance under our 1998 Equity Incentive Plan and our 1998 Director Stock
Option Plan. That registration statement will become effective immediately upon
filing. Accordingly, shares covered by that registration statement will become
eligible for sale in the public markets, subject to vesting restrictions, Rule
144 volume limitations applicable to our affiliates or the lock-up agreements
with BancBoston Robertson Stephens Inc. Holders of options to purchase
shares of common stock have entered into lock-up agreements.

    We have agreed not to sell or otherwise dispose of any shares of common
stock during the 180-day period following the date of the prospectus, except we
may issue and grant options to purchase shares of common stock under the 1998
Equity Incentive Plan and the 1998 Director Stock Option Plan. In addition, we
may issue shares of common stock in connection with an acquisition of another
company if the terms of such issuance provide that the common stock so issued
shall not be resold prior to the expiration of the 180-day lock-up period.

Registration Rights

    Upon completion of this offering, under specified circumstances and subject
to customary conditions, the holders of an aggregate of 20,231,565 shares of
our common stock, including CMGI, which will directly own approximately
18,142,850 shares upon completion of this offering, or their permitted
assignees, will be entitled to rights with respect to the registration under
the Securities Act of some or all of their shares, subject to the 180-day lock-
up period described above. Under the agreements providing for these
registration rights, these stockholders are subject to lock-up periods of not
more than 180 days following the date of this prospectus or any subsequent
prospectus. A more detailed discussion of these registration rights is included
in this prospectus under the headings "Certain Transactions--Registration
Rights Agreement" and "Description of Capital Stock--Registration Rights."

                                       62
<PAGE>

                                  UNDERWRITING

    The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., ING Barings LLC and FAC/Equities, a
division of First Albany Corporation, have severally agreed with us, subject to
the terms and conditions of the underwriting agreement, to purchase from us the
number of shares of common stock set forth opposite their names below. The
underwriters are committed to purchase and pay for all shares if any are
purchased.

<TABLE>
<CAPTION>
                                                                        Number
   Underwriter                                                         of Shares
   -----------                                                         ---------
   <S>                                                                 <C>
   BancBoston Robertson Stephens Inc..................................
   ING Barings LLC....................................................
   FAC/Equities, a division of First Albany Corporation ..............
                                                                          ---
      Total...........................................................
                                                                          ===
</TABLE>

    The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the public offering price on the
cover page of this prospectus and to some dealers at that price less a
concession of not in excess of $    per share, of which $    may be reallowed
to other dealers. After this offering, the public offering price, concession
and reallowance to dealers may be reduced by the representatives. This
reduction will not change the amount of proceeds to be received by us as stated
on the cover page of this prospectus. The common stock is offered by the
underwriters as stated herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part.

    Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to     additional shares of common stock at the same price per
share as we will receive for the     shares that the underwriters have agreed
to purchase. To the extent that the underwriters exercise this option, each of
the underwriters will have a firm commitment to purchase approximately the same
percentage of the additional shares that the number of shares of common stock
to be purchased by it shown in the above table represents as a percentage of
the     shares offered in this offering. If purchased, these additional shares
will be sold by the underwriters on the same terms as those on which the
shares are being sold. We will be obligated, pursuant to the option, to sell
shares to the extent the option is exercised. The underwriters may exercise
this option only to cover over-allotments made in connection with the sale of
the shares of common stock offered hereby. If this option is exercised in full,
the total price to the public, underwriting discounts and commissions and
proceeds to us will be $   , $    and $   , respectively. The underwriting
discount and commission per share is equal to the public offering price per
share of common stock less the amount paid by the underwriters to us per share
of common stock.

    NaviSite estimates total expenses payable by us in connection with this
offering, other than the underwriting discounts and commissions referred to
above, will be approximately $   .

    Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and us against various civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.

    Lock-Up Agreements. Each executive officer and director and all of our
stockholders have agreed, during the period of 180 days after the date of this
prospectus, subject to various exceptions, not to offer to sell, contract to
sell, or otherwise sell, dispose of, loan, pledge or grant any rights with
respect to any shares of common stock or any options or warrants to purchase
any shares of common stock, or any securities convertible into or exchangeable
for shares of common stock owned as of the date of this prospectus or
thereafter acquired directly by these holders or with respect to which they
have the power of disposition, without the prior written consent of BancBoston
Robertson Stephens Inc. However, BancBoston Robertson Stephens Inc. may, in its
sole discretion and at any time or from time to time, without notice, release
all or any portion of securities subject to the lock-up agreements. There are
no existing agreements between the representatives and any of our stockholders
who have executed a lock-up agreement providing consent to the sale of shares
prior to the expiration of the lock-up period.

                                       63
<PAGE>

    In addition, we have agreed that during the lock-up period we will not,
without the prior written consent of BancBoston Robertson Stephens Inc.,
subject to various exceptions,

  .   consent to the disposition of any shares held by stockholders subject
      to lock-up agreements prior to the expiration of the lock-up period: or

  .   issue, sell, contract to sell, or otherwise dispose of, any shares of
      common stock, any options to purchase any shares of common stock or any
      securities convertible into, exercisable for or exchangeable for shares
      of common stock other than our sale of shares in this offering, the
      issuance of our common stock upon the exercise of outstanding options,
      and the issuance of options under existing stock option and incentive
      plans provided the options do not vest prior to the expiration of the
      lock-up period. Please refer to the information in this prospectus
      under the heading "Shares Eligible for Future Sale."

    The underwriters have advised us that they do not intend to confirm sales
to any accounts over which they exercise discretionary authority.

    Public Offering Price. Prior to this offering, there has been no public
market for the common stock. Consequently, the public offering price for the
common stock offered by this prospectus will be determined through negotiations
among the representatives and us. Among the factors to be considered in such
negotiations, the primary factors are prevailing market conditions, some of our
financial information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.

    Directed Share Program. The underwriters have reserved an aggregate of
shares of common stock to be issued by us and offered for sale in this offering
for purchase from the underwriters through a directed share program by
officers, directors, employees and other business associates of NaviSite. The
underwriters have reserved an aggregate of     shares of common stock to be
issued by us and offered for sale in this offering for purchase from the
underwriters through a directed share program by United States stockholders of
CMGI who hold more than 100 shares of CMGI stock as of     , 1999 and who have
access to the Internet and a personal e-mail address. These sales will be at
the initial public offering price. We cannot assure you that any of the
reserved shares will be so purchased. The number of these shares of common
stock available for sale to the general public in this offering will be reduced
by the number of reserved shares sold. Any reserved shares not purchased will
be offered to the general public on the same basis as the other shares offered
in this offering.

    Participation Rights. NaviSite has agreed to use all commercially
reasonable efforts to require that the underwriters offer Dell and Microsoft up
to  % of the shares of the common stock to be sold in this offering, assuming
the conversion of our preferred stock held by them into common stock in
connection with this offering.

    Listing. Application has been made to have the shares of common stock
approved for quotation on the Nasdaq National Market under the symbol "NAVI."

    Stabilization. The representatives have advised us that, pursuant to
Regulation M under the Securities Act, some persons participating in this
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of the common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of shares of common stock on
behalf of the underwriters for the purpose of fixing or maintaining the price
of the common stock. A "syndicate covering transaction" is the bid for or the
purchase of common stock on behalf of the underwriters to reduce a short
position incurred by the underwriters in connection with this offering. A
"penalty bid" is an arrangement permitting the representatives to reclaim the
selling concession otherwise accruing to an underwriter or syndicate member in
connection with this offering if the common stock originally sold by such
underwriter or syndicate member is

                                       64
<PAGE>

purchased by the representatives in a syndicate covering transaction and has
therefore not been effectively placed by such underwriter or syndicate member.
The Representatives have advised us that these transactions may be effected on
the Nasdaq National Market or otherwise and, if commenced, may be discontinued
at any time.

                                 LEGAL MATTERS

    The validity of the common stock offered by this prospectus will be passed
upon for us by Skadden, Arps, Slate, Meagher & Flom LLP, Boston, Massachusetts.
Various legal matters in connection with this offering will be passed upon for
the underwriters by Hale and Dorr LLP, Boston, Massachusetts.

                                    EXPERTS

    The consolidated financial statements of the Company as of July 31, 1997
and 1998, and for the period from July 1, 1996 through July 31, 1996, and for
the years ended July 31, 1997 and 1998, have been included in this prospectus
and in the registration statement, of which this prospectus is a part, in
reliance on the reports of KPMG LLP, independent auditors, appearing elsewhere
herein, and upon the authority of said firm as experts in auditing and
accounting.

    The financial statements of Servercast Communications, L.L.C., as of
December 31, 1997 and June 30, 1998, and for the year ended December 31, 1997
and for the six months ended June 30, 1998, have been included in this
prospectus and in the registration statement, of which this prospectus is a
part, in reliance on the report of KPMG LLP, independent auditors, appearing
elsewhere herein, and upon the authority of said firm as experts in auditing
and accounting.

                   WHERE YOU CAN FIND ADDITIONAL INFORMATION

    We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered by this prospectus. This prospectus, which is part of the
registration statement, does not contain all of the information set forth in
the registration statement or the exhibits and schedules which are part of the
registration statement; certain parts of the registration statement are omitted
in accordance with the rules and regulations of the Securities and Exchange
Commission. For further information about us and the shares of our common stock
to be sold in this offering, please refer to the registration statement and the
exhibits and schedules which are part of the registration statement. Statements
in this prospectus regarding the contents of any contract or any other document
to which we refer are not necessarily complete, and in each instance where a
copy of the contract or other document has been filed as an exhibit to the
registration statement, we refer to the copy so filed. Each statement in this
prospectus regarding the contents of the referenced contract or other document
is qualified in all respects by our reference to the filed copy.

    You may read and copy any contract, agreement or other document referred to
in this prospectus and any portion of our registration statement or any other
information from our Securities and Exchange Commission filings at the
Securities and Exchange Commission's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. You can request copies of these documents, upon
payment of a duplicating fee, by writing to the Securities and Exchange
Commission. Please call the Securities and Exchange Commission at 1-800-SEC-
0330 for further information about the public reference rooms. Our Securities
and Exchange Commission filings, including our registration statement, are also
available to you on the Securities and Exchange Commission's Web site
(http://www.sec.gov). As a result of this offering, we will become subject to
the information and reporting requirements of the Securities Exchange Act of
1934, as amended, and will file periodic reports, proxy statements and other
information with the Securities and Exchange Commission.

    We intend to furnish our stockholders with annual reports containing
audited financial statements and make available to our stockholders quarterly
reports for the first three quarters of each fiscal year containing unaudited
interim financial information.

                                       65
<PAGE>

                                 NAVISITE, INC.

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
NaviSite, Inc.

<S>                                                                         <C>
Independent Auditors' Report..............................................   F-2
Consolidated Balance Sheets as of July 31, 1997 and 1998, and April 30,
  1999 (unaudited)........................................................   F-3
Consolidated Statements of Operations for the period from July 1, 1996
  through July 31, 1996, the years ended July 31, 1997, 1998, and for the
  nine months ended April 30, 1998 and 1999 (unaudited)...................   F-4
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for
  the period from July 1, 1996 through July 31, 1996, the years ended July
  31, 1997, 1998, and for the nine months ended April 30, 1999
  (unaudited).............................................................   F-5
Consolidated Statements of Cash Flows for the period from July 1, 1996
  through July 31, 1996, the years ended July 31, 1997, 1998, and for the
  nine months ended April 30, 1998 and 1999 (unaudited)...................   F-6
Notes to Consolidated Financial Statements................................   F-7
Servercast Communications, L.L.C.
Independent Auditors' Report..............................................  F-21
Balance Sheets as of December 31, 1997 and June 30, 1998..................  F-22
Statements of Operations for the years ended December 31, 1997 and for the
  six months ended June 30, 1998..........................................  F-23
Statements of Members' Equity (Deficit) for the year ended December 31,
  1997 and the six months ended June 30, 1998.............................  F-24
Statements of Cash Flows for the year ended December 31, 1997 and for the
  six months ended June 30, 1998..........................................  F-25
Notes to Financial Statements.............................................  F-26
Unaudited Pro forma Combined Financial Data for NaviSite, Inc. and
  Servercast Communications, L.L.C.
Unaudited Pro forma Condensed Consolidated Statement of Operations for the
  year ended July 31, 1998................................................  F-29
Notes To Pro Forma Condensed Consolidated Statement of Operations.........  F-29
</TABLE>

                                      F-1
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
NaviSite, Inc.:

    We have audited the accompanying consolidated balance sheets of NaviSite,
Inc. as of July 31, 1997 and 1998, and the related consolidated statements of
operations, changes in stockholders' equity (deficit), and cash flows for the
period from July 1, 1996 through July 31, 1996 and each of the years in the
two-year period ended July 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NaviSite, Inc. as of July
31, 1997 and 1998, and the results of its operations and its cash flows for the
period from July 1, 1996 through July 31, 1996 and for each of the years in the
two-year period ended July 31, 1998, in conformity with generally accepted
accounting principles.

