##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
      Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For Fiscal Year
    Ended July 31,
    2009o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the Transition Period
    From          to   Commission File 000-27597
      NaviSite, Inc.
 (Exact name of registrant as
    specified in its charter)
      Delaware

52-2137343(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)400 Minuteman Road
    Andover, Massachusetts(Address of principal
    executive offices)

01810(zip
    code)   Registrants telephone number, including area code
 (978) 682-8300
      Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, $0.01 par value

The NASDAQ Stock Market LLC   Securities registered pursuant to Section 12(g) of the
    Act:
 None
      o þ
  o þ
  þ o
  Regulation S-T o o
  Regulation S-K Form 10-K Form 10-K. þ
  12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer o
    Non-accelerated
    filer þ
    Smaller reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 





NAVISITE,
    INC.
    2009 ANNUAL REPORT
    ON
    FORM 10-K
    TABLE OF CONTENTS
  PageNumberPART IItem 1.

Business


3Item 1A.

Risk Factors


11Item 1B.

Unresolved Staff Comments


19Item 2.

Properties


20Item 3.

Legal Proceedings


20Item 4.

Submission of Matters to a Vote of Security
    Holders


23PART IIItem 5.

Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


23Item 6.

Selected Financial Data


25Item 7.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations


26Item 7A.

Quantitative and Qualitative Disclosures About
    Market Risk


37Item 8.

Financial Statements and Supplementary Data


37Item 9.

Changes in, and Disagreements with, Accountants
    on Accounting and Financial Disclosure


37Item 9A.

Controls and Procedures


37Item 9B.

Other Information


38PART IIIItem 10.

Directors, Executive Officers and Corporate
    Governance


38Item 11.

Executive Compensation


38Item 12.

Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


39Item 13.

Certain Relationships and Related Transactions
    and Director Independence


39Item 14.

Principal Accountant Fees and Services


39PART IVItem 15.

Exhibits and Financial-Statement Schedules


39Signatures


40Index to NaviSite, Inc., Consolidated Financial
    Statements


F-1Ex-10.52 Separation Agreement - BorcherdingEx-10.53 Offer Letter - ZingaleEx-10.54 Separation Agreement - ZingaleEx-10.56 Offer Letter - MartinEx-10.57 Separation Agreement - MartinEx-10.58 Amendment No.1 to Separation Agreement - MartinEx-10.59 Offer Letter - SabharwalEx-10.60 Separation Agreement - SabharwalEx-10.61 Offer Letter - SinhaEx-10.62 Amended and Restated Separation Agreement - SinhaEx-21 Subsidiaries of the RegistrantEx-23 Consent of KPMG LLPEx-31.1 Section 302 Certification of the Chief Executive OfficerEx-31.2 Section 302 Certification of the Chief Financial OfficerEx-32.1 Section 906 Certification of the Chief Executive OfficerEx-32.2 Section 906 Certification of the Chief Financial Officer   2




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##### Table of Contents



PART I
    SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS



This Annual Report on
    Form 10-K
    of NaviSite, Inc. (NaviSite, the
    Company, we,
    us and our) contains
    forward-looking statements within the meaning of
    Section 21E of the Securities Exchange Act of 1934, as
    amended (theExchange Act), and
    Section 27A of the Securities Act of 1933, as amended (the
    Securities Act), that involve risks and
    uncertainties. All statements other than statements of
    historical information provided herein are forward-looking
    statements and may contain information about financial results,
    economic conditions, trends and known uncertainties. Our actual
    results could differ materially from those discussed in the
    forward-looking statements as a result of a number of factors,
    which include those discussed in this section and elsewhere in
    this report and the risks discussed in our other filings with
    the Securities and Exchange Commission (the
    SEC). Readers are cautioned not to
    place undue reliance on these forward-looking statements, which
    reflect our managements analysis, judgment, belief or
    expectation only as of the date hereof. Investors are warned
    that actual results may differ materially from our expectations.
    We undertake no obligation to publicly reissue or update these
    forward-looking statements to reflect events or circumstances
    that arise after the date hereof. All logos and company and
    product names may be trademarks or registered trademarks of
    their respective owners. Item 1.
    Business  Our
    Business
  (IT)
  managed-application e-Business
    tm (ISVs) (SaaS)
 3




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Our
    Services
      tm tm tm
      Enterprise-Hosting
    Services
    
    Infrastructure as a Service(IaaS) Support
    provided for hardware and software located in one of our 15 data
    centers. We also provide bundled offerings packaged as
    content-delivery services. Specific services include:  
    dedicated and virtual servers;
    business continuity and disaster recovery;
    connectivity;
    content distribution;
    database administration and performance tuning; 4




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##### Table of Contents




    desktop support;
    hardware management;
    monitoring;
    network management;
    security;
    server and operating management; and
    storage management.  
    Software as a Service Enablement of SaaS to
    the ISV community. Services include SaaS starter kits and
    services specific to the needs of ISVs that want to offer their
    software in an on-demand or subscription mode.
    Co-location Physical space offered in a data
    center. In addition to providing the physical space, NaviSite
    offers environmental support, specified power with backup power
    generation and network-connectivity options.  Application
    Management
  Application-management
  
    ERP Application-Management Services  Defined
    services provided for specific packaged applications. Services
    include implementation, upgrade assistance, monitoring,
    diagnostics, problem resolution and functional end-user support.
    Applications include:  
    Oracle
    e-Business
    Suite;
    PeopleSoft Enterprise;
    Siebel;
    JD Edwards;
    Hyperion;
    Lawson;
    Kronos;
    Microsoft Dynamics;
    Microsoft Exchange; and
    Lotus Domino.  
    ERP Professional Services Planning,
    implementation, optimization, enhancement and upgrades for
    supported third-party ERP applications.
    Custom-Development Professional Services Planning, implementation, optimization and
    enhancement for custom applications developed by us or our
    customers. 5




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##### Table of Contents



NaviViewtmPlatform
  tm tm tm tm
  Event-Detection System 
  Synthetic-Transaction Monitoring 
  Automated Remediation  tm
  Component-Information Manager 
  Escalation Manager 
  tm tm tm
  Our
    History
  (ModusLink)
  Acquisitions
    in Fiscal Year 2008
  
    In August 2007 we acquired the assets of Alabanza LLC and
    Hosting Ventures LLC (together, Alabanza) and
    all of the issued and outstanding stock of Jupiter Hosting, Inc.
    (Jupiter). These acquisitions provided
    additional managed-hosting customers, proprietary software for
    provisioning and additional data-center space in the Bay Area
    market.
    In September 2007 we acquired netASPx, Inc.
    (netASPx), based in Minneapolis, Minnesota.
    The acquisition of netASPx added functional expertise in the
    Lawson and Kronos ERP applications and approximately
    18,000 square feet of data-center capacity.
    In October 2007 we acquired the assets of iCommerce, Inc.
    (iCommerce). 6




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Our
    Industry
  e-mail,
    
    increase business-operating efficiencies and reduce costs by
    using
    best-of-breed
    applications;
    build and enhance customer relationships by providing
    Internet-enabled customer service and technical support;
    manage vendor and supplier relationships through
    Internet-enabled technologies, such as online training and
    online sales and marketing;
    communicate and conduct business more rapidly and
    cost-effectively with customers, suppliers and employees
    worldwide; and
    improve service and lower the cost of software ownership by the
    adoption of new Internet-enabled software-delivery models.      
    developments by major hardware and software vendors that
    facilitate outsourcing, such as the production of rack-based
    blade servers designed to be shared by a number of customers;
    advances in virtualization and high-density computing that are
    beyond the skill and cost ability of the typical IT department;
    the need to improve the reliability, availability and overall
    performance of applications as they increase in importance and
    complexity;
    the need to focus on core business operations;
    challenges and costs of hiring, training and retaining
    application engineers and IT employees with the requisite range
    of IT expertise;
    the increasing complexity of managing the operations of
    applications that need to function in house, with business
    partners and on the public Internet; and
    Utility-like cloud service offerings that enable
    companies to scale their services based on fluctuating
    requirements. 7




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Our
    Strategy
    Provide Excellent Customer Service. best-of-breed
  Innovate and Leverage Our Technology
    Platform.
  Expand Our Global-Delivery Capabilities.
  Improve Operating Margins Through
    Efficiencies. tm
  Focus Our Service Offerings.
  Our
    Infrastructure
    Network-Operations Centers  state-of-the-art
 8




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Data Centers 
  Virtualization 
  Internet Connectivity 
  Sales and
    Marketing
  Sales
    Automation and Platform-Based Sales
  Marketing 
 9




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##### Table of Contents



Customers
        Competition
      
    the quality of services delivered;
    the ability to consistently measure, track and report
    operational metrics;
    application-hosting, infrastructure and messaging-management
    expertise;
    fast, redundant and reliable Internet connectivity;
    a robust infrastructure providing availability, speed,
    scalability and security;
    comprehensive and diverse service offerings and the timely
    addition of value-add services;
    brand recognition;
    strategic relationships;
    competitive pricing; and
    adequate capital to permit continued investment in
    infrastructure, customer service and support and sales and
    marketing.  tm
    
    hosting and related services providers, including Terremark,
    Inc.; Rackspace Hosting, Inc.; Savvis; IBM; AT&T; and other
    local and regional hosting providers;
    application-services providers, such as IBM, AT&T,
    Electronic Data Systems Corp., Cedar Crestone, Oracle On Demand
    and Computer Sciences Corporation;
    co-location providers, including Savvis, Equinix and
    Switch & Data Facilities Company, Inc.; and
    messaging providers, including Apptix Intermedia. 10




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Intellectual
    Property
    Employees
    Available
    Information
  Form 10-K, Form 10-Q, Form 8-K http://www.navisite.com. Form 10-K
  Item 1A.
    Risk
    Factors    We have a history of losses and may never achieve or
    sustain profitability.
  Our financing agreement with a syndicated group of lenders
    includes various covenants and restrictions that may negatively
    affect our liquidity and our ability to operate and manage our
    business.
  
    restricts our ability to create, incur, assume or permit to
    exist any additional indebtedness, excluding limited exemptions;
    restricts our ability to create, incur, assume or permit to
    exist any lien on any of our assets, excluding limited
    exemptions;
    restricts our ability to make investments, with limited
    exemptions;
    requires that we meet financial covenants for leverage, fixed
    charges and capital expenditures; 11




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
    restricts our ability to enter into any transaction of merger or
    consolidation, excluding limited exemptions;
    restricts our ability to sell assets or purchase or otherwise
    acquire the property of any person, excluding limited exemptions;
    restricts our ability to authorize, declare or pay dividends,
    excluding limited exemptions;
    restricts our ability to enter into any transaction with any
    affiliate except on terms and conditions that are at least as
    favorable to us as those that could reasonably be obtained in a
    comparable arms-length transaction with a person who is
    not an affiliate; and
    restricts our ability to amend our organizational documents.  ABR London-interbank-offered-rate LIBOR
    Year

Percentage of Term Loan1


1.0
%2


1.0
%3


1.0
%4


1.0
%5


1.0
%6


95.0
%       Continued debt-covenant compliance under our credit
    agreement may not be possible if certain future actions are not
    taken.
 12




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We may need to obtain additional debt or equity financing
    in order to satisfy any mandatory redemption of our preferred
    stock. (Preferred Stock)
  Disruption in financial and currency markets could have a
    negative effect on our business.
  Atlantic Investors, LLC, Unicorn Worldwide Holdings
    Limited and Madison Technology LLC may have interests that
    conflict with the interests of our other stockholders and have
    significant influence over corporate
    decisions. (Atlantic)
  Members of our management group also have significant
    interests in Atlantic Investors, LLC, that may create conflicts
    of interest.
  Our common stockholders may suffer dilution in the future
    upon exercise of outstanding convertible securities or the
    issuance of additional securities in potential future
    acquisitions or financings.
   13




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A failure to meet customer specifications or expectations
    could result in lost revenues, increased expenses, negative
    publicity, claims for damages and harm to our reputation and
    cause demand for our services to decline.
  
    delayed or lost revenue;
    requirements to provide additional services to a customer at
    reduced charges or no charge;
    negative publicity about us, which could adversely affect our
    ability to attract or retain customers; and
    claims by customers for substantial damages against us,
    regardless of our responsibility for the failure, which claims
    may neither be covered by insurance policies nor limited by the
    contractual terms of our engagement.  Our ability to successfully market our services could be
    substantially impaired if we are unable to deploy new
    infrastructure systems and applications or if we do deploy them
    but they prove unreliable, defective or
    incompatible.
  Any interruption in, or degradation of, our
    private-transit Internet connections could result in the loss of
    customers or hinder our ability to attract new
    customers. telecommunications-network
  If we are unable to maintain existing, and develop
    additional, relationships with software vendors, the sales and
    marketing of our service offerings may be
    unsuccessful.
 14




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Our network infrastructure could fail, which failure would
    impair our ability to provide guaranteed levels of service and
    could result in significant operating
    losses.
  
    require us to spend substantial amounts of money to replace
    equipment or facilities;
    entitle customers to claim service credits or seek damages for
    losses under our service-level guarantees;
    cause customers to seek alternate providers; or
    impede our ability to attract new customers, retain current
    customers or enter into additional strategic relationships.  Our dependence on third parties increases the risk that we
    will not be able to meet our customers needs for software,
    systems and services on a timely or cost-effective basis, which
    inability could result in the loss of
    customers.
  We could be subject to increased operating costs, as well
    as claims, litigation or other potential liability, in
    connection with risks associated with Internet security and the
    security of our systems. e-commerce
 15




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Third-party infringement claims against our technology
    suppliers, customers or us could result in disruptions in
    service, the loss of customers or costly and time-consuming
    litigation.
  We may be subject to legal claims in connection with the
    information disseminated through our network, and these claims
    could divert managements attention and require us to
    expend significant financial resources. e-mails
  Concerns relating to privacy and protection of customer
    and job-seeker data on our Americas Job Exchange website
    could damage our reputation and deter current and potential
    customers and job seekers from using our products and
    services.
    If we fail to attract or retain key officers, management
    and technical personnel, our ability to successfully execute our
    business strategy, to continue to provide services and technical
    support to our customers or to attract new ones could be
    adversely affected.
 16




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##### Table of Contents



reductions-in-force
  The unpredictability of our quarterly results may cause
    the trading price of our common stock to fluctuate or
    decline.
  
    a reduction of market demand or acceptance of our services;
    our ability to develop, market and introduce new services on a
    timely basis;
    the length of the sales cycle for our services;
    the timing and level of sales of our services, both of which
    depend on the budgets of our customers;
    downward price adjustments by our competitors;
    changes in the mix of services provided by our competitors;
    technical difficulties or system downtime affecting the Internet
    or our hosting operations;
    our ability to meet any increased technological demands of our
    customers; and
    the amount and timing of costs related to our marketing efforts
    and service introductions.  quarter-to-quarter period-to-period
  If we are unsuccessful in pending and potential litigation
    matters, our financial condition may be adversely
    affected. class-action
  If the markets for outsourced IT infrastructure and
    applications, Internet commerce and communication decline, there
    may be insufficient demand for our services and, as a result,
    our business strategy and objectives may
    fail.
  If we do not respond to rapid changes in the technology
    sector, we will lose customers.
 17




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The market in which we operate is highly competitive and
    is likely to consolidate, and we may lack the financial and
    other resources, expertise or capability necessary to capture
    increased market share or maintain our market
    share.
    
    develop and expand their network infrastructure 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; or
    devote greater resources to the marketing and sale of their
    services and adopt more aggressive pricing policies than we can.    Difficulties presented by international economic,
    political, legal, accounting and business factors could harm our
    business in international markets.
  
    unexpected changes in regulatory, tax and political environments;
    longer payment cycles and problems collecting accounts
    receivable;
    geopolitical risks, such as political and economic instability,
    hostilities among countries or terrorism;
    reduced protection of intellectual-property rights;
    fluctuations in currency-exchange rates or impositions of
    restrictive currency controls;
    our ability to secure and maintain the necessary physical and
    telecommunications infrastructure;
    challenges in staffing and managing foreign operations;
    employment laws and practices in foreign countries;
    laws and regulations on content distributed over the Internet
    that are more restrictive than those currently in place in the
    United States; and
    significant changes in immigration policies or difficulties in
    obtaining required immigration approvals.   18




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We may become subject to burdensome government regulation
    and legal uncertainties that could substantially harm our
    business or expose us to unanticipated
    liabilities.
  The price of our common stock has been volatile and may
    continue to experience wide
    fluctuations.
  Anti-takeover provisions in our corporate documents may
    discourage or prevent a takeover.
  
    authorize the board to issue preferred stock without stockholder
    approval;
    prohibit cumulative voting in the election of directors;
    limit the persons who may call special meetings of
    stockholders; and
    establish advance-notice requirements for nominations for the
    election of directors or for proposing matters that can be acted
    on by stockholders at stockholder meetings.  Our ability to use U.S. net-operating-loss
    carryforwards might be limited.
  Item 1B.
    Unresolved
    Staff Comments   19




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Item 2.
    Properties  Facilities
    Square FootageLeasedLocation

Type

(Approximate)


Lease ExpirationSan Jose, CA(1)

Data center and office


66,350


November 2016San Francisco, CA

Data center


21,805


January 2020Santa Clara, CA

Data center


3,655


August 2009Atlanta, GA

Office


4,598


September 2012Chicago, IL

Data center


6,800


November 2012Chicago, IL

Office


2,212


April 2012Oak Brook, IL

Data center


16,780


September 2019Andover, MA

Office


25,896


January 2018Andover, MA

Data center and office


86,931


January 2018Minneapolis, MN(1)

Data center and office


54,474


June 2010Syracuse, NY

Data center


21,374


November 2015Syracuse, NY

Office


1,933


May 2010New York, NY

Office


1,500


August 2013New York, NY

Data center


33,286


May 2018Las Vegas, NV(2)

Data center


28,560


February 2010Dallas, TX

Data center


27,370


January 2020Houston, TX

Data center and office


12,956


January 2019Herndon, VA(1)(3)

Office


5,515


June 2011Vienna, VA(3)

Data center and office


23,715


December 2019Gurgaon, Haryana, India

Office


12,706


August 2011Watford, England

Data center


11,160


January 2018London, England

Data center


4,017


March 2010     (1)
    
    We have idle office space at this facility from which we derive
    no economic benefit.(2)
    
    We have entered into an assignment and assumption agreement with
    a third party for this facility; however, we retain the use as
    licensee of approximately 2,000 square feet.(3)
    
    We have a subtenant for a portion of this space.    Item 3.
    Legal
    Proceedings  IPO
    Securities Litigation
  Court IPO Securities
    Litigation class-action
 20




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Class-Action
    Litigation NaviSite
    Defendants successor-in-interest successor-in-interest Rule 10b-5 Class-Action Class-Action Focus
    Cases Second Circuit Class-Action Proposed Global
    Settlement
    Class-Action
 21




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Other
    Litigation
  Alabanza
    Class Actions
  Data Migration
  Court November
    Class-Action
    Litigation Direct Subclass Non-Privity Subclass January
    Class-Action
    Litigation Class-Action Class-Action
 22




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La Touraine,
    Inc.
  (LTI) Demand)
  Item 4.
    Submission
    of Matters to a Vote of Security Holders   PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  Price
    Range of Common Stock
    High


LowFiscal Year Ended July 31, 2009May 1, 2009, through July 31, 2009

$
1.96


$
0.37February 1, 2009, through April 30, 2009

$
0.52


$
0.01November 1, 2008, through January 31, 2009

$
0.88


$
0.15August 1, 2008, through October 31, 2008

$
3.92


$
0.50Fiscal Year Ended July 31, 2008May 1, 2008, through July 31, 2008

$
4.95


$
3.08February 1, 2008, through April 30, 2008

$
4.75


$
2.05November 1, 2007, through January 31, 2008

$
11.29


$
3.53August 1, 2007, through October 31, 2007

$
11.24


$
6.18      23




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Recent
    Issuances of Unregistered Securities
  payment-in-kind (PIK)
     24




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Item 6.
    Selected
    Financial Data  The following selected consolidated financial data should be
    read in conjunction with our consolidated financial statements
    and related notes and   included elsewhere in this annual report on
    Form 10-K.
    Historical results are not necessarily indicative of results of
    any future period.
  Year Ended July 31,2009


2008


2007


2006


2005(In thousands, except per share data)Revenue, net

$
152,326


$
154,507


$
125,860


$
108,844


$
109,731Revenue, related parties


346



372



322



243



132Total revenue


152,672



154,879



126,182



109,087



109,863Cost of revenue


102,288



107,715



85,196



75,064



80,227Impairment, restructuring and other


209















383Total cost of revenue


102,497



107,715



85,196



75,064



80,610Gross profit


50,175



47,164



40,986



34,023



29,253Operating expenses:Selling and marketing


20,279



20,116



16,924



14,756



12,993General and administrative


23,781



22,773



22,043



21,787



23,600Loss on settlement


5,736















Impairment, restructuring and other


180







(231
)


1,373



2,662Total operating expenses


49,976



42,889



38,736



37,916



39,255Income (loss) from operations


199



4,275



2,250



(3,893
)


(10,002
)Other income (expense):Interest income


43



264



337



283



61Interest expense


(14,164
)


(12,033
)


(12,476
)


(9,585
)