KPMG LLP

/s/ KPMG LLP

May 28, 1999, except as
to note 12(d) which
is as of June 3, 1999
Boston, Massachusetts

                                      F-2
<PAGE>

                                 NAVISITE, INC.

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                             July 31,        April    Pro Forma
                                          ----------------    30,     April 30,
                                           1997     1998      1999      1999
                                          ------  --------  --------  ---------
                                                               (unaudited)
                                           (In thousands, except par value)
<S>                                       <C>     <C>       <C>       <C>
                 ASSETS
Current assets:
  Accounts receivable, less allowance
    for doubtful accounts of $0, $7 and
    $100 at July 31, 1997 and 1998 and
    April 30, 1999, respectively........  $  245  $    489  $  1,335
  Prepaid expenses......................      94       444     1,504
                                          ------  --------  --------
Total current assets....................     339       933     2,839
                                          ------  --------  --------
Property and equipment, net.............   1,557     3,392     6,318
Deposits................................     114       157       284
Goodwill, net of accumulated
  amortization of $17 and $169 at
  July 31, 1998 and April 30, 1999,
  respectively..........................      --       997       845
                                          ------  --------  --------
Total assets............................  $2,010  $  5,479  $ 10,286
                                          ======  ========  ========
  LIABILITIES AND STOCKHOLDERS' EQUITY
                (DEFICIT)
Current liabilities:
  Debt to CMGI..........................  $2,273  $ 11,439  $ 10,761
  Accounts payable......................     544       728     2,656
  Accrued expenses......................      88     1,410     2,844
  Capital lease obligations, current
    portion.............................      --        61       143
  Software license payable, current
    portion ............................      --       817       703
  Notes payable, current portion........      --        --     1,000
                                          ------  --------  --------
Total current liabilities...............   2,905    14,455    18,107
                                          ------  --------  --------
Capital lease obligations, less current
  portion...............................      --        90       170
Software license payable, less current
  portion...............................      --        --     1,824
Notes payable, less current portion.....      --     1,000        --
                                          ------  --------  --------
Total liabilities.......................   2,905    15,545    20,101
                                          ------  --------  --------
Commitments and contingencies
Stockholders' equity (deficit):
  Series A Preferred Stock, $.01 par
    value, 1,324 shares authorized;
    1,324 and 0 shares issued and
    outstanding at April 30, 1999 and
    April 30, 1999 (pro forma),
    respectively (liquidating preference
    of $16,135).........................      --        --        13        --
  Common Stock, $.01 par value, 30,000
    shares authorized; 8,000, 8,051, 69
    and 18,212 shares issued and
    outstanding at July 31, 1997 and
    1998, April 30, 1999, and April 30,
    1999 (pro forma), respectively......      80        81         1       182
  Additional paid-in capital............      --        --    15,754    26,347
  Accumulated deficit...................    (975)  (10,147)  (25,583)  (25,583)
                                          ------  --------  --------  --------
Total stockholders' equity (deficit)....    (895)  (10,066)   (9,815) $    946
                                          ------  --------  --------  ========
Total liabilities and stockholders'
  equity (deficit)......................  $2,010  $  5,479  $ 10,286
                                          ======  ========  ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>

                                 NAVISITE, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                         Period from
                         July 1, 1996                        Nine months ended
                           through    Year ended July 31,        April 30,
                           July 31,   ---------------------  -------------------
                             1996       1997        1998       1998      1999
                         ------------ ---------  ----------  --------  ---------
                                                                (unaudited)
                                (In thousands, except per share data)
<S>                      <C>          <C>        <C>         <C>       <C>
Revenue:
  Revenue...............     $ --     $      --  $      158  $     39  $   2,052
  Revenue, related
    parties.............       --         3,361       3,871     2,797      4,765
                             ----     ---------  ----------  --------  ---------
     Total revenue......       --         3,361       4,029     2,836      6,817
Cost of revenue.........        6         3,494       8,876     6,423     13,294
                             ----     ---------  ----------  --------  ---------
  Gross profit (loss)...       (6)         (133)     (4,847)   (3,587)    (6,477)
                             ----     ---------  ----------  --------  ---------
Operating expenses:
  Selling and
    marketing...........       --           347       2,530     1,424      4,052
  General and
    administrative......       21           467       1,412       927      2,271
  Product development...       --            --         287       114      2,270
                             ----     ---------  ----------  --------  ---------
     Total operating
       expenses.........       21           814       4,229     2,465      8,593
                             ----     ---------  ----------  --------  ---------
Loss from operations....      (27)         (947)     (9,076)   (6,052)   (15,070)
Other income (expense):
  Interest expense,
    net.................       --            (1)        (85)      (28)      (330)
  Other expense, net....       --            --         (11)       --        (36)
                             ----     ---------  ----------  --------  ---------
Net loss................     $(27)    $    (948) $   (9,172) $ (6,080) $ (15,436)
                             ====     =========  ==========  ========  =========
Unaudited pro forma
  basic and diluted net
  loss per share........                         $    (1.02)           $   (1.01)
                                                 ==========            =========
Pro forma weighted
  average number of
  basic and diluted
  shares outstanding....                              9,027               15,248
                                                 ==========            =========
</TABLE>


          See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>

                                 NAVISITE, INC.

      CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                             Series A
                          Preferred Stock     Common Stock   Additional
                          -----------------  ---------------  Paid-In   Accumulated  Stockholders'
                          Shares    Amount   Shares   Amount  Capital     Deficit   Equity (Deficit)
                          --------  -------  -------  ------ ---------- ----------- ----------------
                                                      (In thousands)
<S>                       <C>       <C>      <C>      <C>    <C>        <C>         <C>
Inception, July 1,
  1996..................        --   $    --      --   $ --   $    --    $     --       $     --
  Net loss..............        --        --      --     --        --         (27)           (27)
                          --------   ------- -------   ----   -------    --------       --------
Balance at July 31,
  1996..................        --        --      --     --        --         (27)           (27)
  Issuance of common
    stock...............        --        --   8,000     80        --          --             80
  Net loss..............        --        --      --     --        --        (948)          (948)
                          --------   ------- -------   ----   -------    --------       --------
Balance at July 31,
  1997..................        --        --   8,000     80        --        (975)          (895)
  Exercise of stock
    options.............        --        --      51      1        --          --              1
  Net loss..............        --        --      --     --        --      (9,172)        (9,172)
                          --------   ------- -------   ----   -------    --------       --------
Balance at July 31,
  1998..................        --        --   8,051     81        --     (10,147)       (10,066)
  Reorganization
    (unaudited).........     1,324        13  (8,000)   (80)   15,754          --         15,687
  Exercise of stock
    options
    (unaudited).........        --        --      18     --        --          --             --
  Net loss (unaudited)..        --        --      --     --        --     (15,436)       (15,436)
                          --------   ------- -------   ----   -------    --------       --------
Balance at April 30,
  1999 (unaudited)......     1,324   $    13      69   $  1   $15,754    $(25,583)      $ (9,815)
                          ========   ======= =======   ====   =======    ========       ========
</TABLE>


          See accompanying notes to consolidated financial statements

                                      F-5
<PAGE>

                                 NAVISITE, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                        Period from
                        July 1, 1996                         Nine months ended
                          through    Years ended July 31,        April 30,
                          July 31,   ----------------------  -------------------
                            1996        1997        1998       1998      1999
                        ------------ ----------  ----------  --------  ---------
                                                                (unaudited)
                                           (In thousands)
<S>                     <C>          <C>         <C>         <C>       <C>        <C> <C>
Cash flows from
  operating
  activities:
 Net loss.............     $ (27)    $     (948) $   (9,172) $ (6,080) $ (15,436)
 Adjustments to
   reconcile net loss
   to net cash used
   for operating
   activities:
  Depreciation and
    amortization......         7            126         574       350      1,328
  Loss on disposal of
    assets............        --             --          11        --         39
  Provision for bad
    debts.............        --             --           7        --         93
  Changes in operating
    assets and
    liabilities, net
    of impact of
    acquisition:
   Accounts
     receivable.......        --           (245)       (154)      (85)      (939)
   Prepaid expenses...        --            (94)       (334)     (221)      (137)
   Deposits...........        --           (114)        (43)      (41)      (127)
   Accounts payable...        --            544         (17)     (146)     1,928
   Accrued expenses...         1             87       1,271     1,395      1,434
                           -----     ----------  ----------  --------  ---------
     Net cash used for
       operating
       activities.....       (19)          (644)     (7,857)   (4,828)   (11,817)
                           -----     ----------  ----------  --------  ---------
Cash flows from
  investing
  activities:
 Purchases of property
   and equipment......      (137)        (1,553)     (1,181)     (901)    (2,364)
 Acquisition of
   business...........        --             --         (45)       --         --
                           -----     ----------  ----------  --------  ---------
     Net cash used for
       investing
       activities.....      (137)        (1,553)     (1,226)     (901)    (2,364)
                           -----     ----------  ----------  --------  ---------
Cash flows from
  financing
  activities:
 Proceeds from
   increase in debt to
   CMGI, net..........       156          2,197       9,166     5,746     15,009
 Proceeds from
   exercise of
   option.............        --             --           1         1         --
 Payments of capital
   lease obligations..        --             --         (46)      (18)       (76)
 Payments for software
   licenses ..........        --             --         (38)       --       (752)
                           -----     ----------  ----------  --------  ---------
     Net cash provided
       by financing
       activities.....       156          2,197       9,083     5,729     14,181
                           -----     ----------  ----------  --------  ---------
Net change in cash....        --             --          --        --         --
Cash, beginning of
  period..............        --             --          --        --         --
                           -----     ----------  ----------  --------  ---------
Cash, end of period...     $  --     $       --  $       --  $     --  $      --
                           =====     ==========  ==========  ========  =========
Supplemental
  disclosure of cash
  flow information:
Cash paid during the
  period for:
Interest..............     $  --     $       --  $       15  $      7  $      43
                           =====     ==========  ==========  ========  =========
</TABLE>

          See accompanying notes to consolidated financial statements

                                      F-6
<PAGE>

                                 NAVISITE, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  All Information Included in these Footnotes as of April 30, 1999 and for the
             Nine Months Ended April 30, 1998 and 1999 is Unaudited
(1) Description of Business

    NaviSite, Inc. (the "Company") is a leading provider of business critical
Internet outsourcing solutions, specializing in high-end web hosting and
application services for companies conducting business on the Internet.
Substantially all revenues are generated from customers in the United States.

(2) Summary of Significant Accounting Policies

 (a) Basis of Presentation

    The Company is a majority owned subsidiary of CMGI, Inc. ("CMGI" or
"Parent"). The Company commenced operations in July 1996 and was incorporated
on February 3, 1997 as CMG Information Technology, Inc. (subsequently renamed
NaviSite Internet Services Corporation). On December 28, 1998, the assets and
liabilities of the Company were contributed to a newly-formed subsidiary,
NaviSite, Inc. The assets and liabilities were recorded at historical amounts
as the entities were under common control. The accompanying consolidated
financial statements, which have been prepared as if the Company had operated
as a separate stand-alone entity for all periods presented, include only
revenue and expenses attributable to the Company since it commenced operations
in July 1996.