(7,590
)Loss on debt extinguishment






(1,651
)


(15,712
)






Other income (expense), net


705



2,295



864



437



2,785Loss before income tax expense


(13,217
)


(6,850
)


(24,737
)


(12,758
)


(14,746
)Income tax expense


(1,894
)


(1,834
)


(1,173
)


(1,173
)


(1,338
)Net loss


(15,111
)


(8,684
)


(25,910
)


(13,931
)


(16,084
)Accretion of preferred-stock dividends


(3,350
)


(2,656
)










Net loss attributable to common shareholders

$
(18,461
)

$
(11,340
)

$
(25,910
)

$
(13,931
)

$
(16,084
)Basic and diluted net loss per common shareNet loss attributable to common stockholders

$
(0.52
)

$
(0.33
)

$
(0.85
)

$
(0.49
)

$
(0.57
)Basic and diluted weighted average number of common shares
    outstanding


35,528



34,731



30,512



28,601



28,202Balance-Sheet Data:Working capital (deficit)

$
(976
)

$
2,048


$
10,611


$
(9,072
)

$
(77,560
)Total assets

$
163,680


$
175,713


$
116,244


$
102,409


$
101,177Long-term obligations

$
132,280


$
133,736


$
97,072


$
70,817


$
5,515Stockholders deficit

$
(35,103
)

$
(18,772
)

$
(13,864
)

$
(1,976
)

$
(2,672
)  25




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##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  This Annual Report on
    Form 10-K
    contains forward-looking statements, within the meaning of
    Section 21E of the Exchange Act and Section 27A of the
    Securities Act, that involve risks and uncertainties. All
    statements other than statements of historical information
    provided herein are forward-looking statements and may contain
    information about financial results, economic conditions, trends
    and known uncertainties. Our actual results could differ
    materially from those discussed in the forward-looking
    statements as a result of a number of factors, which include
    those discussed in this section and elsewhere in this report
    under Item 1A ( ) and the
    risks discussed in our other filings with the SEC. Readers are
    cautioned not to place undue reliance on these forward-looking
    statements, which reflect managements analysis, judgment,
    belief or expectation only as of the date hereof. We undertake
    no obligation to publicly revise these forward-looking
    statements to reflect events or circumstances that arise after
    the date hereof.
  Overview
       26




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##### Table of Contents



Results
    of Operations for the Three Years Ended July 31, 2009, 2008
    and 2007
    Year Ended July 31,2009


2008


2007Revenue, net


99.8
%


99.8
%


99.7
%Revenue, related parties


0.2
%


0.2
%


0.3
%Total revenue


100.0
%


100.0
%


100.0
%Cost of Revenue


52.0
%


56.4
%


57.6
%Depreciation and amortization


15.0
%


13.1
%


9.9
%Restructuring charge


0.1
%



%



%Total cost of revenue


67.1
%


69.5
%


67.5
%Gross profit


32.9
%


30.5
%


32.5
%Operating expenses:Selling and marketing


13.3
%


13.0
%


13.4
%General and administrative


15.6
%


14.7
%


17.5
%Loss on settlement


3.7
%



%



%Impairment, restructuring and other


0.1
%



%


(0.2
)%Total operating expenses


32.7
%


27.7
%


30.7
%Income from operations


0.1
%


2.8
%


1.8
%Other income (expense):Interest income


0.0
%


0.2
%


0.3
%Interest expense


(9.3
)%


(7.8
)%


(9.9
)%Loss on debt extinguishment



%


(1.1
)%


(12.5
)%Other income (expense), net


0.5
%


1.5
%


0.7
%Loss before income taxes


(8.7
)%


(4.4
)%


(19.6
)%Income taxes


(1.2
)%


(1.2
)%


(0.9
)%Net loss


(9.9
)%


(5.6
)%


(20.5
)%Accretion of preferred stock dividends


(2.2
)%


(1.7
)%



%Net loss attributable to common shareholders


(12.1
)%


(7.3
)%


(20.5
)%   Comparison
    of the Years 2009, 2008 and 2007
  Revenue
     27




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##### Table of Contents



AJE
      Cost of
    Revenue and Gross Profit
         28




---



##### Table of Contents



intangible-amortization
  Operating
    Expenses
  Selling and Marketing
      General and Administrative
     29




---



##### Table of Contents



Loss on settlement.
  Impairment, restructuring and other.
    Interest
    Income
      Interest
    Expense
      Loss on
    Debt Extinguishment
     30




---



##### Table of Contents



Other
    Income (Expense), Net
      Income-Tax
    Expense
    Liquidity
    and Capital Resources
         31




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##### Table of Contents



Contractual
    Obligations and Commercial Commitments
    Less than








More thanDescription

Total


1 Year


1-3 Years


3-5 Years


5 Years(In thousands)Short/long-term debt

$
116,757


$
10,603


$
2,184


$
103,970


$
Interest on debt(a)


39,936



11,456



19,792



8,688



Capital leases(b)


22,447



4,796



5,119



4,580



7,952Bandwidth commitments


1,592



1,535



57







Property leases(b)(c)(d)


84,945



10,162



18,177



18,055



38,551Total

$
265,677


$
38,552


$
45,329


$
135,293


$
46,503     (a)
    
    Interest on debt assumes that LIBOR is fixed at 3.15% and that
    our leverage ratio drops below 3:1 as of January 31, 2010,
    resulting in a 2% interest-rate decrease. The 2% accruing PIK
    interest will be paid in full at the end of the loan term.(b)
    
    Future commitments denominated in foreign currency are fixed at
    the exchange rates as of July 31, 2009.(c)
    
    Amounts exclude certain common area maintenance and other
    property charges that are not included within the lease payment.(d)
    
    On February 9, 2005, we entered into an assignment and
    assumption agreement with a Las Vegas-based company, whereby
    this company purchased from us the right to use
    29,000 square feet in our Las Vegas data center and the
    infrastructure and equipment associated with this space. In
    exchange, we received an initial payment of $600,000 and were to
    receive $55,682 per month over two years. On May 31, 2006,
    we received full payment of the remaining unpaid balance. This
    agreement shifts the responsibility for management of the data
    center and its employees, along with the maintenance of the
    facilitys infrastructure, to this Las Vegas-based company.
    Pursuant to this agreement, we have subleased back
    2,000 square feet of space, allowing us to continue
    servicing our existing customer base in this market. Commitments
    related to property leases include an amount related to the
    2,000-square-foot sublease.  Off-Balance-Sheet
    Financing Arrangements
    Critical
    Accounting Policies
    Revenue Recognition.
 32




---



##### Table of Contents



percentage-of-completion
  (EITF) No. 00-21, Revenue Arrangements with Multiple
    Deliverables, EITF 00-21,
    Allowance for Doubtful Accounts.
 33




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##### Table of Contents



Impairment of Long-Lived Assets and Goodwill and Other
    Intangible Assets.
  
    significant underperformance relative to expected historical or
    projected future operating results;
    significant changes in the manner of our use of the acquired
    assets or the strategy of our overall business;
    significant negative industry or economic trends;
    significant declines in our stock price for a sustained
    period; and
    our market capitalization relative to net book value.      Impairment costs.
 34




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##### Table of Contents



Stock-Based Compensation. (SFAS) Share-Based Payment, Accounting for Stock-Based Compensation. (APB) Accounting for
    Stock Issued to Employees,
    (the Black-Scholes
    Model)
  Income Taxes. Accounting for Income Taxes, asset-and-liability
 35




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##### Table of Contents



Recent
    Accounting Pronouncements
  EITF 08-1, Revenue Arrangements with Multiple
    Deliverables. EITF 08-1
  (IFRS) (IASB)
  The FASB Accounting Standards
    Codificationtm

    and the Hierarchy of Generally Accepted Accounting
    Principles  A Replacement of FASB Statement
    No. 162. Codification)
  FAS 142-3, Determination of the Useful Life of Intangible
    Assets. FAS 142-3 Goodwill and Other Intangible
    Assets. FAS 142-3 FAS 142-3
  Disclosures about Derivative Instruments and Hedging
    Activities  an amendment of FASB Statement
    No. 133.
  Non-Controlling Interests in Consolidated Financial
    Statements, an amendment of ARB No. 151,
 36




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##### Table of Contents



Business Combinations,
  Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Item 8.
    Financial
    Statements and Supplementary Data  page F-2
  Item 9.
    Changes
    in, and Disagreements with, Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Evaluation of Disclosure Controls and
    Procedures. Rules 13a-15(e) 15d-15(e)
  Changes in Internal Control. Rule 13a-15(f)
 37




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##### Table of Contents



Managements
    Report on Internal Control over Financial Reporting
  Rules 13a-15(f) 15d-15(f)
  Internal Control  Integrated
    Framework.
  Form 10-K
  Item 9B.
    Other
    Information   PART III  Form 10-K Proxy
    Statement) Form 10-K,
  Item 10.
    Directors,
    Executive Officers and Corporate Governance      Code of Ethics.
  Item 11.
    Executive
    Compensation   38




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##### Table of Contents



Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Equity
    Compensation Plan Information as of July 31, 2009
    (c)Number of Securities(a)


(b)


Available for FutureNumber of Securities to


Weighted-Average


Issuancebe Issued Upon Exercise


Exercise Price of


Under Equity Compensationof Outstanding Options,


Outstanding Options,


Plans (Excluding SecuritiesPlan Category

Warrants and Rights


Warrants and Rights


Reflected in Column(a))Equity-compensation plans approved by security holders


6,371,203


$
3.58



1,450,862Equity-compensation plans not approved by security holders










Total


6,371,203







1,450,862   Item 13.
    Certain
    Relationships and Related Transactions and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services   PART IV  Item 15.
    Exhibits,
    Financial-Statement Schedules  Financial Statements.
    Financial-Statement Schedule.
    Exhibits.
   39




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##### Table of Contents



SIGNATURES    NaviSite, Inc.
  By:
    /s/  Arthur
    P. Becker   Chief Executive Officer
      Signatures

Title

Date/s/  Andrew
    RuhanAndrew
    Ruhan

Chairman of the Board

October 27, 2009/s/  Arthur
    P. BeckerArthur
    P. Becker

President, Chief Executive
    Officer and Director
    (Principal Executive Officer)

October 27, 2009/s/  James
    W. PluntzeJames
    W. Pluntze

Chief Financial Officer
    (Principal Financial Officer and
    Principal Accounting Officer)

October 27, 2009/s/  James
    H. DennedyJames
    H. Dennedy

Director

October 27, 2009/s/  Larry
    W. SchwartzLarry
    W. Schwartz

Director

October 27, 2009/s/  Thomas
    R. EvansThomas
    R. Evans

Director

October 27, 2009  40




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##### Table of Contents



INDEX TO
    EXHIBITS
  Exhibit No.