    The consolidated financial statements include certain allocations from CMGI
for certain general and administrative expenses such as rent, legal services,
insurance, and employee benefits. Allocations are based primarily on headcount.
Management believes that the method used to allocate the costs and expenses is
reasonable; however, such allocated amounts may or may not necessarily be
indicative of what actual expenses would have been incurred had the Company
operated independently of CMGI.

 (b) Principles of Consolidation

    The accompanying financial statements include the accounts of the Company
and its wholly owned subsidiary, Servercast Communications, L.L.C.
("Servercast") after elimination of all significant intercompany balances and
transactions.

 (c) Use of Estimates

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.

 (d) Revenue Recognition

    Revenue consists of monthly fees for server hosting, systems
administration, application rentals and web site management services. Revenue
(other than installation fees) is generally billed and recognized over the term
of the contract, based on actual usage, generally one year. Installation fees
are typically recognized at the time that installation occurs. Payments
received in advance of providing services are deferred until the period such
services are provided.

                                      F-7
<PAGE>

                                 NAVISITE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  All Information Included in these Footnotes as of April 30, 1999 and for the
             Nine Months Ended April 30, 1998 and 1999 is Unaudited


 (e) Cash

    Under an arrangement with CMGI, the Company maintains a zero balance cash
account. Cash required by the Company for the funding of its operations is
provided as needed with a corresponding increase to the "Debt to CMGI" account.
Customer receipts and other cash receipts of the Company are remitted to CMGI
upon receipt by the Company and serve to reduce the "Debt to CMGI" account.

    During fiscal 1998 non-cash investing activities included the acquisition
of Servercast (see note 4) in exchange for term notes totaling $1,000,000.

    During the nine months ended April 30, 1999, non-cash financing activities
included the issuance of 1,323,953 shares of the Company's Series A Convertible
Preferred Stock in exchange for 8,000,000 shares of the Company's common stock
and $15,767,600 reduction in debt to CMGI (see note 7).

    During the nine months ended April 30, 1999, non-cash financing activities
included a software licensing arrangement including services and maintenance,
for an aggregate of $2.5 million, payable over a three year period.

    During fiscal 1998 and the nine months ended April 30, 1999, the Company
purchased $197,000 and $238,000 of equipment under capital lease obligations,
respectively.

 (f) Property and Equipment

    Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Leasehold improvements and assets acquired under capital leases are amortized
using the straight-line method over the shorter of the lease term or estimated
useful life of the asset. Expenditures for maintenance and repairs are charged
to expense as incurred.

 (g) Goodwill

    Goodwill relates to the Company's purchase of it's wholly-owned subsidiary,
Servercast, in July 1998 (see note 4). Such costs are being amortized on a
straight-line basis over five years, the period expected to be benefited.

 (h) Accounting for Impairment of Long-Lived Assets

    The Company assesses the need to record impairment losses on long-lived
assets used in operations when indicators of impairment are present. On an on-
going basis, management reviews the value and period of amortization or
depreciation of long-lived assets, including goodwill. During this review, the
significant assumptions used in determining the original cost of long-lived
assets are reevaluated. Although the assumptions may vary from transaction to
transaction, they generally include revenue growth, operating results, cash
flows and other indicators of value. Management then determines whether there
has been a permanent impairment of the value of long-lived assets by comparing
future undiscounted cash flows to the asset's carrying value. If the estimated
future undiscounted cash flows exceed the carrying value of the asset, a loss
is recorded as the excess of the asset's carrying value over fair value.

                                      F-8
<PAGE>

                                 NAVISITE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  All Information Included in these Footnotes as of April 30, 1999 and for the
             Nine Months Ended April 30, 1998 and 1999 is Unaudited


 (i) Income Taxes

    The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. The Company is currently greater than 80% owned by CMGI, and as
such, CMGI realizes the full benefit of all federal and part of the state net
operating losses that have been incurred by the Company. Therefore, such net
operating losses incurred by the Company will have no future benefit to the
Company. The tax sharing agreement between the Company and CMGI requires the
Company to reimburse CMGI for the amounts it contributes to the consolidated
tax liability of the CMGI group; however, under the policy, CMGI is not
obligated to reimburse the Company for any losses utilized in the consolidated
CMGI group.

 (j) Advertising Costs

    The Company recognizes advertising costs as incurred. The Company did not
incur any advertising costs during the period from July 1, 1996 through July
31, 1996 or during the fiscal year ended July 31, 1997. Advertising expense was
approximately $266,000 for the fiscal year ended July 31, 1998.

 (k) Stock-Based Compensation Plans

    The Company has adopted SFAS No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"). As permitted by SFAS 123, the Company measures
compensation cost in accordance with in Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB No. 25"), and related
interpretations. Accordingly, no accounting recognition is given to stock
options granted at fair market value until they are exercised. Upon exercise,
net proceeds, including income tax benefits realized, are credited to equity.
Therefore, the adoption of SFAS 123 was not material to the Company's financial
condition or results of operations; however, the pro forma impact on earnings
has been disclosed in the notes to the Consolidated Financial Statements as
required by SFAS 123 (see note 8).

 (l) Unaudited Pro Forma Basic and Diluted Net Loss per Share

    Unaudited pro forma basic earnings (loss) per share is based upon the
weighted average number of common shares outstanding during the period.
Unaudited pro forma diluted earnings (loss) per share is based upon the
weighted average number of common shares outstanding during the period plus
additional weighted average common equivalent shares outstanding during the
period, computed using the "if-converted method". Common equivalent shares have
been excluded from the computation of diluted loss per share in each period, as
their effect would have been anti-dilutive in each period presented.

    As described in note 7, conversion of all preferred stock and amounts due
to CMGI will occur upon the completion of a qualified public offering of the
Company's common stock. The unaudited pro forma basic and diluted net loss per
share information included in the accompanying consolidated statements of
operations for the fiscal year ended July 31, 1998 and for the nine months
ended April 30, 1999 reflects the impact on unaudited pro forma basic and
diluted net loss per share of such conversion as of the beginning of each
period or date of issuance, if later, using the if-converted method.

                                      F-9
<PAGE>

                                 NAVISITE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  All Information Included in these Footnotes as of April 30, 1999 and for the
             Nine Months Ended April 30, 1998 and 1999 is Unaudited


    Historical basic and diluted net loss per share has not been presented
because they are irrelevant due to the significant change in the Company's
capital structure and resultant basic and diluted loss per share that will
result upon conversion of the convertible preferred stock and Debt to CMGI.

    The reconciliation of the numerators and denominators of the unaudited pro
forma basic and diluted net loss per share computation for the Company's
reported net loss is as follows:

<TABLE>
<CAPTION>
                                               Year ended   Nine months ended
                                              July 31, 1998  April 30, 1999
                                              ------------- -----------------
                                              (In thousands, except per share
                                                           data)
   <S>                                        <C>           <C>
   Numerator:

   Net loss.................................     $(9,172)       $(15,436)
                                                 -------        --------
   Denominator:
     Common shares outstanding..............       8,016           4,450
     Assumed conversion of preferred stock
       and debt to CMGI.....................       1,011          10,798
                                                 -------        --------
        Weighted average number of pro forma
          basic and diluted shares
          outstanding.......................       9,027          15,248
                                                 =======        ========
   Pro forma basic and diluted net loss per
     share..................................     $ (1.02)       $  (1.01)
                                                 =======        ========
</TABLE>

 (m) New Accounting Pronouncements

    In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 131 establishes standards for the way that public business
enterprises report selected information about operating segments in annual and
interim financial statements. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS 131 requires the use of the "management approach" in disclosing segment
information, based largely on how senior management generally analyzes the
business operations. SFAS 131 is effective for the Company beginning in fiscal
1999. The Company is in the process of determining the impact of these
standards, if any, on its consolidated financial statements and related
disclosures.

    In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AcSEC") issued Statement of
Position 98-1, "Accounting for the Cost of Computer Software Developed or
Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires the capitalization
of certain internal costs related to the implementation of computer software
obtained for internal use. The Company is required to adopt this standard in
the first quarter of fiscal year 2000, and expects that the adoption of SOP 98-
1 will not have a material impact on its financial position or its results of
operations.

    In April 1998, the AcSEC issued Statement of Position 98-5, "Reporting
Costs of Start-Up Activities" ("SOP 98-5"). Under SOP 98-5, the cost of start-
up activities should be expensed as incurred. Start-up activities are broadly
defined as those one-time activities related to opening a new facility,
introducing a new product or service, conducting business in a new territory,
conducting business with a new class of customer, commencing some new operation
or organizing a new entity. SOP 98-5 is effective for the Company's fiscal 2000
consolidated financial statements. The Company does not expect its adoption to
have a material impact on its financial position or results of operations.

                                      F-10
<PAGE>

                                 NAVISITE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  All Information Included in these Footnotes as of April 30, 1999 and for the
             Nine Months Ended April 30, 1998 and 1999 is Unaudited


    In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities.
SFAS 133 requires the recognition of all derivatives as either assets or
liabilities in the statement of financial position and the measurement of those
instruments at fair value. The Company is required to adopt this standard in
the first quarter of fiscal year 2000, and expects that the adoption of SFAS
133 will not have a material impact on the its financial position or its
results of operations. On May 20, 1999, a proposed Statement of Financial
Accounting Standards ("SFAS") was issued for public comment in which the FASB
proposal, if approved, will delay this standard until the first quarter of
fiscal year 2001.

 (n) Unaudited Interim Financial Information

    The consolidated financial statements as of April 30, 1999 and for the nine
months ended April 30, 1998 and 1999 are unaudited; however, in the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the financial statements for the interim
periods have been included. Results of operations for the interim periods
presented are not necessarily indicative of the results that may be expected
for the full fiscal year or any other future period.

(3) Property and Equipment

<TABLE>
<CAPTION>
                                                                 July 31,
                                            Estimated          --------------
                                           Useful Life          1997    1998
                                    -------------------------- ------  ------
                                                                    (In
                                                                thousands)
<S>                                 <C>                        <C>     <C>
Office furniture and equipment.....          5 years           $   50  $  232
Computer equipment.................          3 years              717   1,197
Software licenses.................. 3 years or life-of-license    192   1,390
Leasehold improvements.............  4 years or life-of-lease     731   1,256
                                                               ------  ------
                                                                1,690   4,075
Less: Accumulated depreciation and
  amortization.....................                              (133)   (683)
                                                               ------  ------
                                                               $1,557  $3,392
                                                               ======  ======
</TABLE>

    The cost and related accumulated amortization of property and equipment
held under capital leases is as follows:

<TABLE>
<CAPTION>
                                                                     July 31,
                                                                    -----------
                                                                    1997  1998
                                                                    ----- -----
                                                                        (In
                                                                    thousands)
   <S>                                                              <C>   <C>
   Cost............................................................ $ --  $ 197
   Accumulated amortization........................................   --     60
                                                                    ----  -----
   Net book value.................................................. $ --  $ 137
                                                                    ====  =====
</TABLE>

(4) Acquisition of Servercast Communications, L.L.C.

    In July 1998, the Company acquired Servercast Communications, L.L.C.
("Servercast"), a provider of high-performance Internet outsourcing solutions.
The Company issued $1,000,000 in term notes with principal

                                      F-11
<PAGE>

                                 NAVISITE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  All Information Included in these Footnotes as of April 30, 1999 and for the
             Nine Months Ended April 30, 1998 and 1999 is Unaudited

payable on January 2, 2000. CMGI has guaranteed the payment of these term
notes. Interest accrues at the rate of 5.5% and is payable in three equal
installments on January 2, 1999, July 2, 1999, and January 2, 2000. The total
purchase price for Servercast was valued at $1,045,000, including acquisition
costs of $20,000, and bridge notes receivable of $25,000.

    Total purchase price was allocated as follows:

<TABLE>
<CAPTION>
                                           (In thousands)
                                           --------------
            <S>                            <C>
            Working capital deficit ......     $ (140)
            Property and equipment........        171
            Goodwill......................      1,014
                                               ------
            Purchase price................     $1,045
                                               ======
</TABLE>
    The acquisition has been accounted for using the purchase method, and,
accordingly, the purchase price has been allocated to the assets purchased and
liabilities assumed based upon their fair values at the dates of acquisition.
The results of operations of Servercast have been included in the Company's
consolidated financial statements from July 1, 1998.

    The portion of the purchase price allocated to goodwill is being amortized
on a straight-line basis over five years. Amortization of goodwill resulting
from the acquisition of Servercast was approximately $17,000 for the one month
period in the fiscal year ended July 31, 1998 in which Servercast was owned by
the Company.

    The following table represents the unaudited pro forma results of
operations of the Company for the years ended July 31, 1997 and 1998, as if the
Servercast purchase had occurred at the beginning of the respective periods.
These pro forma results include adjustments for the amortization of goodwill
and increased interest expense on debt related to the acquisition. They have
been prepared for comparative purposes only and do not purport to be indicative
of what would have occurred had the acquisition been made at the beginning of
the respective periods or of results that may occur in the future.

<TABLE>
<CAPTION>
                             Year ended    Year ended
                            July 31, 1997 July 31, 1998
                            ------------- -------------
                                    (unaudited)
                                  (In thousands)
   <S>                      <C>           <C>
   Revenues................    $ 3,640       $ 4,390
                               =======       =======
   Net loss................     (1,437)       (9,704)
                               =======       =======
   Pro forma basic and
     diluted net loss per
     share.................    $ (0.18)      $ (1.07)
                               =======       =======
</TABLE>

(5) Commitments and Contingencies

  (a) Leases

    The Company has entered into noncancelable operating leases covering
certain of its office facilities and equipment which expire through 2002. In
addition, the Company pays CMGI for office facilities used as the Company's
headquarters for which it is charged based upon an allocation of the total
costs for the facilities at market rates. Substantially all leases for real
property have been guaranteed by CMGI.

    Total rent expense amounted to $1,722,000 and $3,567,000 for the years
ended July 31, 1997 and 1998, respectively.

    Additionally, the Company leases certain property and equipment under
capital lease obligations expiring through 2001.

                                      F-12
<PAGE>

                                 NAVISITE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  All Information Included in these Footnotes as of April 30, 1999 and for the
             Nine Months Ended April 30, 1998 and 1999 is Unaudited


    Minimum annual rental commitments are as follows as of July 31, 1998:
<TABLE>
<CAPTION>
                                                              Operating Capital
                                                               Leases   Leases
                                                              --------- -------
                                                               (In thousands)
   <S>                                                        <C>       <C>
   1999......................................................  $ 4,993   $ 72
   2000......................................................    4,081     86
   2001......................................................    1,977      6
   2002......................................................      561     --
                                                               -------   ----
                                                               $11,612    164
                                                               =======
   Less amounts representing interest........................              13
                                                                         ----
   Present value of future minimum lease payments............             151
   Less current installments of capital lease obligations....              61
                                                                         ----
   Long-term portion of capital lease obligations............            $ 90
                                                                         ====
</TABLE>

  (b) Litigation

    The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
consolidated financial position or results from operations of the Company.

(6) Income Taxes

    No provision for federal or state income taxes has been recorded as the
Company incurred net operating losses for all periods presented. At July 31,
1998, the Company had no significant federal net operating loss carryforwards
available to offset future taxable income as the Company's parent, CMGI, has
utilized substantially all of the Company's federal net operating losses
through July 31, 1998. The Company has recorded a full valuation allowance
against its deferred tax assets since management believes that, after
considering all the available objective evidence, both positive and negative,
historical and prospective, with greater weight given to historical evidence,
it is more likely than not that these assets will not be realized. No income
tax benefit has been recorded for all periods presented because of the
valuation allowance.

    Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities that give rise to significant portions of
federal deferred tax assets (liabilities) are comprised of the following:

<TABLE>
<CAPTION>
                                                                     July 31,
                                                                    -----------
                                                                    1997  1998
                                                                    ----  -----
                                                                       (In
                                                                    thousands)
   <S>                                                              <C>   <C>
   Deferred tax assets:
     Accruals and reserves........................................  $ 16  $ 247
     State net operating loss.....................................    77    111
     Depreciation and amortization ...............................    12     37
                                                                    ----  -----
   Total deferred tax assets......................................   105    395
   Less: Valuation allowance......................................   (64)  (395)
                                                                    ----  -----
   Net deferred tax assets........................................    41     --
                                                                    ----  -----
   Deferred tax liabilities:
     Other........................................................   (41)    --
                                                                    ----  -----
                                                                     (41)    --
                                                                    ----  -----
   Net deferred taxes ............................................  $ --  $  --
                                                                    ====  =====
</TABLE>


                                      F-13
<PAGE>

                                 NAVISITE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  All Information Included in these Footnotes as of April 30, 1999 and for the
             Nine Months Ended April 30, 1998 and 1999 is Unaudited

    The Company has net operating loss carryforwards for Massachusetts State
tax purposes of approximately $728,000 as of July 31, 1998. The net operating
loss carryforwards will expire from 2001 through 2003. In addition, the Company
has net operating loss carryforwards for California tax purposes of
approximately $475,000 as of July 31, 1998, which will expire from 2001 through
2003.

(7) Stockholders' Equity

    In October 1998, the Company's stockholders authorized 5,000,000 shares of
preferred stock of which 1,323,953 shares have been designated as Series A
convertible preferred stock ("Series A Preferred Stock"). The remaining shares
have not been designated. See note 12.

 (a) Series A Preferred Stock

    In December 1998, the Board of Directors authorized and issued 1,323,953
shares of Series A Preferred Stock in exchange for 8,000,000 shares of common
stock and $15,767,600 in principal amount of Debt to CMGI. The Series A
Preferred Stock is entitled to receive annual dividends at 7% commencing
November 1, 1998, as and if declared. No dividends have been declared or paid
by the Company. The Series A Convertible Preferred Stock is voting and is
convertible into 10 shares of common stock subject to certain adjustments. In
the event of any liquidation, dissolution or winding up of the Company, the
Series A Preferred Stock has a liquidation preference of $11.91 per share plus
dividends of 7% compounded annually beginning on November 1, 1998. The Series A
Preferred Stock is convertible into common stock immediately at the option of
the holder, and automatically converts into common stock upon the completion of
a qualifying initial public offering.

    At April 30, 1999, 13,239,530 shares of common stock have been reserved for
issuance upon the conversion of the Series A Preferred Stock.

 (b) Unaudited Pro Forma Balance Sheet

    Upon the closing of a qualifying initial public offering, amounts due to
CMGI will convert into Series B convertible preferred stock ("Series B
Preferred Stock"), and all the outstanding shares of Series A Preferred Stock
and Series B Preferred Stock will automatically convert to 18,143,000 shares of
the Company's common stock. This conversion has been reflected in the unaudited
pro forma balance sheet as of April 30, 1999. See also notes 10 and 12.

(8) Stock Option Plans

 (a) NaviSite 1998 Equity Incentive Plan

    In December 1998, the Company's Board of Directors and Stockholders
approved the 1998 Equity Incentive Plan, as amended as of April 20, 1999 (the
"1998 Plan"). The 1998 plan replaced the NaviSite Internet Services
Corporation's 1997 Equity Incentive Plan (the "1997 Plan"). All options
outstanding under the 1997 Plan were cancelled and replaced with an equivalent
amount of options issued in accordance with the 1998 Plan. Under the 1998 Plan,
non-qualified stock options or incentive stock options may be granted to the
Company's or its affiliates' employees, directors and consultants, as defined,
up to a maximum number of shares of common stock not to exceed 2,400,000
shares. The Board of Directors administers this plan, selects the individuals
to whom options will be granted, and determines the number of shares and
exercise price of each option. Options granted under

                                      F-14
<PAGE>

                                 NAVISITE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  All Information Included in these Footnotes as of April 30, 1999 and for the
             Nine Months Ended April 30, 1998 and 1999 is Unaudited

the 1998 Plan typically vest over a four year period, with 25% of options
granted becoming exercisable one year from the date of grant and the remaining
75% vesting monthly for the next thirty-six (36) months. The following table
reflects activity and historical exercise prices of stock options under the
Company's 1998 Plan for the two years ended July 31, 1998.

<TABLE>
<CAPTION>
                                               1997               1998
                                        ------------------ -------------------
                                                  Weighted            Weighted
                                                  Average             Average
                                        Number of Exercise Number of  Exercise
                                         Shares    Price    Shares     Price
                                        --------- -------- ---------  --------
<S>                                     <C>       <C>      <C>        <C>
Options outstanding, beginning of
  year.................................        --  $  --   1,073,000   $0.01
Granted................................ 1,073,000   0.01     842,500    0.45
Exercised..............................        --     --     (51,019)   0.01
Cancelled..............................        --     --    (318,731)   0.05
                                        ---------  -----   ---------   -----
Options outstanding, end of year....... 1,073,000  $0.01   1,545,750   $0.24
                                        =========  =====   =========   =====
Options exercisable, end of year.......    96,250  $0.01     297,083   $0.01
                                        =========  =====   =========   =====
Options available for grant, end of
  year.................................   927,000            454,250
                                        =========          =========
</TABLE>

    The following table summarizes information about the Company's stock
options outstanding at July 31, 1998:

<TABLE>
<CAPTION>
                      Options Outstanding              Options Exercisable
               -------------------------------------  -----------------------
                              Weighted
                               Average
                              Remaining    Weighted                 Weighted
  Range of                   Contractual   Average                  Average
  Exercise       Number         Life       Exercise     Number      Exercise
   Prices      Outstanding     (years)      Price     Outstanding    Price
  --------     -----------   -----------   --------   -----------   --------
<S>            <C>           <C>           <C>        <C>           <C>
$0.00--$0.25    1,215,250        3.9        $0.08       297,083      $0.01
$0.26--$0.93      330,500        4.8        $0.83            --         --
                ---------                               -------      -----
                1,545,750        4.1        $0.24       297,083      $0.01
                =========                               =======      =====
</TABLE>

 (b) Director Stock Option Plan

    In December 1998, the Company's Board of Directors and Stockholders
approved the 1998 Director Stock Option Plan (the "1998 Director Plan"). Under
the 1998 Director Plan, the NaviSite directors (who are not also employees of
NaviSite) any subsidiary of NaviSite or of CMGI, are entitled to receive, upon
the date of his or her election, a non-statutory option to purchase common
stock as defined, up to a maximum number of shares of common stock not to
exceed 125,000 shares. Each automatic grant will have an exercise price equal
to the current fair market value of the common stock at the time of grant and
will have a maximum term of ten years, subject to earlier termination following
the optionee's cessation of service on the board of directors. Each automatic
option grant shall vest and become exercisable with respect to 20% of the
options granted on the first anniversary of the date of the grant, and shall
become exercisable with respect to an additional 20% on the date of each annual
stockholders' meeting at which the option-holder is re-elected as director.

    No options were outstanding under the 1998 Director Plan as of July 31,
1998.

                                      F-15
<PAGE>

                                 NAVISITE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  All Information Included in these Footnotes as of April 30, 1999 and for the
             Nine Months Ended April 30, 1998 and 1999 is Unaudited


 (c) CMGI 1986 Stock Option Plan

    Certain NaviSite employees have been granted stock options under the CMGI
1986 Stock Option Plan (the "1986 Plan"). Options under the 1986 Plan are
granted at fair market value on the date of the grant and are generally
exercisable in equal cumulative installments over a four-to-ten year period
beginning one year after the date of grant. Outstanding options under the 1986
Plan expire through 2007. Under the 1986 Plan, non-qualified stock options or
incentive stock options may be granted to CMGI's or its subsidiaries'
employees, as defined. The Board of Directors of CMGI administers this plan,
selects the individuals to whom options will be granted, and determines the
number of shares and exercise price of each option. The following table
reflects activity and historical exercise prices of stock options granted to
Company employees under the 1986 Plan for all periods through July 31, 1998.