Description of Exhibit2
.1

Asset Purchase Agreement, dated as of August 10, 2007, by and
    among NaviSite, Inc.; Navi Acquisition Corp.; Alabanza,
    LLC; and Hosting Ventures, LLC, is incorporated herein by
    reference to Exhibit 10.1 to the Registrants Current
    Report on Form 8-K filed on August 16, 2007 (File No. 000-27597).2
.2

Stock Purchase Agreement, dated August 10, 2007, by and among
    NaviSite, Inc.; Jupiter Hosting, Inc.; and the stockholders of
    Jupiter Hosting, Inc., is incorporated herein by reference to
    Exhibit 10.2 to the Registrants Current Report on Form 8-K
    filed on August 16, 2007 (File No. 000-27597).2
.3

Agreement and Plan of Merger, dated as of September 12, 2007, by
    and among NaviSite, Inc.; NSite Acquisition Corp.; netASPx,
    Inc.; and GTCR Fund VI, L.P., is incorporated herein by
    reference to Exhibit 10.3 to the Registrants Current
    Report on Form 8-K filed on September 18, 2007 (File No.
    000-27597).3
.1

Amended and Restated Certificate of Incorporation is
    incorporated herein by reference to Exhibits to the
    Registrants Quarterly Report on Form 10-Q for the fiscal
    quarter ended October 31, 1999 (File No. 000-27597).3
.2

Certificate of Amendment of Amended and Restated Certificate of
    Incorporation, dated as of January 4, 2003, is incorporated
    herein by reference to Exhibits to the Registrants
    Quarterly Report on Form 10-Q for the fiscal quarter ended
    January 31, 2003 (File No. 000-27597).3
.3

Certificate of Amendment of Amended and Restated Certificate of
    Incorporation, dated as of January 7, 2003, is incorporated
    herein by reference to Exhibits to the Registrants
    Quarterly Report on Form 10-Q for the fiscal quarter ended
    January 31, 2003 (File No. 000-27597).3
.4

Certificate of Designation of Rights, Preferences, Privileges
    and Restrictions of Series A Convertible Preferred Stock, dated
    as of September 12, 2007, is incorporated herein by reference to
    Exhibit 3.1 to the Registrants Current Report on Form 8-K
    filed on September 18, 2007 (File No. 000-27597).3
.5

Waiver of Certificate of Designation of Rights, Preferences,
    Privileges and Restrictions of Series A Convertible Preferred
    Stock by netASPx Holdings, Inc., dated September 25, 2007, is
    incorporated herein by reference to Exhibit 3.1 to the
    Registrants Quarterly Report on Form 10-Q for the fiscal
    quarter ended January 31, 2008 (File No. 000-27597).3
.6

Amended and Restated By-Laws is incorporated herein by reference
    to Exhibits to the Registrants Quarterly Report on Form
    10-Q for the fiscal quarter ended October 31, 1999 (File No.
    000-27597).4
.1

Specimen certificate representing shares of common stock is
    incorporated herein by reference to Exhibits to the
    Registrants Registration Statement on Form S-1/A (File No.
    333-83501).4
.2

Specimen Certificate of Series A Convertible Preferred Stock of
    NaviSite, Inc., is incorporated herein by reference to Exhibit
    4.1 to the Registrants Current Report on Form 8-K filed on
    September 18, 2007 (File No. 000-27597).10
.1

Lease, dated as of May 14, 1999, by and between 400 River
    Limited Partnership and the Registrant, is incorporated herein
    by reference to Exhibits to the Registrants Registration
    Statement on Form S-1 (File No. 333-83501).10
.2

Amendment No. 1 to Lease, by and between 400 River Limited
    Partnership and the Registrant, is incorporated by reference to
    Exhibits to the Registrants Quarterly Report on Form 10-Q
    for the fiscal quarter ended October 31, 2003 (File No.
    000-27597).10
.3

Amendment No. 2 to Lease, dated December 1, 2003, by and between
    400 River Limited Partnership and the Registrant, is
    incorporated herein by reference to Exhibits to the
    Registrants Registration Statement on Form S-2 filed
    January 22, 2004 (File No. 333-112087).10
.4

Amendment No. 3 to Lease, by and between 400 River Limited
    Partnership and the Registrant, is incorporated herein by
    reference to Exhibit 99.1 to the Registrants Current
    Report on Form 8-K dated September 21, 2004 (File No. 000-27597).10
.5

Amendment No. 5 to Lease, dated as of August 15, 2008, by and
    between 400 Minuteman LLC and the Registrant, is incorporated
    herein by reference to Exhibit 10.1 to the Registrants
    Quarterly Report on Form 10-Q for the fiscal quarter ended
    October 31, 2008 (File No. 000-27597).




---



##### Table of Contents



Exhibit No.

Description of Exhibit10
.6

Lease, made as of April 30, 1999, by and between CarrAmerica
    Realty Corporation and the Registrant, is incorporated herein by
    reference to Exhibits to the Registrants Registration
    Statement on Form S-1 (File No. 333-83501).10
.7

First Amendment to Lease, dated as of August 9, 2006, by and
    between the Registrant and Carr NP Properties L.L.C., is
    incorporated herein by reference to Exhibit 10.1 to the
    Registrants Current Report on Form 8-K dated September 11,
    2006 (File No. 000-27597).10
.8*

Amended and Restated 1998 Equity Incentive Plan is incorporated
    herein by reference to Exhibits to the Registrants
    Quarterly Report on Form 10-Q for the fiscal quarter ended
    October 31, 1999 (File No. 000-27597).10
.9*

NaviSite, Inc., Amended and Restated 1999 Employee Stock
    Purchase Plan is incorporated herein by reference to Appendix I
    to the Registrants Definitive Proxy Statement filed
    November 13, 2007 (File No. 000-27597).10
.10*

2000 Stock Option Plan is incorporated herein by reference to
    Exhibits to the Registrants Annual Report on Form 10-K/A
    for the fiscal year ended July 31, 2002 (File No. 000-27597).10
.11*

Employment Agreement, dated as of February 21, 2003, by and
    between Arthur Becker and the Registrant, is incorporated herein
    by reference to Exhibits to the Registrants Quarterly
    Report on Form 10-Q for the fiscal quarter ended January 31,
    2003 (File No. 000-27597).10
.12*

Separation Agreement dated as of April 3, 2006, by and between
    the Registrant and Arthur P. Becker, is incorporated herein by
    reference to Exhibit 99.1 to the Registrants Current
    Report on Form 8-K dated April 6, 2006 (File No. 000-27597).10
.13*

Amendment No. 1 to Separation Agreement, dated as of December 4,
    2008, by and between the Registrant and Arthur P. Becker, is
    incorporated herein by reference to Exhibit 10.1 to the
    Registrants Current Report on Form 8-K filed on December
    9, 2008 (File No. 000-27597).10
.14

Warrant Purchase Agreement, dated as of February 13, 2007, by
    and among the Registrant, SPCP Group, LLC, and SPCP Group
    III, LLC, is incorporated herein by reference to Exhibit 10.1 of
    the Registrants Current Report on Form 8-K filed on
    February 20, 2007 (File No. 000-27597).10
.15

Warrant to Purchase Common Stock, dated February 13, 2007,
    issued by the Registrant to SPCP Group, LLC, is
    incorporated herein by reference to Exhibit 10.2 of the
    Registrants Current Report on Form 8-K filed on February
    20, 2007 (File No. 000-27597).10
.16

Warrant to Purchase Common Stock, dated February 13, 2007,
    issued by the Registrant to SPCP Group III, LLC, is
    incorporated herein by reference to Exhibit 10.3 of the
    Registrants Current Report on Form 8-K filed on February
    20, 2007 (File No. 000-27597).10
.17

Amendment No. 1 to Warrant, dated as of February 13, 2007, by
    and between the Registrant and SPCP Group, LLC, is incorporated
    herein by reference to Exhibit 10.8 to the Registrants
    Quarterly Report on Form 10-Q for the fiscal quarter ended
    January 31, 2007 (File No. 000-27597).10
.18

Credit Agreement, dated as of June 8, 2007, by and among
    NaviSite, Inc.; certain of its subsidiaries; Canadian Imperial
    Bank of Commerce, through its New York agency, as issuing bank,
    administrative agent for the Lenders and as collateral agent for
    the Secured Parties and the issuing bank; CIBC World Markets
    Corp., as sole lead arranger, documentation agent and
    bookrunner; CIT Lending Services Corporation, as syndication
    agent; and certain affiliated entities, is incorporated herein
    by reference to Exhibit 10.1 to the Registrants Current
    Report on Form 8-K dated as of June 13, 2007 (File No.
    000-27597).10
.19

Security Agreement, dated as of June 8, 2007, by and among
    NaviSite, Inc.; certain of its subsidiaries; and Canadian
    Imperial Bank of Commerce, acting through its New York agency,
    as collateral agent, is incorporated herein by reference to
    Exhibit 10.2 to the Registrants Current Report on Form 8-K
    dated as of June 13, 2007 (File No. 000-27597).10
.20

Form of Term Note, to be made by NaviSite, Inc., is incorporated
    herein by reference to Exhibit 10.3 to the Registrants
    Current Report on Form 8-K dated as of June 13, 2007 (File No.
    000-27597).10
.21

Form of Revolving Note to be made by NaviSite, Inc., is
    incorporated herein by reference to Exhibit 10.4 to the
    Registrants Current Report on Form 8-K dated as of June
    13, 2007
    (File No. 000-27597).




---



##### Table of Contents



Exhibit No.