<TABLE>
<CAPTION>
                                 1996               1997               1998
                          ------------------ ------------------ ------------------
                                    Weighted           Weighted           Weighted
                                    Average            Average            Average
                           Number   Exercise  Number   Exercise  Number   Exercise
                          of Shares  Price   of Shares  Price   of Shares  Price
                          --------- -------- --------- -------- --------- --------
<S>                       <C>       <C>      <C>       <C>      <C>       <C>
Options outstanding,
  beginning of year.....   37,740    $0.19     36,080   $0.51     20,880   $1.41
Granted.................    8,000     1.61      8,000    1.95     80,000    2.32
Exercised...............   (9,360)    0.19    (23,200)   0.19    (12,040)   1.11
                           ------             -------            -------
Options outstanding, end
  of year...............   36,080    $0.51     20,880   $1.41     88,840   $2.27
                           ======             =======   =====    =======   =====
Options exercisable, end
  of year...............   14,430    $0.19      6,426   $0.97      1,670   $1.78
                           ======             =======   =====    =======   =====
</TABLE>

    The following table summarizes information about stock options under the
1986 Plan outstanding at July 31, 1998:

<TABLE>
<CAPTION>
                    Options Outstanding        Options Exercisable
              -------------------------------- --------------------
                           Weighted
                            Average
                           Remaining  Weighted             Weighted
   Range of               Contractual Average              Average
   Exercise     Number       Life     Exercise   Number    Exercise
   Prices     Outstanding   (years)    Price   Outstanding  Price
   --------   ----------- ----------- -------- ----------- --------
   <S>        <C>         <C>         <C>      <C>         <C>
   $1.61         3,336        2.2      $1.61        834     $1.61
   $1.95         5,504        3.3      $1.95        836      1.95
   $2.32        80,000        4.2      $2.32         --      2.32
                ------                            -----
                88,840        4.1      $2.27      1,670     $1.78
                ======                            =====
</TABLE>

    SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), sets
forth a fair-value based method of recognizing stock-based compensation
expense. As permitted by SFAS No. 123, the Company has elected to continue to
apply APB No. 25 to account for its stock-based compensation plans. Had
compensation cost for awards in fiscal 1997 and 1998 under the Company's stock-
based compensation plans been determined based on the fair value method set
forth under SFAS 123, the pro forma effect on the Company's net loss would have
been as follows:

<TABLE>
<CAPTION>
                                                 Year Ended       Year Ended
                                               July 31, 1997    July 31, 1998
                                               --------------  -----------------
                                                  As     Pro      As       Pro
                                               Reported Forma  Reported   Forma
                                               -------- -----  --------  -------
                                                       (In thousands)
   <S>                                         <C>      <C>    <C>       <C>
   Net loss...................................  $(948)  $(955) $(9,172)  $(9,261)
</TABLE>


                                      F-16
<PAGE>

                                 NAVISITE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  All Information Included in these Footnotes as of April 30, 1999 and for the
             Nine Months Ended April 30, 1998 and 1999 is Unaudited

    The fair value of each stock option grant has been estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions for fiscal 1997 and 1998, respectively: volatility of
59.00%, and 75.50%; risk-free interest rate of 6.19% and 5.48%; 4 year expected
life of options for all years; and 0% dividend yield for all years. The
weighted average fair value per share of options granted during fiscal 1997 and
1998 was $0.01 and $0.21, respectively.

    The fair value of each stock option granted under the 1986 Plan has been
estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions for fiscal 1996, 1997 and 1998,
respectively: volatility of 80.30%, 66.69% and 90.07%; risk-free interest rate
of 5.81%, 6.19% and 5.50%; expected life of options of 4.0, 6.2 and 4.2 years;
and 0% dividend yield for all years. The weighted average fair value per share
of options granted during fiscal 1996, 1997 and 1998 was $1.01, $1.30 and
$1.58, respectively.

(9) Comprehensive Income

    Effective July 1, 1996, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income." This
statement requires that all components of comprehensive income be reported in
the financial statements in the period in which they are recognized. For each
year reported, comprehensive loss under SFAS No. 130 was equivalent to the
Company's net loss reported in the accompanying consolidated statements of
operations.

(10) Related Party Transactions

    CMGI has provided the Company with accounting, systems and related services
("enterprise services") at amounts that approximated the fair value of services
received in each of the periods presented in these financial statements. The
Company also occupies facilities that are leased by CMGI, whereby CMGI charges
the Company for its share of rent and related facility costs through an
allocation based upon the company's headcount in relation to total headcount
for all CMGI companies located in the premises. The Company has also purchased
certain employee benefits (including 401(k) plan participation by employees of
the Company) and insurance (including property and casualty insurance) through
CMGI. Amounts due CMGI are included in "Debt to CMGI" on the consolidated
balance sheets. The following summarizes the expenses allocated to the Company
by CMGI for enterprise services, rent and facilities, and human resources:

<TABLE>
<CAPTION>
                                                                     Year Ended
                                                                      July 31,
                                                                     -----------
                                                                     1997  1998
                                                                     ----- -----
                                                                         (In
                                                                     thousands)
   <S>                                                               <C>   <C>
   Enterprise Services.............................................. $ 48  $ 157
   Rent and Facilities..............................................   --  $  15
   Human Resources..................................................   --  $  46
</TABLE>

    The Company sells its products and services to companies in which CMGI has
an investment interest or a significant ownership interest. The Company sold no
services to related parties during the period from July 1, 1996 through July
31, 1996. Total revenue realized from services to related parties were
$3,361,000 and $3,871,000 for the fiscal year ended July 31, 1997 and 1998,
respectively, and $2,797,000 and $4,765,000 for the nine months ended April 30,
1998 and 1999, respectively. The related cost of revenue is consistent with the
costs incurred on similar transactions with unrelated parties.

                                      F-17
<PAGE>

                                 NAVISITE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  All Information Included in these Footnotes as of April 30, 1999 and for the
             Nine Months Ended April 30, 1998 and 1999 is Unaudited


    The Company provides administrative services related to the leasing of
equipment on behalf of CMGI and related entities. These services include the
negotiation of lease terms and conditions and payment of lessors monthly lease
charges. Under this arrangement, total payments made by NaviSite to lessors
during the fiscal years ending July 31, 1997 and 1998 totaled $77,072 and
$462,167, respectively. CMGI or the related entity is then charged the actual
lease fees. Under this arrangement, CMGI bears all liability for payment, and
NaviSite is not financially obligated under the leases.

(11) Concentration of Credit Risk

    Amounts included in the consolidated balance sheets for accounts
receivable, debt to CMGI, accounts payable, accrued expenses and note payable
approximate their fair value due to their short maturities. Financial
instruments that potentially subject the Company to concentration of credit
risk consist primarily of trade receivables. The Company performs periodic
credit evaluations of its customers' financial condition and generally does not
require collateral or other security against trade receivable balances;
however, it does maintain an allowance for potential credit losses and such
losses have been within management's expectations.

    For the year ended July 31, 1997, all of the Company's revenue was earned
from related parties. Three of these related parties accounted for 46%, 28% and
14% of revenue earned during the year ended July 31, 1997. For the fiscal year
ended July 31, 1998, 96% ($3,871,000) of the Company's revenue was earned from
related parties. Three of these related parties accounted for 40%, 19% and 11%
of revenue earned for the fiscal year ended July 31, 1998. For the nine months
ended April 30, 1999, 70% ($4,765,000) of the Company's revenue was earned from
related parties. Two of these related parties accounted for 24% and 18% of
revenue earned during the nine months ended April 30, 1999.

    Accounts receivable at July 31, 1997 was comprised solely of balances due
from related parties, with one related party comprising 96%. Accounts
receivable at July 31, 1998 included 63% due from related parties, with two
related entities comprising 37% and 15%. At April 30, 1999, 28% of accounts
receivables were due from related entities with no related entity comprising
10% or more.

(12) Subsequent Events

 (a) Leases

    In May 1999 the Company agreed to lease an additional 150,000 square feet
in Andover, Massachusetts for a lease term of 12 years. Further, the Company
has agreed to make a cash payment to the developers of $5.7 million to fund
construction, maintain a letter of credit for $4.0 million as a construction
and lease security deposit and provide an additional $2.5 million in the form
of a letter of credit or secured deposit. In connection with this lease
arrangement, CMGI loaned the Company $8.15 million through a secured demand
note dated May 28, 1999 which was subsequently repaid from the proceeds of the
Series C and D preferred stock sales discussed in note 12(d).

    In May 1999 the Company agreed to lease a 66,000 square feet facility in
San Jose, California for a lease term of seven years. Further, the Company
agreed to make a lease deposit of $252,000 and provide a letter of credit for
$2.4 million lease security deposit to be reduced annually based on the
remaining term of the lease. CMGI has guaranteed both of these leases.

                                      F-18
<PAGE>

                                 NAVISITE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  All Information Included in these Footnotes as of April 30, 1999 and for the
             Nine Months Ended April 30, 1998 and 1999 is Unaudited


 (b) Debt to CMGI

    In May 1999, the Company formalized its borrowing arrangement with CMGI and
executed a secured convertible demand note with CMGI dated May 1, 1999.
Advances accrue interest at the annual rate of 7%, and advances and accrued
interest may be prepaid without penalty. Advances outstanding under this note
are secured by substantially all assets and intellectual property of the
Company, and principal and accrued interest may be converted at the option of
CMGI into shares of Series B Preferred Stock. The number of Series B Preferred
shares to be issued upon conversion of each borrowing represented by the note
is based on the estimated fair value of the Company at the end of the quarter
in which such borrowing is made.

    In accordance with this arrangement, in June 1999, CMGI elected to convert
advances and accrued interest outstanding at April 30, 1999 in the amount of
$10,761,000 into 490,332 shares of Series B Preferred Stock.

 (c) Designation of Convertible Redeemable Preferred Stock

    In May 1999, the Board of Directors approved the designation of 1,000,000
shares of the Company's preferred stock as Series B convertible redeemable
preferred stock ("Series B Preferred Stock"). The Series B Preferred Stock is
entitled to receive noncumulative annual dividends, payable when, as and if
declared at the rate of 7% per annum. In the event of liquidation, dissolution
or winding up of the Company, the Series B Preferred Stock ranks pari passu to
the Series A Preferred Stock, and has a liquidation preference equal to its
purchase price plus dividends computed at 7% per annum. The Series B Preferred
Stock is fully participating, voting and is convertible at the option of the
holder into ten shares of common stock at enterprise value, subject to certain
adjustments. Upon the closing of a qualifying initial public offering, all
outstanding shares of Series B Preferred Stock will convert into common stock.

    In May 1999, the Board of Directors approved the designation of 1,095,472
shares of the Company's preferred stock as Series C convertible redeemable
preferred stock ("Series C Preferred Stock"). The Series C Preferred Stock is
entitled to receive noncumulative annual dividends, payable when, as and if
declared at the rate of 7% per annum. In the event of liquidation, dissolution
or winding up of the Company, the Series C Preferred Stock ranks pari passu to
the Series A and B Preferred Stock, and has a liquidation preference equal to
its purchase price plus dividends computed at 7% per share per annum. The
Series C Preferred Stock is fully participating, voting and is convertible at
the option of the holder into shares of common stock at $7.40 per share,
subject to certain adjustments. Upon the closing of a qualifying initial public
offering, all outstanding shares of Series C Preferred Stock will convert into
common stock. Such shares are subject to certain demand registration rights. On
or after the fifth anniversary of the purchase date, and upon a written
majority of the holders of Series C Preferred Stock, the Company must redeem
all of the outstanding shares of Series C Preferred Stock at a price equal to
its purchase price plus dividends computed at 7% per annum. Holders of the
Series C Preferred Stock may participate in future issuances of equity
instruments, as defined.

    In May 1999, the Board of Directors approved the designation of 993,243
shares of the Company's preferred stock as Series D covertible redeemable
preferred stock ("Series D Preferred Stock"). The Series D Preferred Stock is
entitled to receive noncumulative annual dividends, payable when, as and if
declared at the rate of 7% per annum. In the event of liquidation, dissolution
or winding up of the Company, the Series D Preferred Stock ranks pari passu to
the Series A, B and C Preferred Stock, and has a liquidation preference equal
to its purchase price plus dividends computed at 7% per share per annum. The
Series D Preferred Stock is fully participating, voting and is convertible at
the option of the holder into shares of common stock at $7.40

                                      F-19
<PAGE>

                                 NAVISITE, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  All Information Included in these Footnotes as of April 30, 1999 and for the
             Nine Months Ended April 30, 1998 and 1999 is Unaudited

per share, subject to certain adjustments. Such shares are subject to certain
demand registration rights. Upon the closing of a qualifying initial public
offering, all outstanding shares of Series D Preferred Stock will convert into
common stock. On or after the fifth anniversary of the purchase date, and upon
a written majority of the holders of Series D Preferred Stock, the Company must
redeem all of the outstanding shares of Series D Preferred Stock at a price
equal to its purchase price plus dividends computed at 7% per annum. Holders of
the Series D Preferred Stock may participate in future issuances of equity
instruments, as defined.

 (d) Issuance of Series C and D Preferred Stock

    In June 1999, the Company issued 1,095,472 shares of Series C Preferred
Stock and 993,243 shares of Series D Preferred Stock for aggregate cash
proceeds of $8,106,000 and $7,350,000, respectively.

                                      F-20
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Members
Servercast Communications, L.L.C.:

    We have audited the accompanying balance sheets of Servercast
Communications, L.L.C. as of December 31, 1997 and June 30, 1998, and the
related statements of operations, members' equity (deficit), and cash flows for
the period from inception (February 6, 1997) through December 31, 1997 and for
the six months ended June 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Servercast Communications,
L.L.C. as of December 31, 1997 and June 30, 1998, and the results of its
operations and its cash flows for the period from inception (February 6, 1997)
through December 31, 1997 and for the six months ended June 30, 1998, in
conformity with generally accepted accounting principles.

KPMG LLP

/s/ KPMG LLP

May 28, 1999
Boston, Massachusetts

                                      F-21
<PAGE>

                       SERVERCAST COMMUNICATIONS, L.L.C.

                                 BALANCE SHEETS

                      DECEMBER 31, 1997 AND JUNE 30, 1998

<TABLE>
<CAPTION>
                                                         December 31, June 30,
                                                             1997       1998
                                                         ------------ --------
<S>                                                      <C>          <C>
                         ASSETS
Current assets:
  Cash..................................................   $ 13,354   $     --
  Accounts receivable, net of allowance for doubtful
    accounts of $0 and $1,650, respectively.............     28,432     82,777
Prepaid expenses and other current assets...............      2,598      1,299
Members contributions receivable........................      3,500      3,500
                                                           --------   --------
     Total current assets...............................     47,884     87,576
                                                           --------   --------
Property and equipment:
  Servers and related equipment.........................    135,559    152,864
  Software licenses.....................................      6,387     12,308
  Office computer equipment.............................      2,667      3,437
  Furniture.............................................      1,581      1,581
                                                           --------   --------
                                                            146,194    170,190
Less accumulated depreciation and amortization..........     12,762     35,300
                                                           --------   --------
                                                            133,432    134,890
                                                           --------   --------
Other assets............................................      1,079      1,004
                                                           --------   --------
Total assets............................................   $182,395   $223,470
                                                           ========   ========
       LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current liabilities:
  Cash overdraft........................................   $     --   $  7,621
  Note payable to NaviSite..............................         --     25,000
  Accounts payable......................................     87,334    188,162
  Accrued expenses......................................     50,700     42,360
                                                           --------   --------
Total current liabilities...............................    138,034    263,143
Commitments and contingencies
Members' equity (deficit)...............................     44,361    (39,673)
                                                           --------   --------
Total liabilities and members' equity (deficit).........   $182,395   $223,470
                                                           ========   ========
</TABLE>


                See accompanying notes to financial statements.

                                      F-22
<PAGE>

                       SERVERCAST COMMUNICATIONS, L.L.C.

                            STATEMENTS OF OPERATIONS

   For the period from inception (February 6, 1997) through December 31, 1997
                   and for the six months ended June 30, 1998

<TABLE>
<CAPTION>
                                                        Period from
                                                         inception
                                                       (February 6,
                                                       1997) through Six months
                                                       December 31,  ended June
                                                           1997       30, 1998
                                                       ------------- ----------
<S>                                                    <C>           <C>
Net revenue...........................................   $ 255,622   $ 224,674
Cost of revenue.......................................     171,923     154,773
                                                         ---------   ---------
  Gross profit........................................      83,699      69,901
                                                         ---------   ---------
Selling, general and administrative expenses..........     295,794     203,852
                                                         ---------   ---------
  Loss from operations................................    (212,095)   (133,951)
Interest expense......................................          --          83
                                                         ---------   ---------
  Net loss............................................   $(212,095)  $(134,034)
                                                         =========   =========
</TABLE>



                See accompanying notes to financial statements.

                                      F-23
<PAGE>

                       SERVERCAST COMMUNICATIONS, L.L.C.

                    STATEMENTS OF MEMBERS' EQUITY (DEFICIT)

   For the Period from Inception (February 6, 1997) through December 31, 1997
                   and For the Six Months Ended June 30, 1998

<TABLE>
<CAPTION>
                                                                   Members'
                                                               Equity (Deficit)
                                                               ----------------
<S>                                                            <C>
  Members' contributions.....................................     $ 256,456
  Net loss for the period from inception (February 6, 1997)
    through December 31, 1997................................      (212,095)
                                                                  ---------
Balance at December 31, 1997.................................        44,361
  Members' contributions.....................................        50,000
  Net loss for the six months ended June 30, 1998............      (134,034)
                                                                  ---------
Balance at June 30, 1998.....................................     $ (39,673)
                                                                  =========
</TABLE>




                See accompanying notes to financial statements.

                                      F-24
<PAGE>

                       SERVERCAST COMMUNICATIONS, L.L.C.

                            STATEMENTS OF CASH FLOWS

   For the Period from Inception (February 6, 1997) through December 31, 1997
                   and for the Six Months Ended June 30, 1998

<TABLE>
<CAPTION>
                                                    Period from
                                                     inception
                                                   (February 6,
                                                   1997) through   Six months
                                                   December 31,  ended June 30,
                                                       1997           1998
                                                   ------------- --------------
<S>                                                <C>           <C>
Cash flows from operating activities:
 Net loss.........................................   $(212,095)    $(134,034)
 Adjustments to reconcile net loss to net cash
   used by operating activities:
  Depreciation and amortization...................      13,512        22,613
  Provision for doubtful accounts.................          --         1,650
  Changes in operating assets and liabilities:
   Accounts receivable............................     (28,432)      (55,995)
   Prepaid expenses and other current assets......      (2,598)        1,299
   Deposits.......................................      (1,079)           --
   Accounts payable...............................      87,334       100,828
   Accrued expenses...............................      50,700        (8,340)
                                                     ---------     ---------
     Net cash used by operating activities........     (92,658)      (71,979)
                                                     ---------     ---------
Cash flows from investing activities:
 Acquisitions of property and equipment...........    (146,194)      (23,996)
 Other assets.....................................        (750)           --
                                                     ---------     ---------
     Net cash used by investing activities........    (146,944)      (23,996)
                                                     ---------     ---------
Cash flows from financing activities:
 Cash overdraft...................................          --         7,621
 Proceeds from note payable to NaviSite...........          --        25,000
 Members' contributions...........................     252,956        50,000
                                                     ---------     ---------
     Net cash provided by financing activities....     252,956        82,621
                                                     ---------     ---------
Change in cash....................................      13,354       (13,354)
Cash at beginning of period.......................          --        13,354
                                                     ---------     ---------
Cash at end of period.............................   $  13,354     $      --
                                                     =========     =========
Supplemental disclosure of cash flow information:
 Cash paid for interest...........................   $      --     $      83
                                                     =========     =========
</TABLE>

Supplemental disclosure of non-cash investing and financing activities:

  During the period from inception (February 6, 1997) through December 31,
  1997, the Company issued $3,500 in membership interests to an individual,
  in exchange for a subscription to contribute the same amount. Such amount
  was received in cash subsequent to June 30, 1998.

                See accompanying notes to financial statements.

                                      F-25
<PAGE>

                       SERVERCAST COMMUNICATIONS, L.L.C.

                         NOTES TO FINANCIAL STATEMENTS

                      DECEMBER 31, 1997 AND JUNE 30, 1998

(1) Organization

    Servercast Communications, L.L.C., ("Servercast" or the "Company") was
incorporated on February 6, 1997 as a Delaware limited liability company. The
Company's operating agreement indicates that Servercast will cease to operate
no later than December 1, 2050. Profits and losses are allocated to members in
accordance with the proportionate percentage interest as determined by the fair
market value of their original capital contribution. As a limited liability
company, the members' liability is limited to the amounts of their investment
in the Company.

    The Company provides web site hosting and maintenance for a variety of
companies engaging in electronic commerce. Servercast also develops web sites.
Servercast's customers are located throughout the United States.

(2) Summary of Significant Accounting Policies

 (a) Revenue Recognition

    Revenue for hosting and maintaining web sites is recognized ratably over
the life of the contract, typically one year. Revenue from the development of
web sites is recognized as the services are performed.

 (b) Cash Equivalents

    For purposes of the statement of cash flows, Servercast considers all
highly liquid debt instruments with an original maturity of three months or
less to be cash equivalents.

 (c) Property and Equipment

    Property and equipment are stated at cost. Depreciation and amortization
are provided for on the straight-line basis over the estimated useful lives of
the related assets. The depreciation period is generally three to seven years.

 (d) Income Taxes

    The Company is treated as a partnership for federal and state tax purposes
and thus is not subject to income taxes. The members of the Company must
include their proportionate share of the Company's profits and losses in their
respective personal tax returns. Accordingly, no provision has been made for
income taxes.

    For income tax purposes, the Company has elected to report under the
accrual basis of accounting. At December 31, 1997 and June 30, 1998, the tax
bases of the Company's assets and liabilities are $8, $167 and $9,092 less,
respectively, than the financial reporting bases of these assets and
liabilities. The difference results from the use of different methods related
to reporting depreciation, and the Company's allowance for doubtful accounts
which is not deductible until the accounts are written-off.

 (e) Long-Lived Asset Impairment

    The Company adopted Statement of Financial Accounting Standards No. 121
Accounting for the Impairment of Long-Lived Assets to be Disposed Of ("SFAS No.
121"). SFAS No. 121 addresses the accounting for the impairment of long-lived
assets, certain identifiable intangible assets and goodwill when events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company adoption of SFAS No. 121 had no material impact on
its results of operations or financial condition.

                                      F-26
<PAGE>

                       SERVERCAST COMMUNICATIONS, L.L.C.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

                      DECEMBER 31, 1997 AND JUNE 30, 1998


 (f) Fair Value of Financial Instruments

    The Company adopted Statement of Financial Accounting Standards No. 107,
Disclosures About Fair Value of Financial Statements ("SFAS No. 107"), which
requires that the Company estimate and disclose the fair value of each material
class of financial instrument for which it is practicable to estimate that
value. In accordance with SFAS 107, the Company has identified its material
financial instruments as cash, trade receivables and payables, and notes
payable. The carrying amount of cash, trade receivables, trade payables and
notes payable approximate fair value because of the short-term nature of these
financial instruments.

 (g) Concentration of Credit Risk

    Financial instruments which subject the Company to credit risk consist
principally of trade receivables. The Company's policy with respect to the
credit risk of trade receivables is to evaluate, prior to the extension of
credit, each customer's financial condition and to determine the amount of open
credit to be extended.

 (h) Management's Estimates

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

 (i) Comprehensive Income

    On January 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standard No. 131, Reporting Comprehensive Income ("SFAS
No. 131"). SFAS 131 requires that the components of comprehensive income be
reported in the financial statements. For the period from inception (February
6, 1997) through December 31, 1997 and for the six months ended June 30, 1998,
the Company's net loss was equal to its total comprehensive loss.