Description of Exhibit10
.22

Amendment, Waiver and Consent Agreement No. 1, dated as of
    August 10, 2007, by and among NaviSite, Inc.; certain of its
    subsidiaries; Canadian Imperial Bank of Commerce, through its
    New York agency, as issuing bank, administrative agent for
    the Lenders and as collateral agent for the Secured Parties and
    the issuing bank; CIBC World Markets Corp., as sole lead
    arranger, documentation agent and bookrunner; CIT Lending
    Services Corporation, as syndication agent; and certain
    affiliated entities, is incorporated herein by reference to
    Exhibit 10.3 to the Registrants Current Report on Form 8K
    dated as of August 16, 2007 (File No. 000-27597).10
.23

Amended and Restated Credit Agreement, dated as of September 12,
    2007, by and among NaviSite, Inc.; certain of its subsidiaries;
    Canadian Imperial Bank of Commerce, through its New York
    agency, as issuing bank, administrative agent for the Lenders
    and as collateral agent for the Secured Parties and the issuing
    bank; CIBC World Markets Corp., as sole lead arranger,
    documentation agent and bookrunner; CIT Lending Services
    Corporation, as syndication agent; and certain affiliated
    entities, is incorporated herein by reference to Exhibit 10.1 to
    the Registrants Current Report on Form 8-K dated as of
    September 18, 2007 (File No. 000-27597).10
.24

Term Note, dated as of September 12, 2007, issued by NaviSite,
    Inc., to CIBC, Inc., is incorporated herein by reference to
    Exhibit 10.2 to the Registrants Current Report on Form 8-K
    dated as of September 18, 2007 (File No. 000-27597).10
.25

Waiver No. 2, dated as of November 2, 2007, by and among
    NaviSite, Inc.; certain of its subsidiaries; Canadian Imperial
    Bank of Commerce, through its New York agency, as issuing bank,
    administrative agent for the Lenders and as collateral agent for
    the Secured Parties and the issuing bank; CIBC World Markets
    Corp., as sole lead arranger, documentation agent and
    bookrunner; CIT Lending Services Corporation, as syndication
    agent; and certain affiliated entities, is incorporated herein
    by reference to Exhibit 10.2 to the Registrants Quarterly
    Report on Form 10-Q for the fiscal quarter ended October 31,
    2007 (File No. 000-27597).10
.26

Amendment, Waiver and Consent Agreement No. 3, dated as of
    January 31, 2008, by and among NaviSite, Inc.; certain of its
    subsidiaries; Canadian Imperial Bank of Commerce, through its
    New York agency, as issuing bank, administrative agent for
    the Lenders and as collateral agent for the Secured Parties and
    the issuing bank; CIBC World Markets Corp., as sole lead
    arranger, documentation agent and bookrunner; CIT Lending
    Services Corporation, as syndication agent; and certain
    affiliated entities, is incorporated herein by reference to
    Exhibit 10.3 to the Registrants Quarterly Report on Form
    10-Q for the fiscal quarter ended October 31, 2007 
    (File No. 000-27597).10
.27

Amendment and Consent Agreement No. 4, dated as of June 20,
    2008, by and among NaviSite, Inc.; certain of its subsidiaries;
    Canadian Imperial Bank of Commerce, through its New York agency,
    as issuing bank, administrative agent for the Lenders and as
    collateral agent for the Secured Parties and the issuing bank;
    CIBC World Markets Corp., as sole lead arranger, documentation
    agent and bookrunner; CIT Lending Services Corporation, as
    syndication agent; and certain affiliated entities, is
    incorporated herein by reference to Exhibit 10.5 to the
    Registrants Quarterly Report on Form 10-Q for the fiscal
    quarter ended April 30, 2008 (File No. 000-27597).10
.28

Amendment, Waiver and Consent Agreement No. 5, dated as of
    October 30, 2008, by and among NaviSite, Inc.; certain of its
    subsidiaries; Canadian Imperial Bank of Commerce, through its
    New York agency, as issuing bank, administrative agent for
    the Lenders and as collateral agent for the Secured Parties and
    the issuing bank; CIBC World Markets Corp., as sole lead
    arranger, documentation agent and bookrunner; CIT Lending
    Services Corporation, as syndication agent; and certain
    affiliated entities, is incorporated herein by reference to
    Exhibit 10.1 to the Registrants Current Report on Form 8-K
    dated as of October 29, 2008 (File No. 000-27597).10
.29

Registration Rights Agreement, dated as of September 12, 2007,
    by and between NaviSite, Inc., and GTCR Fund VI, L.P., is
    incorporated herein by reference to Exhibit 10.4 to the
    Registrants Current Report on Form 8-K dated September 18,
    2007 (File No. 000-27597).10
.30

Warrant to Purchase Stock, dated January 30, 2004, issued by the
    Registrant to Silicon Valley Bank, is incorporated herein by
    reference to Exhibit 10.3 to the Registrants Current
    Report on Form 8-K dated January 30, 2004 (File No. 000-27597).




---



##### Table of Contents



Exhibit No.

Description of Exhibit10
.31

Form of Indemnification Agreement, as executed by Messrs. Andrew
    Ruhan, Arthur P. Becker, James H. Dennedy, Larry W.
    Schwartz, Thomas R. Evans, James W. Pluntze, R. Brooks
    Borcherding, Mark Clayman, Nasir Cochinwala, Monique Cormier,
    Denis Martin, Sumeet Sabharwal, Rathin Sinha and Mark Zingale,
    is incorporated by reference to Exhibits to the
    Registrants Annual Report on
    Form 10-K
    for the fiscal year ended July 31, 2003 (File No. 000-27597).10
.32

Lease and Services Agreement, by and between NaviSite Europe
    Limited and Global Switch (London) Limited, is incorporated by
    reference to Exhibits to the Registrants Registration
    Statement on Form S-2/A filed on March 8, 2004 (File No.
    333-12087).10
.33*

NaviSite, Inc., Amended and Restated 2003 Stock Incentive Plan
    is incorporated herein by reference to Appendix II to the
    Registrants Definitive Schedule 14C filed January 5, 2005
    (File No. 000-27597).10
.34*

Amendment No. 1 to the NaviSite, Inc., Amended and Restated 2003
    Stock Incentive Plan is incorporated herein by reference to
    Appendix II to the Registrants Definitive Schedule
    14C filed January 5, 2005 (File No. 000-27597).10
.35*

Amendment No. 2 to the Amended and Restated 2003 Stock Incentive
    Plan is incorporated herein by reference to Appendix II to
    the Registrants Definitive Schedule 14C filed March 14,
    2006 (File No. 000-27597).10
.36*

Form of Amendment No. 1 to Restricted Stock Agreement Granted
    Under Amended and Restated 2003 Stock Incentive Plan is
    incorporated herein by reference to Exhibit 10.1 to the
    Registrants Quarterly Report on Form 10Q for the fiscal
    quarter ended January 31, 2009 (File No. 000-27597).10
.37*

Form of Director Restricted Stock Agreement Granted Under
    Amended and Restated 2003 Stock Incentive Plan is incorporated
    herein by reference to Exhibit 10.2 to the Registrants
    Quarterly Report on Form 10-Q for the fiscal quarter ended
    January 31, 2009 (File No. 000-27597).10
.38*

Form of Employee Restricted Stock Agreement Granted Under
    Amended and Restated 2003 Stock Incentive Plan is incorporated
    herein by reference to Exhibit 10.3 to the Registrants
    Quarterly Report on Form 10-Q for the fiscal quarter ended
    January 31, 2009 (File No. 000-27597).10
.39*

Employment Offer Letter, dated August 12, 2005, between the
    Registrant and Monique Cormier, is incorporated herein by
    reference to Exhibit 10.64 to the Registrants Annual
    Report on
    Form 10-K
    for the fiscal year ended July 31, 2005 (File No. 000-27597).10
.40*

Separation Agreement, dated as of April 3, 2006, by and between
    the Registrant and Monique Cormier, is incorporated herein by
    reference to Exhibit 99.3 to the Registrants Current
    Report on Form 8-K dated April 6, 2006 (File No. 000-27597).10
.41*

Separation Agreement, dated as of July 31, 2007, by and between
    the Registrant and James W. Pluntze, is incorporated herein by
    reference to Exhibit 99.1 to the Registrants Current
    Report on Form 8-K dated August 2, 2007 (File No. 000-27597).10
.42*

Amendment No. 1 to Separation Agreement, dated as of December 4,
    2008, by and between the Registrant and James W. Pluntze, is
    incorporated herein by reference to Exhibit 10.2 to the
    Registrants Current Report on Form 8-K filed on December
    9, 2008 (File No. 000-27597).10
.43*

NaviSite, Inc., Amended and Restated Director Compensation Plan
    is incorporated herein by reference to Exhibit 99.1 to the
    Registrants Current Report on Form 8-K dated August 16,
    2007 (File No. 000-27597).10
.44*

2007 Bonus Letter, dated October 24, 2006, by and between the
    Registrant and Arthur Becker, is incorporated herein by
    reference to Exhibit 10.71 to the Registrants Annual
    Report on Form 10K for the fiscal year ended July 31, 2006 (File
    No. 000-27597).10
.45*

2007 Bonus Letter, dated October 24, 2006, by and between the
    Registrant and Monique Cormier, is incorporated herein by
    reference to Exhibit 10.73 to the Registrants Annual
    Report on
    Form 10-K
    for the fiscal year ended July 31, 2006 (File No. 000-27597).10
.46*

Offer of Employment, dated as of May 19, 2004, by and between
    the Registrant and Mark Clayman, is incorporated herein by
    reference to Exhibit 10.1 to the Registrants Quarterly
    Report on Form 10-Q for the fiscal quarter ended April 30, 2008
    (File No. 000-27597).10
.47*

Separation Agreement, dated as of April 3, 2006, by and between
    the Registrant and Mark Clayman, is incorporated herein by
    reference to Exhibit 10.2 to the Registrants Quarterly
    Report on Form 10-Q for the fiscal quarter ended April 30, 2008
    (File No. 000-27597).




---



##### Table of Contents



Exhibit No.

Description of Exhibit10
.48*

Amendment No. 1 to Separation Agreement, dated as of December 7,
    2008, by and between the Registrant and Mark Clayman, is
    incorporated herein by reference to Exhibit 10.3 to the
    Registrants Current Report on Form 8K filed on December 9,
    2008 (File No. 000-27597).10
.49*

Offer of Employment, dated as of June 17, 2005, by and between
    the Registrant and Nasir Cochinwala, is incorporated herein by
    reference to Exhibit 10.3 to the Registrants Quarterly
    Report on Form 10-Q for the fiscal quarter ended April 30, 2008
    (File No. 000-27597).10
.50*

Separation Agreement, dated as of April 3, 2006, by and between
    the Registrant and Nasir Cochinwala, is incorporated herein by
    reference to Exhibit 10.4 to the Registrants Quarterly
    Report on Form 10-Q for the fiscal quarter ended April 30, 2008
    (File No. 000-27597).10
.51*

Offer Letter, dated as of March 27, 2009, effective as of April
    3, 2009, by and between the Registrant and R. Brooks
    Borcherding, is incorporated herein by reference to Exhibit 10.1
    to the Registrants Current Report on Form 8-K filed on
    April 13, 2009 (File No. 000-27597).10
.52*

Separation Agreement, dated as of April 13, 2009, by and between
    the Registrant and R. Brooks Borcherding.10
.53*

Offer Letter, dated as of August 28, 2009, by and between the
    Registrant and Mark Zingale.10
.54*

Separation Agreement, dated as of August 31, 2009, by and
    between the Registrant and Mark Zingale.10
.55*

Summary of the Registrants FY 2010 Executive Management
    Bonus Program is incorporated herein by reference to Exhibit
    10.1 to the Registrants Current Report on Form 8-K filed
    on September 23, 2009 (File No. 000-27597).10
.56*

Offer Letter, dated as of June 22, 2003, by and between the
    Registrant and Denis Martin.10
.57*

Separation Agreement, dated as of April 6, 2006, by and
    between the Registrant and Denis Martin.10
.58*

Amendment No. 1 to Separation Agreement, dated as of
    December 8, 2008, by and between the Registrant and Denis
    Martin.10
.59*

Offer Letter, dated as of September 17, 2004, by and
    between the Registrant and Sumeet Sabharwal.10
.60*

Separation Agreement, dated as of April 3, 2006, by and
    between the Registrant and Sumeet Sabharwal.10
.61*

Offer Letter, dated as of May 8, 2007, by and between the
    Registrant and Rathin Sinha.10
.62*

Amended and Restated Separation Agreement, dated as of
    September 3, 2009, by and between the Registrant and Rathin
    Sinha.21


Subsidiaries of the Registrant.23


Consent of KPMG LLP, Independent Registered Public Accounting
    Firm.31
.1

Certification of Chief Executive Officer pursuant to Section 302
    of the Sarbanes-Oxley Act of 2002.31
.2

Certification of Chief Financial Officer pursuant to Section 302
    of the Sarbanes-Oxley Act of 2002.32
.1

Certification of the Chief Executive Officer pursuant to
    18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002.32
.2

Certification of the Chief Financial Officer pursuant to
    18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002.     (*)
    
    Management contract or compensatory plan or arrangement.




---



##### Table of Contents



INDEX TO
    NAVISITE, INC., CONSOLIDATED FINANCIAL STATEMENTS  PageReport of Independent Registered Public
    Accounting Firm


F-2Consolidated Balance Sheets as of July 31,
    2009 and 2008


F-3Consolidated Statements of Operations for the
    Years Ended July 31, 2009, 2008 and 2007


F-4Consolidated Statements of Changes in Convertible
    Preferred Stock and Stockholders Deficit and Comprehensive
    Loss for the Years Ended July 31, 2009, 2008 and 2007


F-5Consolidated Statements of Cash Flows for the
    Years Ended July 31, 2009, 2008 and 2007


F-6Notes to Consolidated Financial Statements


F-7Report of Independent Registered Public
    Accounting Firm on Financial-Statement Schedule


F-39Financial-Statement Schedule II 
    Valuation and Qualifying Accounts


F-40  F-1




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM           
    F-2




---



##### Table of Contents



NAVISITE,
    INC.CONSOLIDATED BALANCE SHEETS
  July 31,2009


2008(In thousands, except par value)ASSETSCurrent assets:Cash and cash equivalents

$
10,534


$
3,261Accounts receivable, less allowance for doubtful accounts of
    $1,820 and $897 at July 31, 2009 and 2008, respectively


16,417



18,927Unbilled accounts receivable


1,361



1,711Prepaid expenses and other current assets


6,336



11,369Total current assets


34,648



35,268Property and equipment, net


32,048



38,141Intangible assets, net of accumulated amortization


22,093



29,290Goodwill


66,566



66,683Other assets


6,769



4,446Restricted cash


1,556



1,885Total assets

$
163,680


$
175,713LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Notes payable, current portion

$
10,603


$
6,100Capital lease obligations, current portion


3,040



3,166Accounts payable


5,375



7,033Accrued expenses


9,490



11,070Accrued interest


1,837



1,367Accrued lease abandonment costs, current portion


332



857Deferred revenue


4,285



2,741Deferred other income and customer deposits


662



886Total current liabilities


35,624



33,220Capital lease obligations, less current portion


10,973



14,922Accrued lease abandonment costs, less current portion


96



428Deferred tax liabilities


7,492



5,597Other long-term liabilities


7,565



4,939Notes payable, less current portion


106,154



107,850Total liabilities


167,904



166,956Series A Convertible Preferred stock, $0.01 par value;
    designated 5,000 shares; issued and
    outstanding:  3,664 at July 31, 2009;
    3,320 shares at July 31, 2008


30,879



27,529Commitments and contingencies (Note 11)Stockholders deficit:Common stock, $0.01 par value; Authorized
    395,000 shares; issued and outstanding:  35,911
    and 35,232 at July 31, 2009 and 2008, respectively


359



352Accumulated other comprehensive (loss) income


(1,024
)


253Additional paid-in capital


485,136



485,086Accumulated deficit


(519,574
)


(504,463
)Total stockholders deficit


(35,103
)


(18,772
)Total liabilities and stockholders deficit

$
163,680


$
175,713    F-3




---



##### Table of Contents



NAVISITE,
    INC.CONSOLIDATED STATEMENTS OF OPERATIONS
  Years Ended July 31,2009


2008


2007(In thousands, except per share data)Revenue, net

$
152,326


$
154,507


$
125,860Revenue, related parties


346



372



322Total revenue


152,672



154,879



126,182Cost of revenue


79,340



87,355



72,634Depreciation and amortization


22,948



20,360



12,562Restructuring charge


209







Total cost of revenue


102,497



107,715



85,196Gross profit


50,175



47,164



40,986Operating expenses:Selling and marketing


20,279



20,116



16,924General and administrative


23,781



22,773



22,043Loss on settlement


5,736







Impairment, restructuring and other, net


180







(231
)Total operating expenses


49,976



42,889



38,736Income from operations


199



4,275



2,250Other income (expense):Interest income


43



264



337Interest expense


(14,164
)


(12,033
)


(12,476
)Loss on debt extinguishment






(1,651
)


(15,712
)Other income, net


705



2,295



864Loss from operations before income taxes


(13,217
)


(6,850
)


(24,737
)Income taxes


(1,894
)


(1,834
)


(1,173
)Net loss


(15,111
)


(8,684
)

$
(25,910
)Accretion of preferred stock dividends


(3,350
)


(2,656
)


Net loss attributable to common stockholders

$
(18,461
)

$
(11,340
)

$
(25,910
)Basic and diluted net loss per common shareNet loss per common share attributable to common stockholders

$
(0.52
)

$
(0.33
)

$
(0.85
)Basic and diluted weighted average number of common shares
    outstanding


35,528



34,731



30,512Stock-based compensation expense:Cost of revenue

$
1,268


$
1,794


$
1,342Selling and marketing


557



746



570General and administrative


1,298



1,830



1,784Restructuring charge


19







Total stock-based compensation expense

$
3,142


$
4,370


$
3,696    F-4




---



##### Table of Contents



NAVISITE,
    INC.CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE
    PREFERRED STOCK AND
    STOCKHOLDERS DEFICIT AND COMPREHENSIVE LOSS
  AccumulatedOther


Additional





StockholdersPreferred Stock



Common Stock


Comprehensive


Paid-in


Accumulated


Equity


ComprehensiveShares


Amount



Shares


Amount


Income (Loss)


Capital


Deficit


(Deficit)


LossBalance at July 31, 2006





$





28,959


$
290


$
203


$
467,400


$
(469,869
)

$
(1,976
)Exercise of common stock options











1,442



14







4,034







4,048Exercise of common stock purchase warrants











1,730



17















17Conversion of note payable











1,375



14







3,850







3,864Issuance of common stock purchase warrants























2,219







2,219Stock compensation and amortization of deferred stock-based
    compensation























3,696







3,696Net loss



























(25,910
)


(25,910
)


(25,910
)Currency translation adjustment



















178











178



178Total comprehensive loss



































(25,732
)Balance at July 31, 2007











33,506



335



381



481,199



(495,779
)


(13,864
)Exercise of common stock options and shares issued under
    employee stock purchase plan











664



7







1,947







1,954Issuance of preferred stock


3,125



24,873




















Preferred stock dividend


195



2,656
















(2,656
)






(2,656
)Issuance of common stock related to acquisition











25











226







226Exercise of common stock purchase warrants











1,000



10















10Vesting of restricted stock and stock-based compensation











37











4,370







4,370Net loss



























(8,684
)


(8,684
)


(8,684
)Currency translation adjustment



















(128
)










(128
)


(128
)Total comprehensive loss



































(8,812
)Balance at July 31, 2008


3,320


$
27,529




35,232


$
352


$
253


$
485,086


$
(504,463
)

$
(18,772
)Exercise of common stock options and shares issued under
    employee stock purchase plan











519



5







259







264Preferred stock dividend


344



3,350
















(3,350
)






(3,350
)Vesting of restricted stock and stock-based compensation











160



2







3,141







3,143Net loss



























(15,111
)


(15,111
)


(15,111
)Currency translation adjustment



















(1,277
)










(1,277
)


(1,277
)Total comprehensive loss



































(16,388
)Balance at July 31, 2009


3,664


$
30,879




35,911


$
359


$
(1,024
)

$
485,136


$
(519,574
)

$
(35,103
)    F-5




---



##### Table of Contents



NAVISITE,
    INC.CONSOLIDATED STATEMENTS OF CASH FLOWS
  Years Ended July 31,2009


2008


2007(In thousands)Cash flows from operating activities:Net loss

$
(15,111
)

$
(8,684
)

$
(25,910
)Adjustments to reconcile net loss to net cash provided by
    operating activities:Depreciation and amortization


23,638



21,223



13,684Mark to market for interest rate cap


73



91



106Deferred income tax expense


1,894



1,834



1,173(Gain) loss on disposal of assets


(14
)


17



(11
)Gain on settlements






(1,607
)


Impairment costs (recoveries) associated with abandoned leases










(231
)Amortization of warrants










1,907Non-cash stock compensation


3,142



4,370



3,696Provision for bad debts


1,908



581



36Loss on debt extinguishment






1,651



15,712Changes in operating assets and liabilities, net of impact of
    acquisitions Accounts receivable


278



(500
)


(3,215
)Due from related parties










30Unbilled accounts receivable


299



(765
)


(490
)Prepaid expenses and other current assets, net


5,474



(7,222
)


(608
)Other assets


(1,874
)


(87
)


1,365Accounts payable


(1,553
)


2,241



(1,710
)Deferred other income and customer deposits


(464
)


(132
)


(653
)Other long-term liabilities


3,204



936



(165
)Accrued expenses and deferred revenue


680



(7,970
)


2,198Net cash provided by operating activities


21,574



5,977



6,914Cash flows from investing activities:Purchase of property and equipment


(10,648
)


(11,975
)


(7,934
)Cash used for acquisitions, net of cash acquired






(31,373
)


Proceeds from the sale of equipment


32



1



11Changes in restricted cash position


45



13,535



(7,986
)Net cash used for investing activities


(10,571
)


(29,812
)


(15,909
)Cash flows from financing activities:Proceeds from exercise of stock options & employee
    stock purchase plan


264



1,954



4,048Proceeds from exercise of warrants






10



17Proceeds from notes payable, net


10,436



28,881



95,517Repayment of notes payable


(8,997
)


(10,114
)


(78,074
)Debt issuance costs


(1,184
)


(1,509
)


(1,541
)Payments on capital lease obligations


(4,091
)


(3,827
)


(2,631
)Net cash (used)provided by financing activities


(3,572
)