(3) Commitments

    The Company leases certain office facilities under operating leases with an
initial term of less than one year. Additionally, the Company leases certain
floor space at facilities, which house its equipment used for web site hosting.
The lessors of these locations provide the Company with web hosting and
maintenance services for the benefit of the Company's customers. These
agreements also have initial terms of one year or less.

    For period from inception (February 6, 1997) through December 31, 1997 and
during the six months ended June 30, 1998, rent and web hosting expenses under
these agreements amounted to $102,117 and $68,901, respectively. Of these
amounts, $64,352 and $47,769 were included in cost of revenues in the
accompanying statements of operations, respectively. For the period from
inception (February 6, 1997) through December 31, 1997 and during the six
months ended June 30, 1998, $33,305 and $12,175 of the rents included in
selling, general and administrative expenses, were paid to a related party who
is a member of the Company. Subsequent to the sale of the Company on July 1,
1998 (see note 6), the Company relocated its web hosting equipment to sites
maintained by the purchaser, and accordingly, the Company no longer leases
these web hosting sites from unrelated third parties.

                                      F-27
<PAGE>

                       SERVERCAST COMMUNICATIONS, L.L.C.

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

                      DECEMBER 31, 1997 AND JUNE 30, 1998


(4) Note Payable

    At June 30, 1998, note payable represented a $25,000 note payable, due upon
demand, to NaviSite Internet Services, Inc. ("NaviSite") (see note 6). The note
is secured by substantially all assets of the Company and bears interest at a
rate of 5.50% per annum.

(5) Major Customers

    At December 31, 1997, three customers accounted for 31%, 34% and 26% of
accounts receivable, respectively. Revenue earned from these customers for the
period from inception (February 6, 1997) through December 31, 1997 amounted to
36%, 22% and 12%, respectively, of total revenue during the period.

    At June 30, 1998, three customers accounted for 30%, 20% and 18% of
accounts receivable, respectively. Revenue earned from these customers for the
six months ended June 30, 1998 amounted to 28%, 5% and 6% of total revenue
during the period.

(6) Subsequent Event

    Effective July 1, 1998, NaviSite purchased the outstanding membership
interests of all members in exchange for a $1,000,000 note payable. The
acquisition will be recorded using the purchase method of accounting.

                                      F-28
<PAGE>

                       SERVERCAST COMMUNICATIONS, L.L.C.

             UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA

    The unaudited pro forma combined condensed statement of operations of the
Company for the year ended July 31, 1998 gives pro forma effect to the July 1,
1998 acquisition of Servercast Communications, L.L.C. ("Servercast") as if it
had occurred on August 1, 1997. The results of operations of the Company for
the fiscal year ended July 31, 1998 have been combined with the results of
operations of Servercast for the period from August 1, 1997 through June 30,
1998 (the results of operations of Servercast for the period July 1, 1998
through July 31, 1998 are included in the consolidated statement of operations
of the Company).

    The Company has accounted for the acquisition under the purchase method of
accounting. The total cost of the acquired business of $1,045,000, including
direct acquisition costs, has been allocated to the underlying tangible and
intangible assets acquired and liabilities assumed based on their respective
fair values, resulting in goodwill of $1,014,000.

    The unaudited pro forma financial data are not necessarily indicative of
the results of operations of the Company had the transaction occurred on August
1, 1997, nor are they necessarily indicative of the results of operations which
may be expected to occur in the future. Furthermore, the unaudited pro forma
financial data should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this prospectus.

                                      F-29
<PAGE>

                                 NAVISITE, INC.

       UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

                        For the year ended July 31, 1998

<TABLE>
<CAPTION>
                                      Year ended July 31, 1998
                                   --------------------------------
                                                         Pro Forma
                                   NaviSite  Servercast Adjustments    Total
                                   --------  ---------- -----------   --------
                                    (In thousands, except per share data)
<S>                                <C>       <C>        <C>           <C>
Statement of Operations Data:
Revenue:
  Revenue........................  $    158    $  361     $           $    524
  Revenue, related parties.......     3,871        --         --         3,866
                                   --------    ------     ------      --------
     Total revenue...............     4,029       361         --         4,390
Cost of revenue..................     8,876       310         --         9,186
                                   --------    ------     ------      --------
  Gross loss.....................    (4,847)       51         --        (4,796)
                                   --------    ------     ------      --------
Operating expenses:
  Selling and marketing..........     2,530        93         --         2,623
  General and Administrative.....     1,412       254        186 (a)     1,852
  Product development............       287        --         --           287
                                   --------    ------     ------      --------
     Total operating expenses....     4,229       347        186         4,762
                                   --------    ------     ------      --------
Loss from operations.............    (9,076)     (296)      (186)       (9,558)
Other income (expense):
  Interest expense, net..........       (85)       --        (50)(b)      (135)
  Other expense, net.............       (11)       --         --           (11)
                                   --------    ------     ------      --------
Net loss.........................  $ (9,172)   $ (296)    $ (236)     $ (9,704)
                                   ========    ======     ======      ========
Pro forma basic and diluted net
  loss per share.................  $  (1.02)                          $  (1.07)
                                   ========                           ========
Pro forma weighted average number
  of basic and diluted shares
  outstanding....................     9,027                              9,027
                                   ========                           ========
</TABLE>

       NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                            Year ended July 31, 1998

(a) Reflects goodwill amortization recorded by NaviSite for the eleven month
    period ending June 30, 1998 prior to the acquisition of Servercast.
    Goodwill is being amortized over five years, using the straight-line
    method.

(b) Reflects interest expense related to 5.5% notes payable in the amount of
    one million dollars for the eleven month period ending June 30, 1998 prior
    to the acquisition of Servercast.


                                      F-30
<PAGE>




                              [INSIDE BACK COVER]
<PAGE>

                                  [Back Cover]



                                     [LOGO]
<PAGE>

                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

    The expenses, other than underwriting discounts and commissions, expected
to be incurred by us in connection with the issuance and distribution of the
securities being registered under this registration statement are estimated to
be as follows:

<TABLE>
      <S>                                                                <C>
      SEC registration fee.............................................  $19,460
      NASD filing fees.................................................    7,500
      Nasdaq National Market listing fee...............................      *
      Printing and engraving expenses..................................  125,000
      Legal fees and expenses..........................................      *
      Accounting fees and expenses.....................................      *
      Blue Sky fees and expenses (including legal fees)................   12,500
      Transfer agent fees..............................................    5,000
      Miscellaneous....................................................      *
                                                                         -------
        Total..........................................................  $   *
                                                                         =======
</TABLE>
--------
*   To be filed by Amendment.

Item 14. Indemnification of Directors and Officers.

    The Delaware General Corporation Law and our revised certificate of
incorporation provide for indemnification of our officers and directors for
liabilities and expenses that they may incur in such capacities.

    Our revised certificate of incorporation generally provides that we shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit, investigation,
administrative hearing or any other proceeding by reason of the fact that he or
she is or was a director or officer of ours, or is or was serving at our
request as a director, officer, employee or agent of another entity, against
expenses incurred by him or her in connection with such proceeding. An officer
or director shall not be entitled to indemnification by us if:

  .   the officer or director did not act in good faith and in a manner
      reasonably believed to be in, or not opposed to, our best interests;
      or

  .   with respect to any criminal action or proceeding, the officer or
      director had reasonable cause to believe his conduct was unlawful.

    Our revised certificate of incorporation limits the liability of our
directors to the maximum extent permitted by Delaware law. Section 145 of the
Delaware General Corporation Law provides that directors will not be personally
liable for monetary damages for breach of their fiduciary duties as directors,
except liability for:

  .   any breach of their duty of loyalty to the corporation or its
      stockholders;

  .   acts or omissions not in good faith or which involve intentional
      misconduct or a knowing violation of law;

  .   unlawful payments of dividends or unlawful stock repurchases or
      redemptions; or

  .   any transaction from which the director derived an improper personal
      benefit.

    This provision has no effect on any non-monetary remedies that may be
available to us or our stockholders, nor does it relieve us or our officers or
directors from compliance with federal or state securities laws.

                                      II-1
<PAGE>

    The underwriting agreement provides that the underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of NaviSite against some liabilities, including liabilities under the
Securities Act. Reference is made to the form of underwriting agreement filed
as Exhibit 1.1 hereto.

    Our officers and directors are currently insured under a policy procured by
CMGI that provides coverage against losses arising from claims against them for
any actual or alleged act, omission, misstatement, misleading statement,
neglect, error or breach of duty by them in their capacity as officers or
directors of NaviSite. We are in the process of obtaining our own liability
insurance for our officers and directors. At the present time, there is no
pending litigation or proceeding involving any director, officer, employee or
agent of NaviSite in which indemnification will be required or permitted. We
are not aware of any threatened litigation or proceeding that may result in a
claim for such indemnification.

Item 15. Recent Sales of Unregistered Securities.

    In the three fiscal years preceding the filing of this registration
statement, NaviSite has issued the following securities that were not
registered under the Securities Act:

    (a) Issuance of Capital Stock.

    In December 1998, NaviSite issued 60,589 shares of common stock and
1,323,953 shares of Series A convertible preferred stock to NaviSite Internet
Services Corporation, our predecessor and a wholly owned subsidiary of CMGI,
Inc., in exchange for a contribution of assets from NaviSite Internet Services
Corporation. In April 1999, NaviSite issued an additional 8,749 shares of
common stock to NaviSite Internet Services Corporation. Upon the merger of
NaviSite Internet Services Corporation with and into CMGI, which is expected to
occur prior to the completion of this offering, the 69,338 shares of common
stock held of record by NaviSite Internet Services Corporation will be
exchanged for outstanding shares of NaviSite Internet Services Corporation
which were issued to NaviSite employees pursuant to option exercises under the
1997 NaviSite Internet Services Corporation Equity Incentive Plan. The 1998
NaviSite, Inc. Equity Incentive Plan replaces the 1997 NaviSite Internet
Services Corporation Equity Incentive Plan. Upon the merger of NaviSite
Internet Services Corporation with and into CMGI, all of the outstanding
options granted under the 1997 Equity Incentive Plan are being cancelled and
replaced with an equivalent amount of options issued in accordance with our
1998 Equity Incentive Plan.

    The shares of Series A convertible preferred stock will be distributed to
CMGI upon the consummation of the merger. Every one share of Series A
convertible preferred stock will convert into 10 shares of common stock upon
completion of this offering.

    In June 1999, NaviSite issued 490,332 shares of its Series B convertible
preferred stock to CMGI in exchange for cancellation of an aggregate of
$10,760,822 of intercompany debt pursuant to a secured convertible demand note
to CMGI dated May 1, 1999. It is expected that every one share of Series B
convertible preferred stock will convert into 10 shares of common stock upon
completion of this offering.

    In June 1999, pursuant to the Series C Preferred Stock Purchase Agreement
between NaviSite and Dell USA L.P., NaviSite issued 1,095,472 shares of Series
C convertible preferred stock to Dell at a purchase price of $7.40 per share or
$8,106,493, in the aggregate. It is expected that upon completion of this
offering, the 1,095,472 shares of Series C convertible preferred stock will
convert into 1,095,472 shares of common stock.

    In June 1999, pursuant to the Series D Convertible Preferred Stock Purchase
Agreement between NaviSite and Microsoft Corporation, NaviSite issued 993,243
shares of its Series D convertible preferred stock to Microsoft, at a purchase
price of $7.40 per share or $7,350,000, in the aggregate. It is expected that
upon completion of this offering, the 993,243 shares of Series D convertible
preferred stock will convert into 993,243 shares of common stock.

                                      II-2
<PAGE>

    (b) Grants of Stock Options.

    In December 1998, the NaviSite, Inc. 1998 Equity Incentive Plan replaced
the 1997 NaviSite Internet Services Corporation Equity Incentive Plan. As noted
in Item 15(a) above, as part of the corporate restructuring of NaviSite
Internet Services Corporation, all options outstanding under the 1997 NaviSite
Internet Services Corporation Equity Incentive Plan are being cancelled and
replaced with an equivalent amount of options issued in accordance with our
1998 Equity Incentive Plan upon the merger of NaviSite Internet Services
Corporation with and into CMGI, which is expected to occur prior to completion
of this offering. As of April 30, 1999, we had granted options to purchase an
aggregate of 2,287,058 shares of common stock under the 1998 Equity Incentive
Plan (which number includes options granted in replacement of options granted
by NaviSite Internet Services Corporation under the 1997 NaviSite Internet
Services Corporation Equity Incentive Plan), exercisable at a weighted average
exercise price of $2.28 per share.