15,395



17,336Effect of exchange rate change on cash and cash equivalents


(158
)






Net increase(decrease) in cash and cash equivalents


7,273



(8,440
)


8,341Cash and cash equivalents, beginning of year


3,261



11,701



3,360Cash and cash equivalents, end of year

$
10,534


$
3,261


$
11,701Supplemental disclosure of cash flow information:Cash paid for interest

$
11,950


$
11,397


$
7,709Supplemental disclosure of non-cash transactions:Equipment purchased under capital leases

$
2,514


$
17,652


$
2,668Conversion of long term debt to common stock

$



$



$
3,864Issuance of Series A Convertible Preferred Stock in
    connection with netASPx acquisition

$



$
24,873


$
Accretion of Preferred Stock

$
3,350


$
2,656


$
    F-6




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  (1)
    Description
    of Business  NaviSite, Company, we, us our 15 state-of-the-art
  (2)
    Summary
    of Significant Accounting Policies  (a)  Basis
    of Presentation and Background
  ((ModusLink))
  Alabanza)
    (b)  Principles
    of Consolidation
    (c)  Use
    of Estimates
    (d)  Cash
    and Cash Equivalents and Restricted Cash
   F-7




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      (e)  Revenue
    Recognition
    percentage-of-completion
  (EITF) No. 00-21, Revenue Arrangements with Multiple
    Deliverables, EITF 00-21,
  (f)  Allowance
    for Doubtful Accounts
   F-8




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (g)  Concentration
    of Credit Risk
      (h)  Comprehensive
    Income (Loss)
    (i)  Property
    and Equipment
      (j)  Long-Lived
    Assets, Goodwill and Other Intangibles
  SFAS) Accounting for the Impairment or Disposal of Long-Lived
    Assets.
  Goodwill and Other Intangible
    Assets.
 F-9




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (k)  Advertising
    Costs
    (l)  Income
    Taxes
  asset-and-liability Accounting for Income Taxes 
  Accounting for Uncertainty
    in Income Taxes (FIN 48)
    (m)  Derivative
    Financial Instruments
    (n)  Lease
    Expense
  Accounting for
    Leases 
 F-10




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (o)  Stock-Based
    Compensation Plans
  Share-Based Payment, an amendment of FASB Statements
    Nos. 123 and 95, (SAB)
      Stock
    Options
    Years Ended July 31,2009


2008


2007(In thousands)Cost of revenue

$
1,052


$
1,724


$
1,342Selling and marketing


457



710



570General and administrative


507



903



1,784$
2,016


$
3,337


$
3,696   lock-up
 F-11




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years Ended July 31,2009


2008


2007Risk-free interest rate


1.67
%


3.40
%


4.62
%Expected volatility


90.91
%


82.65
%


99.03
%Expected life (years)


2.72



2.50



3.00Weighted average fair value of options granted

$
0.70


$
3.21


$
3.19       WeightedAverageWeighted


RemainingNumber


Average


Contractual


Aggregateof


Exercise


Term


IntrinsicShares


Price


(Years)


Value(Thousands)Options outstanding, beginning of year


6,722,165


$
3.94Granted


867,225


$
1.33Exercised


(85,701
)

$
1.55Forfeited or Expired


(1,132,486
)

$
4.15Options outstanding, July 31, 2009


6,371,203


$
3.58



6.53


$
331Options exercisable, July 31, 2009


5,064,249


$
3.57



5.98


$
68       Non-Vested
    Shares
   F-12




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years Ended July 31,2009


2008


2007(In thousands)Cost of revenue

$
129


$
3


$
Selling and marketing


66



2



General and administrative


773



898



$
968


$
903


$
     Employee
    Stock Purchase Plan
  ESPP)
      Years Ended July 31,2009


2008


2007(In thousands)Cost of revenue

$
93


$
67


$
Selling and marketing


34



34



General and administrative


31



29



$
158


$
130


$
     (p)  Basic
    and Diluted Net Loss per Common Share
   F-13




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Years Ended July 31,2009


2008


2007Common-stock options


105,765



1,943,861



1,984,040Common-stock warrants


1,188,783



1,197,992



1,428,209Non-vested stock


134,222



151,604



Series A convertible preferred stock


3,724,844



3,356,202



ESPP






28,119



Total


5,153,614



6,677,778



3,412,249   (q)  Segment
    Reporting
    (r)  Recent
    Accounting Pronouncements
  EITF 08-1, Revenue Arrangements with Multiple Deliverables.
    EITF 08-1
    addresses how to determine whether an arrangement involving
    multiple deliverables contains more than one unit of accounting
    and how the arrangement consideration should be allocated among
    the separate units of accounting. The new guidance also requires
    enhanced financial-statement disclosures. We are currently
    assessing the impact that
    EITF 08-1
    will have on our consolidated financial statements.
    The FASB Accounting Standards
    Codification tm and the Hierarchy of Generally Accepted Accounting
    Principles  A Replacement of FASB Statement
    No. 162. Codification)
 F-14




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  FAS 142-3, Determination of the Useful Life of Intangible
    Assets. FAS 142-3 Goodwill and Other Intangible
    Assets. FAS 142-3 FAS 142-3
  Disclosures about Derivative Instruments and Hedging
    Activities  an amendment of FASB Statement
    No. 133.
  Non-Controlling Interests in Consolidated Financial
    Statements, an amendment of ARB No. 151,
  Business Combinations,
  (s)  Foreign
    Currency
    (t)  Subsequent
    Event
  Subsequent Events.
 F-15




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (u)  Reclassifications
    (3)
    Impairment
    of Long-Lived Assets      (4)
    Property
    and Equipment    July 31,2009


2008(In thousands)Office furniture and equipment

$
4,208


$
4,522Computer equipment


75,766



68,968Software licenses


15,798



15,270Leasehold improvements


25,838



26,981121,610



115,741Less:  Accumulated depreciation and amortization


(89,562
)


(77,600
)Property and equipment, net

$
32,048


$
38,141       July 31,2009


2008(In thousands)Computer equipment

$
20,637


$
15,582Leasehold improvements


12,119



14,660Total cost

$
32,756


$
30,242Accumulated depreciation and amortization


(15,324
)


(11,777
)$
17,432


$
18,465  F-16




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (5)
    Intangible
    Assets    July 31, 2009Gross Carrying


Accumulated


Net CarryingAmount


Amortization


Amount(In thousands)Customer lists

$
39,392


$
(26,498
)

$
12,894Customer contract backlog


14,600



(7,619
)


6,981Developed technology


3,140



(1,506
)


1,634Vendor contracts


700



(637
)


63Trademarks


670



(220
)


450Non-compete agreements


206



(135
)


71Total

$
58,708


$
(36,615
)

$
22,093   July 31, 2008Gross Carrying


Accumulated


Net CarryingAmount


Amortization


Amount(In thousands)Customer lists

$
39,670


$
(23,400
)

$
16,270Customer-contract backlog


14,600



(4,845
)


9,755Developed technology


3,140



(966
)


2,174Vendor contracts


700



(314
)


386Trademarks


670



(105
)


565Non-compete agreements


206



(66
)


140Total

$
58,986


$
(29,696
)

$
29,290       Year Ending July 31,(In thousands)2010

$
6,0682011

$
5,9212012

$
5,7762013

$
2,3072014

$
1,869  F-17




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (6)
    Goodwill    2009


2008


2007(In thousands)Goodwill as of August 1

$
66,683


$
43,159


$
43,159Acquired goodwill






23,524



Adjustments to goodwill


(117
)






Goodwill as of July 31

$
66,566


$
66,683


$
43,159     (7)
    Discontinued
    Operations    (8)
    Accrued
    Expenses    July 31,2009


2008(In thousands)Accrued payroll, benefits and commissions

$
4,086


$
4,561Accrued legal


636



229Accrued accounts payable


2,408



3,214Accrued sales, use, property and miscellaneous taxes


421



599Accrued other


1,939



2,467$
9,490


$
11,070  F-18




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (9)
    Debt    July 31,


July 31,2009


2008(In thousands)Total debt

$
116,757


$
113,950Less current portion, term loan, revolver and other debt


10,603



6,100Long-term term loan

$
106,154


$
107,850   (a)  Senior
    Secured Credit Facility
  Credit Agreement Term Loan Revolver
       F-19




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Silver
    Point
  Amendment
  Amended Credit Agreement EITF 96-19 Debtors Accounting for a Modification or Exchange
    of Debt Instruments
  January Amendment
  June
    Amendment
  October Amendment
     F-20




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (b)  Term
    Loans and Revolving Credit Facilities
  Silver
    Point Debt provided
     F-21




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  SP
    Amendment Supplemental Term Loan
  five-year
    Warrant Issue Date:April 2006


February 2007Expected life (in years)


10



10Expected volatility


101.21
%


105.96
%Expected dividend rate


0.00
%


0.00
%Risk-free interest rate


4.44
%


4.58
%         (c)  Note
    Payable to Atlantic Investors, LLC
  Atlantic Loan
   F-22




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (d)  Revolving
    Credit Facility with Atlantic Investors, LLC
  Atlantic
    Facility
    (e)  Notes
    Payable to the AppliedTheory Estate
  Estate
    Liability
  (10)
    Fair
    Value Measures and Derivative Instruments     F-23




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Accounting
    for Derivative Instruments and Hedging Activities,
  Fair value of derivative financial
    instruments.
  Fair Value Measurements,
  Level 1
  Level 2
  Level 3
    Level 1


Level 2


Level 3


TotalInterest-rate derivatives





$
93,000






$
93,000


$
93,000






$
93,000   Interest-rate derivatives.
 F-24




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Fair value of non-derivative financial
    instruments. Disclosures about Fair Value of Financial
    Instruments.
    2009


2008Carrying Value


Fair Value


Carrying Value


Fair ValueTerm loan  short term

$
546


$
368


$
1,100


$
1,001Term loan  long term


106,154



71,654



107,850



98,144Total term loan

$
106,700


$
72,022


$
108,950


$
99,145Revolver

$
10,018


$
6,261


$
5,000


$
4,300   (11)
    Commitments
    and Contingencies  (a)  Leases
  Abandoned Leased Facilities. Accounting for Costs Associated
    with Exit or Disposal Activities,
       F-25




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          PurchaseAccounting


Payments, LessLease Abandonment

Balance at





and Other


Accretion of


Balance atCosts for:

July 31, 2008


Expense


Adjustments


Interest


July 31, 2009Andover, MA

$
262


$



$



$
(102
)

$
160Chicago, IL


250











(250
)


Houston, TX


113











(113
)


Syracuse, NY


21











(21
)


Santa Clara, CA


77











(77
)


Herndon, VA


56











(22
)


34Minneapolis, MN


506











(272
)


234$
1,285


$



$



$
(857
)

$
428     Less than














AfterDescription

Total


1 Year


Year 2


Year 3


Year 4


Year 5


Year 5(In thousands)Short/long-term debt

$
116,757


$
10,603


$
1,092


$
1,092


$
103,970


$



$
Interest on debt(a)


39,936



11,456



9,945



9,847



8,688







Capital leases(b)


22,447



4,796



2,799



2,320



2,290



2,290



7,952Bandwidth commitments


1,592



1,535



57















Property leases(b)(c)(d)


84,945



10,162



9,113



9,064



9,046



9,009



38,551$
265,677


$
38,552


$
23,006


$
22,323


$
123,994


$
11,299


$
46,503     (a)
    
    Interest on debt assumes that LIBOR is fixed at 3.15% and that
    our leverage ratio drops below 3:1 as of January 31, 2010,
    resulting in a 2% interest-rate decrease. The 2% accruing PIK
    interest will be paid in full at the end of the loan term.(b)
    
    Future commitments denominated in foreign currency are fixed at
    the exchange rates as of July 31, 2009.(c)
    
    Amounts exclude certain common area maintenance and other
    property charges that are not included within the lease payment.(d)
    
    On February 9, 2005, we entered into an assignment and
    assumption agreement with a Las Vegas-based company, whereby
    this company bought our right to use 29,000 square feet in
    our Las Vegas data center, along with the infrastructure and
    equipment associated with this space. In exchange, we received
    an initial payment of $600,000 and were to receive $55,682 per
    month over two years. On May 31, 2006, we F-26




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  received full payment for the remaining unpaid balance. This
    agreement shifts the responsibility for management of the data
    center and its employees, along with the maintenance of the
    facilitys infrastructure, to this Las Vegas-based company.
    Pursuant to this agreement, we have subleased back
    2,000 square feet of space, allowing us to continue
    servicing our existing customer base in this market. Commitments
    related to property leases include an amount related to the
    2,000-square-foot sublease.        (b)  Legal
    Matters
  IPO
    Securities Litigation
  Court IPO Securities
    Litigation class-action Class-Action
    Litigation NaviSite
    Defendants successor-in-interest successor-in-interest Rule 10b-5 Class-Action sub-group Focus Cases Second Circuit Class-Action class-certification Proposed Global
 F-27




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Settlement Class-Action
       F-28




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Other
    litigation
  Alabanza
    Class Actions
  Data Migration
  Court November
    Class-Action
    Litigation Direct Subclass Non-Privity Subclass January
    Class-Action
    Litigation Class-Action Class-Action
  La Touraine,
    Inc.
  LTI Demand Jupiter
 F-29




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (12)
    Income
    Taxes    July 31, 2009


July 31, 2008


July 31, 2007Current


Deferred


Total


Current


Deferred


Total


Current


Deferred


Total(In thousands)Federal

$



$
1,445


$
1,445


$



$
1,461


$
1,461


$



$
868


$
868Foreign


















(78
)


(78
)










State






449



449







451



451







305



305$



$
1,894


$
1,894


$



$
1,834


$
1,834


$



$
1,173



1,173     July 31, 2009


July 31, 2008


July 31, 2007(In thousands)Computed expected tax expense (benefit)

$
(4,494
)

$
(2,087
)

$
(8,411
)State taxes, net of federal income tax benefit


296



298



201Losses not benefited


6,092



3,623



9,383Total

$
1,894


$
1,834


$
1,173     July 31, 2009


July 31, 2008(In thousands)Deferred tax assets:Accruals and reserves

$
12,960


$
12,407Loss carryforwards


73,116



71,259Depreciation and amortization


12,021



11,818Total deferred tax assets

$
98,097


$
95,484Less: Valuation allowance


(98,097
)


(95,484
)Deferred tax liabilities:Amortization of tax goodwill

$
(7,492
)

$
(5,597
)Net deferred assets/(liabilities)

$
(7,492
)

$
(5,597
)        F-30




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            (13)
    Stockholders
    Equity  Issuance
    of Common Stock
     F-31




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Redeemable
    Preferred Stock
    (14)
    Stock-Option
    Plans and Non-Vested Stock Awards  (a)  NaviSite
    1998 Equity Incentive Plan
  1998 Plan
 F-32




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2009


2008


2007Weighted





Weighted





WeightedNumber


Average


Number


Average


Number


Averageof


Exercise


of


Exercise


of


ExerciseShares


Price


Shares


Price


Shares


PriceOptions outstanding, beginning of year


120,000


$
2.55



120,066


$
2.55



134,998


$
2.69Granted





$







$







$
Exercised





$







$




(13,670
)

$
3.83Cancelled





$




(66
)

$
3.30



(1,262
)

$
3.88Options outstanding, end of year


120,000


$
2.55



120,000


$
2.55



120,066


$
2.55Options exercisable, end of year


120,000


$
2.55



120,000


$
2.55



120,066


$
2.55Options available for grant, end of year


















   Options Outstanding


Options ExercisableWeightedAverage


Weighted





WeightedRemaining


Average





AverageNumber


Contractual


Exercise


Number


ExerciseRange of Exercise Prices

Outstanding


Life


Price


Outstanding


Price$0.01 - 2.55


120,000



3.94


$
2.55



120,000


$
2.55120,000











120,000   (b)  NaviSite
    2003 Stock Incentive Plan
  2003 Plan
       F-33




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      2009


2008


2007Weighted





Weighted





WeightedNumber


Average


Number


Average


Number


Averageof


Exercise


of


Exercise


of


ExerciseShares


Price


Shares


Price


Shares


PriceOptions outstanding, beginning of year


6,599,500


$
3.92



6,533,189


$
3.59



6,453,130


$
2.77Granted


867,225


$
1.33



2,002,500


$
6.27



2,335,210


$
5.19Exercised


(85,701
)

$
1.55



(597,732
)

$
2.91



(1,427,881
)

$
2.80Cancelled


(1,132,486
)

$
4.15



(1,338,457
)

$
6.28



(827,270
)

$
3.08Options outstanding, end of year


6,248,538


$
3.55



6,599,500


$
3.92



6,533,189


$
3.59Options exercisable, end of year


4,941,584


$
3.53



4,635,450


$
3.46



3,796,340


$
3.05Options available for grant, end of year


1,450,862







2,095,412







3,192,845   Options Outstanding


Options ExercisableWeightedAverage


Weighted





WeightedRemaining


Average





AverageNumber


Contractual


Exercise


Number


ExerciseRange of Exercise Prices

Outstanding


Life


Price


Outstanding


Price$0.01 - 1.44


678,520



8.76


$
0.88



245,761


$
1.09$1.45 - 1.48


377,880



6.50


$
1.46



377,880


$
1.46$1.49 - 1.58


877,707



5.67


$
1.58



877,707


$
1.58$1.59 - 2.55


963,664



5.04


$
2.28



943,640


$
2.28$2.56 - 3.90


649,286



8.04


$
3.41



350,679


$
3.38$3.91 - 4.49


627,338



6.78


$
4.16



464,034


$
4.19$4.50 - 5.28


157,506



7.35


$
4.81



128,262


$
4.80$5.29 - 5.41


800,000



4.50


$
5.41



800,000


$
5.41$5.42 - 6.70


642,267



7.65


$
5.89



465,639


$
5.87$6.71 - 10.81


474,370



7.95


$
7.86



287,982


$
7.856,248,538











4,941,584  F-34




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Non-Vested
    Shares Issued under the 2003 Plan
    Weighted AverageNumber


Grant Dateof Shares


Fair ValueNon-vested stock outstanding, beginning of year


367,404


$
6.06Granted


1,060,000


$
2.58Vested


(161,106
)

$
1.92Forfeited


(144,188
)

$
3.46Non-vested stock outstanding, July 31, 2009


1,122,110


$
3.27     12-month
  th
     F-35




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    12-month
  (c)  Other
    Stock-Option Grants
    (d)  1999
    Employee Stock Purchase Plan
        (15)
    Restructuring
    Charge      (In thousands)Restructuring accrual balance at July 31, 2008

$
Restructuring and other related charges


476Cash payments and other settlements


(389
)Other adjustments


(87
)Restructuring accrual balance at July 31, 2009

$
  F-36




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (16)
    Related-Party
    Transactions      Lease Data Center
    (17)
    Selected
    Quarterly Financial Data (Unaudited)    Fiscal Year Ended July 31, 2009(b)Q1


Q2


Q3


Q4(In thousands)Revenue

$
40,165


$
38,018


$
37,625


$
36,864Gross profit


12,417



12,196



12,633



12,929Net loss attributable to common stockholders


(3,349
)


(3,316
)


(3,245
)


(8,551
)Net loss per common share(a)

$
(0.09
)

$
(0.09
)

$
(0.09
)

$
(0.24
)   F-37




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Fiscal Year Ended July 31, 2008(b)Q1


Q2


Q3


Q4(In thousands)Revenue

$
36,107


$
38,951


$
39,382


$
40,439Gross profit


10,787



11,747



11,959



12,671Net loss


(4,754
)


(2,875
)


(2,474
)


(1,237
)Net loss per common share(a)

$
(0.14
)

$
(0.08
)

$
(0.07
)

$
(0.04
)   Fiscal Year Ended July 31, 2007Q1


Q2


Q3


Q4(In thousands)Revenue

$
28,540


$
30,197


$
32,748


$
34,697Gross profit


9,297



9,651



10,834



11,204Net loss


(2,643
)


(3,816
)


(2,359
)


(17,092
)Net loss per common share(a)

$
(0.09
)

$
(0.13
)

$
(0.08
)

$
(0.53
)     (a)
    
    Net loss per common share, which we compute independently for
    each quarter, is based on the weighted average number of shares
    outstanding during the quarter. Therefore, the aggregate
    per-share amount for the quarters may not equal the amount
    calculated for the full year.b)
    
    The results of operations for the fiscal years ended
    July 31, 2009 and 2008, have been adjusted to include the
    reclassification of AJE operations back to continuing
    operations. Revenue related to AJE for the fiscal years ending
    July 31, 2009 and 2008, were $1,532 and $313, respectively. F-38




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM     Form 10-K. Form 10-K.
      F-39




---



##### Table of Contents



NAVISITE,
    INC.
  VALUATION
    AND QUALIFYING ACCOUNTS
  Years Ended July 31, 2009, 2008 and 2007Balance at


Additions





Deductions


Balance atBeginning of


Charged to





from


End ofYear


Expense


Other


Reserve


Year(In thousands)Year ended July 31, 2007:Allowance for doubtful accounts

$
1,944


$
36


$



$
(1,199
)

$
781Year ended July 31, 2008:Allowance for doubtful accounts

$
781


$
581


$



$
(465
)

$
897Year ended July 31, 2009:Allowance for doubtful accounts

$
897


$
1,908


$



$
(985
)

$
1,820  F-40