    On December 28, 1998, we granted options to purchase 50,000 shares of
common stock under our 1998 Director Stock Option Plan exercisable at $0.49 per
share.

    No underwriters were involved in the foregoing sales of securities. These
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act set forth in Section 4(2) thereof relative to sales by an
issuer not involving any public offering or the rules and regulations
thereunder or, in the case of options to purchase common stock, Rule 701 under
the Securities Act. All of the foregoing securities are deemed restricted
securities for purposes of the Securities Act.

Item 16. Exhibits and Financial Statement Schedules.

    (a) Exhibits:

<TABLE>
<CAPTION>
 Exhibit
 Number                                 Exhibit
 -------                                -------
 <C>     <S>
   1.1*  Form of Underwriting Agreement

   2.1   Asset Assignment Agreement dated December 28, 1998 among NaviSite
         Internet Services Corporation and NaviSite, Inc.

   2.2   Purchase Agreement dated as of July 1, 1998 among NaviSite Internet
         Services Corporation, Neil Black, in his capacity as Managing Member
         of Servercast Communications, L.L.C. and all of the other members of
         Servercast Communications, L.L.C. individually, as named therein
         (Exhibits and schedules have been omitted. The Registrant hereby
         undertakes to furnish supplementally copies of the exhibits and
         schedules to the Commission upon request.)

   3.1   Certificate of Incorporation, as amended

   3.2*  Form of Amended and Restated Certificate of Incorporation (to become
         effective upon the closing of this offering)

   3.3   By-Laws, as amended

   3.4*  Form of Amended and Restated By-Laws (to become effective upon the
         closing of this offering)

   4.1*  Specimen certificate representing shares of common stock

   4.2   Series C Convertible Preferred Stock Purchase Agreement dated as of
         June 3, 1999 by and between NaviSite, Inc. and Dell USA L.P.

   4.3   Series D Convertible Preferred Stock Purchase Agreement dated as of
         June 3, 1999 by and between NaviSite, Inc. and Microsoft Corporation

   5.1*  Opinion of Skadden, Arps, Slate, Meagher & Flom LLP

  10.1*  1998 Equity Incentive Plan

  10.2*  1998 Director Stock Option Plan

  10.3*  1999 Employee Stock Purchase Plan

</TABLE>




                                      II-3
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number                                  Exhibit
 -------                                 -------

 <C>     <S>
  10.4   Net Lease Agreement dated as of March 20, 1997 by and between CMG
         Information Technologies, Inc. and Borland International, Inc., as
         amended by First Amendment dated June 1, 1998

  10.5   Lease dated as of March, 1997 by and between William J. Callahan and
         William J. Callahan, Jr., as trustees of Andover Park Realty Trust,
         and CMG Information Services, Inc.

  10.6   Lease dated as of May 14, 1999 by and between 400 River Limited
         Partnership and NaviSite, Inc.

  10.7   Lease made as of April 30, 1999 by and between CarrAmerica Realty
         Corporation and NaviSite, Inc.

  10.8   Term Note in favor of Peter C. Kirwan, Jr. dated July 1, 1998,
         executed by NaviSite Internet Services Corporation

  10.9   Bonus Agreement dated as of July 1, 1998 by and between NaviSite
         Internet Services Corporation and Peter C. Kirwan, Jr.

  10.10* Form of Director Indemnification Agreement

  10.11* Form of Facilities and Administrative Support Agreement between
         NaviSite, Inc. and CMGI, Inc.

  10.12* Form of Investor Rights Agreement by and among NaviSite, Inc. and
         CMGI, Inc.

  10.13* Form of Tax Allocation Agreement between NaviSite, Inc. and CMGI, Inc.

  10.14  Secured Convertible Demand Note issued by NaviSite, Inc. to CMGI, Inc.
         dated as of May 1, 1999

  10.15  Security Agreement between NaviSite, Inc. and CMGI, Inc. dated as of
         May 1, 1999

  10.16  Intellectual Property Security Agreement between NaviSite, Inc. and
         CMGI, Inc. dated as of May 1, 1999
  21.1   Subsidiaries

  23.1*  Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
         Exhibit 5.1)

  23.2   KPMG LLP Consent and Report on Schedule

  23.3   Consent of KPMG LLP (Servercast Communications, L.L.C.)

  24.1   Power of Attorney (included on the signature page of this registration
         statement)

  27     Financial Data Schedule
</TABLE>
--------
*   To be filed by Amendment.

    (b) Financial Statement Schedules:

    Schedule II--Valuation and Qualifying Accounts

    All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.

Item 17. Undertakings.

    The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

                                      II-4
<PAGE>

    Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

    The undersigned Registrant hereby undertakes:

    (1) that for the purposes of determining any liability under the
        Securities Act of 1933, the information omitted from the form of
        prospectus filed as part of this registration statement in reliance
        upon Rule 430A and contained in a form of prospectus filed by the
        Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
        Securities Act shall be deemed to be part of this registration
        statement as of the time it was declared effective.

    (2) that for the purpose of determining any liability under the Securities
        Act of 1933, each post-effective amendment that contains a form of
        prospectus shall be deemed to be a new registration statement relating
        to the securities offered therein, and the offering of such securities
        at that time shall be deemed to be the initial bona fide offering
        thereof.

                                      II-5
<PAGE>

                                   SIGNATURES

    Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-1 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Andover, Massachusetts, on July 22, 1999.

                                          NaviSite, Inc.

                                                     /s/ Joel B. Rosen
                                          By
                                            -----------------------------------
                                             Joel B. Rosen
                                             Chief Executive Officer

                               POWER OF ATTORNEY

    KNOW ALL PERSONS BY THESE PRESENTS, that the persons whose signatures
appear below, constitute and appoint Joel B. Rosen, Chief Executive Officer,
and Kenneth W. Hale, Chief Financial Officer, Treasurer and Secretary, and each
of them individually, as their true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for them and in their
names, places and steads, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
and any subsequent registration statement filed pursuant to Rule 462(b) under
the Securities Act of 1933, as amended, and to file the same, with all exhibits
thereto, and the other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection therewith, as fully to
all intents and purposes as they might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or
their or his or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.

    Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on July 22, 1999.

<TABLE>
<CAPTION>
                 Signature                                     Title
                 ---------                                     -----
<S>                                         <C>
             /s/ Joel B. Rosen              Chief Executive Officer and Director
___________________________________________  (Principal Executive Officer)
               Joel B. Rosen

            /s/ Kenneth W. Hale             Chief Financial Officer, Treasurer and
___________________________________________  Secretary (Principal Financial and
              Kenneth W. Hale                Accounting Officer)

          /s/ Robert B. Eisenberg           President and Director
___________________________________________
            Robert B. Eisenberg

          /s/ David S. Wetherell            Chairman of the Board of Directors
___________________________________________
            David S. Wetherell

           /s/ Craig D. Goldman             Director
___________________________________________
             Craig D. Goldman

        /s/ Andrew J. Hajducky III          Director
___________________________________________
          Andrew J. Hajducky III
</TABLE>

<PAGE>

                                                                     Schedule II

                                 NAVISITE, INC.

                       VALUATION AND QUALIFYING ACCOUNTS
 for the period from July 1, 1996 through July 31, 1996 and for the years ended
    July 31, 1997, 1998 and the nine months ended April 30, 1999 (unaudited)
                                 (in thousands)

<TABLE>
<CAPTION>
                                        Balance at Additions  Deductions Balance
                                        Beginning  Charged to    from    at End
                                         of Year    Expense    Reserves  of Year
                                        ---------- ---------- ---------- -------
<S>                                     <C>        <C>        <C>        <C>
Description
Period from July 1, 1996 through July
  31, 1996:
  Allowance for doubtful accounts.....    $ --        $--       $ --      $ --
Year ended July 31, 1997:
  Allowance for doubtful accounts.....    $ --        $--       $ --      $ --
Year ended July 31, 1998:
  Allowance for doubtful accounts.....    $ --        $  8      $  (1)    $   7
Nine months ended April 30, 1999
  (unaudited):
  Allowance for doubtful accounts.....    $   7       $113      $ (20)    $ 100
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number                                  Exhibit
 -------                                 -------
 <C>     <S>
   1.1*  Form of Underwriting Agreement

   2.1   Asset Assignment Agreement dated December 28, 1998 among NaviSite
         Internet Services Corporation and NaviSite, Inc.

   2.2   Purchase Agreement dated as of July 1, 1998 among NaviSite Internet
         Services Corporation, Neil Black, in his capacity as Managing Member
         of Servercast Communications, L.L.C. and all of the other members of
         Servercast Communications, L.L.C. individually, as named therein
         (Exhibits and schedules have been omitted. The registrant hereby
         undertakes to furnish supplementally copies of the exhibits and
         schedules to the Commission upon request.)

   3.1   Certificate of Incorporation, as amended

   3.2*  Form of Amended and Restated Certificate of Incorporation (to become
         effective upon the closing of this offering)

   3.3   By-Laws, as amended

   3.4*  Form of Amended and Restated By-Laws (to become effective upon the
         closing of this offering)

   4.1*  Specimen certificate representing shares of common stock

   4.2   Series C Convertible Preferred Stock Purchase Agreement dated as of
         June 3, 1999 by and between NaviSite, Inc. and Dell USA L.P.

   4.3   Series D Convertible Preferred Stock Purchase Agreement dated as of
         June 3, 1999 by and between NaviSite, Inc. and Microsoft Corporation

   5.1*  Opinion of Skadden, Arps, Slate, Meagher & Flom LLP

  10.1*  1998 Equity Incentive Plan

  10.2*  1998 Director Stock Option Plan

  10.3*  1999 Employee Stock Purchase Plan

  10.4   Net Lease Agreement dated as of March 20, 1997 by and between CMG
         Information Technologies, Inc. and Borland International, Inc., as
         amended by First Amendment dated June 1, 1998

  10.5   Lease dated as of March, 1997 by and between William J. Callahan and
         William J. Callahan, Jr., as trustees of Andover Park Realty Trust,
         and CMG Information Services, Inc.

  10.6   Lease dated as of May 14, 1999 by and between 400 River Limited
         Partnership and NaviSite, Inc.

  10.7   Lease made as of April 30, 1999 by and between CarrAmerica Realty
         Corporation and NaviSite, Inc.

  10.8   Term Note in favor of Peter C. Kirwan, Jr. dated July 1, 1998,
         executed by NaviSite Internet Services Corporation

  10.9   Bonus Agreement dated as of July 1, 1998 by and between NaviSite
         Internet Services Corporation and Peter C. Kirwan, Jr.

  10.10* Form of Director Indemnification Agreement


  10.11* Form of Facilities and Administrative Support Agreement between
         NaviSite, Inc. and CMGI, Inc.

  10.12* Form of Investor Rights Agreement by and among NaviSite, Inc. and
         CMGI, Inc.

  10.13* Form of Tax Allocation Agreement between NaviSite, Inc. and CMGI, Inc.

  10.14  Secured Convertible Demand Note issued by NaviSite, Inc. to CMGI, Inc.
         dated as of May 1, 1999
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number                                  Exhibit
 -------                                 -------
 <C>     <S>
  10.15  Security Agreement between NaviSite, Inc. and CMGI, Inc. dated as of
         May 1, 1999

  10.16  Intellectual Property Security Agreement between NaviSite, Inc. and
         CMGI, Inc. dated as of May 1, 1999
  21.1   Subsidiaries

  23.1*  Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
         Exhibit 5.1)

  23.2   KPMG LLP Consent and Report on Schedule

  23.3   Consent of KPMG LLP (Servercast Communications, L.L.C.)

  24.1   Power of Attorney (included on the signature page of this Registration
         Statement)

  27     Financial Data Schedule
</TABLE>
--------
*   To be filed by Amendment.